Barnes and Noble 2000 Annual Report Download - page 36

53 WEEKS ENDED FEBRUARY 3, 2001 COMPARED
WITH 52 WEEKS ENDED JANUARY 29, 2000
Sales
The Company’s sales increased $889.8 million or 25.5%
during fiscal 2000 to $4.376 billion from $3.486 billion
during fiscal 1999. Contributing to this improvement
was an increase of $533.8 million attributable to the
inclusion of sales from Babbage’s Etc. and Funco
(Video Game & Entertainment Software). Through its
acquisitions of Babbage’s Etc. in October 1999 and
Funco in June 2000 (the Acquisitions), the Company has
become the nation’s largest video game and PC
entertainment software specialty retailer. Fiscal 2000 sales
from Barnes & Noble “super” stores, which contributed
72.4% of total sales or 87.6% of total bookstore sales,
increased 12.3% to $3.170 billion from $2.822 billion
in fiscal 1999.
The increase in bookstore sales was primarily
attributable to the 4.9% growth in Barnes & Noble
comparable store sales, full year sales from the 38 new
stores opened during fiscal 1999 and the opening of an
additional 32 Barnes & Noble stores during fiscal 2000.
This increase was partially offset by declining sales of B.
Dalton, due to 61 store closings and a comparable store
sales decline of (1.7%) in fiscal 2000.
Video Game & Entertainment Software sales during
fiscal 2000 increased to $757.6 million from $223.7
million during fiscal 1999. This increase in sales was
attributable to the inclusion of a full year of Babbage’s
Etc.’s sales in fiscal 2000 compared with sales for the
fourth quarter only in fiscal 1999, as well as the inclusion
of Funco sales for approximately one-half of fiscal 2000.
Comparable store sales as if Babbage’s Etc. and Funco
had been included for the entire 52-week period
decreased 6.7%.
Cost of Sales and Occupancy
The Company’s cost of sales and occupancy includes
costs such as rental expense, common area maintenance,
merchant association dues and lease-required advertising.
Cost of sales and occupancy increased to $3.170 billion in
fiscal 2000 from $2.484 billion in fiscal 1999 primarily
due to the increase in Video Game & Entertainment
Software’s cost of sales and occupancy as a result of
the Acquisitions. The Company’s gross margin rate
decreased to 27.6% in fiscal 2000 from 28.8% in fiscal
1999. This decrease was primarily attributable to lower
gross margins in the video game and entertainment
software stores, partially offset by improved leverage on
occupancy costs as well as a favorable product mix
in the bookstores.
Selling and Administrative Expenses
Selling and administrative expenses increased $161.9
million, or 24.9% to $813.0 million in fiscal 2000 from
$651.1 million in fiscal 1999 primarily due to the increase
in Video Game & Entertainment Software’s selling and
administrative expenses as a result of the Acquisitions.
Selling and administrative expenses decreased slightly to
18.6% of sales during fiscal 2000 from 18.7% during
fiscal 1999.
Depreciation and Amortization
Depreciation and amortization increased $32.5 million,
or 28.9%, to $144.8 million in fiscal 2000 from $112.3
million in fiscal 1999. The increase was primarily the
result of the increase in Video Game & Entertainment
Software’s depreciation and amortization as a result of
the Acquisitions, as well as depreciation related to the
Barnes & Noble stores opened during fiscal 2000 and
fiscal 1999.
Pre-Opening Expenses
Pre-opening expenses increased in fiscal 2000 to $7.7
million from $6.8 million in fiscal 1999. This increase
was the result of additional labor used to facilitate the
rollout of the new Barnes & Noble bookstores as well as
the opening of 65 new video game and entertainment
software stores.
Impairment Charge
During fiscal 2000, the Company recorded a non-cash
charge to operating earnings of $106.8 million ($92.4
million after taxes or $1.44 per share). This charge
included approximately $69.9 million of goodwill and
$32.4 million of property, plant and equipment related
to the book business, primarily goodwill associated
with the purchase of B. Dalton and other mall bookstore
assets. The Company’s mall-based bookstores have
experienced significant declines in sales and profitability
as a result of increased competition from book “super”
stores and Internet book retailers. In fiscal 2000,
B. Dalton comparable store sales declined (1.7%)
compared with an increase in comparable store sales of
0.1% in fiscal 1999. As a result, the anticipated future
cash flows from certain stores were no longer sufficient to
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued