Barnes and Noble 2001 Annual Report Download - page 2

L E T T E R T O O U R S H A R E H O L D E R S
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D E AR SHAREHOLDER:
In many respects, fiscal 2001 was the most unique in
the history of Barnes & Noble, as well as the entire
world of retail. Virtually no one came out of the year
with what they planned going in.
N e v e rtheless, in spite of troublesome business conditions,
p a rticularly during the important holiday season, one
fact remained clear: Barnes & Noble continued to lead
the book industry in sales, comparable store incre a s e s ,
operating profit and cash flow. We also continued to
o u t p e rf o r m the specialty retail industry as well.
During the year, 40 new Barnes & Noble stores were
opened, bringing our total to 591 stores. As a result
of our strong new-store perf o rmance, hundreds of
new opportunities for store expansion are now under
consideration. We believe we are only at the midpoint
of our national rollout and expect to remain very active
on this front for many years to come.
While we are growing the number of stores, we are also
growing within the store. New products such as DVDs,
magazine subscriptions and gifts—and especially book-
related children’s products—show more promise and
better results as we roll them out. We also plan to incre a s e ,
commensurate with our growth as a bookseller, our
extensive publishing activities with its higher gro s s
margins and greater consumer acceptance due to the
better values the books re p re s e n t .
Better yet is the growing reality that Barnes & Noble.com
( w w w.bn.com) seems to be creating more retail sales rather
than less. Perhaps, this is because our Web site serves as a
b r oadcast channel for the entire enterprise, attracting tens
of millions of visitors to our offerings each year, building
our brand, and more import a n t l y, our franchise.
And yes, losses at Barnes & Noble.com are beginning to
decline sharply, owing to the rigorous cost-rationalization
programs we have established. Our site is effective and
critically acclaimed. It is gaining market share and making
seamless our connections to our customers, the largest
group of loyal book patrons in the world.
Elsewhere at Barnes & Noble, or should I say, central to
Barnes & Noble’s future plans, has been the remarkable
growth of GameStop, our video-game business. Against
the backdrop of declining retail sales all over America,
this company had comparable sales increases of 32
percent for the year, and total sales nearly doubled. As
a result, in February 2002, we consummated an initial
public offering (IPO) for GameStop and received $250
million in cash, while still retaining approximately
63 percent of the company. This IPO put us in the
position to continue to reap the benefits from this
rapidly growing company in a rapidly expanding
industry while, at the same time, we were able to recoup
more than two-thirds of our initial investment.
Although our year did end with mixed results, our balance
sheet has been strengthened substantially, and cash flows
continue to improve with each passing year. The stage has
been set for much improved expectations for fiscal 2002.
Speaking of which, please permit me to re-introduce our
newly appointed Chief Executive Officer, Steve Riggio,
and Mitchell Klipper, our new Chief Operating Officer.
They are two of the company’s most seasoned and
respected executives, with over 30 years experience
between them. They work well together as a team, and
both are familiar with all phases of our enterprise—
retail bookselling, electronic commerce, finance and
operations. Steve and Mitchell possess the skills, the
experience and the commitment to lead our company
for many years to come.
We could not be more optimistic about the future given
our strong management team, growing business, and
solid balance sheet.
Our financial highlights for fiscal year 2001 follow:
Although we ended fiscal 2000 with a strong increase
in comparable sales of 4.9 percent, the effects of the
slowing economy, and later, the terrorist attacks, clearly
a ffected sales for 2001. We ended the year with a
comparable sales increase of 2.7 perc e n t — g o o d
c o m p a red to most specialty re t a i l e rs —but still about
two percent from our expectations. Clearly, the company
made a case for bookselling being less cyclical than other
retailers; nevertheless, our “boat” remains somewhat
affected by rising and falling tides.
For these reasons, we began an aggressive cost-cutting
campaign (of which this less glossy re p o r t is a component)
in the middle of the first quart e r. This campaign pro d u c e d
about $26 million of a targeted $30 million reduction in
expenses by year-end, with the balance of $4 million ro l l i n g