Barnes and Noble 2005 Annual Report Download - page 4

DEAR SHAREHOLDER:
Barnes & Noble achieved solid results in 2005, despite a lack of blockbuster titles in the adult
hardcover category for the second consecutive year. Strong expense controls and expanding gross
margins drove record earnings. Tight management of inventories helped produce record operating
cash flows. Store sales increased 6.0% from the prior year and comparable-store sales grew 2.9% for
the year, without any advertising expenditures or additional coupon promotions. Earnings per share
from continuing operations increased 21% year-over-year.
Our ability to deliver significant value to our shareholders and grow our business in the challenging
environment for new book content underscores the stability and resilience of our industry and the
soundness of our strategy, which emphasizes a vast selection of titles. It also reflects the power of the
Barnes & Noble brand, which continues to be the benchmark for excellence, not only in bookselling,
but for retailing overall. In 2005, Barnes & Noble was ranked the No. 1 retail brand for quality for
the fourth consecutive year by Harris Interactive™.
2005 was also the first full year that we operated as a simpler company, following the spin-off
of GameStop and the merger with Barnes & Noble.com in 2004. This simplicity enabled our
organization to be more focused on our core book business and provided greater clarity in our
financial statements for our investors.
Sales growth of children’s books was strong throughout the year. This segment of our business is
growing across the board, and for the first time we have listed our children’s bestsellers as a separate
category in “Barnes & Noble’s 2005 Bestsellers” at the end of this report. J.K. Rowling’s Harry
Potter and the Half-Blood Prince, was the runaway blockbuster of the year. First-day sales at
Barnes & Noble increased 40% over first-day sales of the author’s previous book, Harry Potter and
the Order of the Phoenix. We sold 1.3 million copies of the new book in the first 48 hours of its
release. Other popular children’s authors include Christopher Paolini, Ann Brashares, and Lemony
Snicket. For example, we sold almost 655,000 copies of Paolini’s Eldest and Eragon in 2005 and
almost one million copies of three books by Brashares (The Sisterhood of the Traveling Pants, The
Second Summer of the Sisterhood, and Girls in Pants).
In the adult category, popular writers such as James Patterson, Anne Rice, David Baldacci, and
Nicholas Sparks performed well. During the holiday season, top non-fiction titles included Doris
Kearns Goodwin’s Team of Rivals, Jimmy Carter’s Our Endangered Values, John Grogan’s
Marley &Me and Thomas Friedman’s The World is Flat. The bestselling gift book was Silver Spoon,
the bible of Italian cooking.
We continue to enhance our customers’ experience through innovation. For example, in 2005, we
launched the latest generation of our BookMaster system, an easy-to-use technology that enables
more efficient training of our booksellers and more precise information on the availability of titles
for our customers.
[LETTER TO OUR SHAREHOLDERS ]
3 2005 Annual Report Barnes & Noble, Inc.