Barnes and Noble 2006 Annual Report Download - page 4

BARNES & NOBLE 2006 LETTER TO SHAREHOLDERS
Dear Shareholder:
 was a challenging year for Barnes & Noble, as a lack of high-profi le titles contributed to softness across the bookselling
industry, while increased competition put signifi cant pressure on pricing. The diffi cult environment dampened Barnes
& Noble’s comparable-store sales, and hampered our ability to further improve our gross margins and bottom-line
growth. Nevertheless, our ongoing commitment to tighten fi scal controls at every level of the organization, including
expense and inventory management, enabled us to post a seven percent increase in earnings per share, which was
in-line with our guidance to investors.
Owing to the “fl atness” of the industry overall, and to our strong cash fl ow and solid balance sheet, we decided to
lever our position by off ering our best customers lower prices on bestsellers and adult hardcovers, increasing Member
Discounts to  percent and  percent, respectively. While sales in these categories increased and membership
enrollments grew, as expected, the increase in sales did not compensate for the loss in margin. We remain confi dent,
however, that short-term eff ects notwithstanding, the long-range benefi ts to Barnes & Noble will be positive.
The Barnes & Noble brand continues to be viewed positively by retail and online customers. In , Barnes & Noble
was ranked the number-one retail brand for quality for the fi fth consecutive year according to the EquiTrend® Brand
Study by Harris Interactive®
. Additionally, Barnes & Noble.com achieved the number-one ranking for quality in the
same study conducted by Harris, and ranked number-one in customer satisfaction for the third year in a row, according
to the University of Michigan’s Customer Satisfaction Index. We thank our more than , booksellers in the fi eld
and in our home offi ce for setting the standards for retailing as well as bookselling.
Another highlight to the year was the addition of the Barnes & Noble Recommends program, which augments our success
with Discover Great New Writers. In this new program, we feature major displays and promotions of a single title at a time,
each selected by our booksellers. One selection, Chris Bohjalian’s The Double Bind, was an instant bestseller the day it
went on sale and remains on our bestseller list. Another positive infl uence was Oprah Winfrey’s Book Club selections.
Among the success stories were You: On A Diet by Michael Roizen and Mehmet Oz, Best Life Diet by Bob Greene, The Measure
of a Man by Sidney Poitier, and The Secret by Rhonda Byrne, which has become one of the fastest-selling nonfi ction titles
in recent memory.
During the year, we also took measures to enhance our already excellent supply-chain-management capabilities by
combining fi ve smaller warehouses into one major distribution facility. When the new center is fully operational later
this year, and our Memphis center closed, we expect distribution costs to decline, and our operating effi ciency to increase.
As with all retailers, real estate remains a primary focus. Over the past decade, while closing under-performing stores
and closing many of our mall stores, we have opened many high-performing new stores in all  states. Excellent
management of our real estate portfolio has enabled us to show steady performance over the years, allowing us to avoid
major upheavals and write-off s, and capitalize on opportunities judiciously.
2 Barnes & Noble, Inc.