Barnes and Noble 2011 Annual Report Download - page 14

The following table sets forth, for the periods indicated, the percentage relationship that certain items bear to total sales of
the Company:
13 weeks ended
Fiscal Year Fiscal 2011 Fiscal 2010 May 2, 2009 May 3, 2008 Fiscal 2008
Sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales and occupancy 74.4 71.1 70.0 69.9 69.1
Gross margin 25.6 28.9 30.0 30.1 30.9
Selling and administrative expenses 23.3 24.0 25.9 26.3 24.4
Depreciation and amortization 3.3 3.6 4.2 3.6 3.4
Pre-opening expenses 0.0 0.1 0.2 0.4 0.2
Operating margin (loss) (0.9) 1.3 (0.3) (0.2) 2.8
Interest income, net and amortization of
deferred fi nancing fees 0.8 0.5 — — —
Earnings (loss) from continuing operations
before taxes (1.8) 0.8 (0.3) (0.1) 2.8
Income taxes (0.7) 0.1 (0.1) — 1.1
Earnings (loss) from continuing operations
(net of income tax) (1.1)% 0.6% (0.2)% —% 1.7%
BUSINESS OVERVIEW
The Company’s fi nancial performance has been adversely
impacted in recent years by a number of factors, including
the economic downturn, increased competition and the
expanding digital market.
The Company’s core business is the operation of B&N
Retail and B&N College stores, from which it derives the
majority of its sales and net income. B&N Retail compa-
rable store sales have declined in recent years due to lower
consumer traffi c as a result of the factors noted above.
Even as the economy improves, the Company expects these
trends to continue as consumer spending patterns shift
toward internet retailers and digital content. The Company
faces increasing competition from the expanding market
for electronic books, or “eBooks”, eBook readers and digital
distribution of content. In addition, one of B&N Retail’s
largest competitors in the sale of physical books, Borders
Group, Inc. fi led Chapter 11 bankruptcy and closed approx-
imately 25% of their stores. The fourth quarter comparable
store sales were temporarily negatively impacted by the
liquidation. As those stores have closed, the Company is
realizing incremental sales in those markets. With the
uncertainty of the remaining stores being closed or sold,
the Company remains optimistic that this will present
opportunities for B&N Retail over the long term.
Despite these challenges, the Company believes it has
attractive opportunities for future development.
The Company has leveraged its unique assets, iconic
brands and reach to become a leader in the distribution of
digital content. In 2009, the Company entered the eBook
market with its acquisition of Fictionwise, a leader in the
eBook marketplace, and the popularity of its eBook site
continues to grow. Since then, the Company launched its
NOOK™ brand of eReading products, which provide a fun,
easy-to-use and immersive digital reading experience.
With NOOK™, customers gain access to the Company’s
expansive NOOK Bookstore™ of more than two million
digital titles, and the ability to enjoy content access to
a wide array of popular devices. The Company’s eBook
market share has grown to over 25%.
In October 2010, Barnes & Noble introduced NOOK
Color™, the fi rst full-color touch Reader’s Tablet,
complementing its NOOK 1st Edition™ and NOOK Wi-Fi
1st Edition™ devices, which off er a paper-like read-
ing experience with a color touch screen for navigation.
Most recently, the Company has introduced The All-New
NOOK™, The Simple Touch Reader™, the easiest-to-
use, most intuitive eReader available that is ultra light,
features best-in-class battery performance, a 6-inch full
touchscreen and the most advanced E Ink Pearl display
at a desirable market price point. In addition to NOOK™
devices, the Company makes it easy for customers to enjoy
any book, anytime, anywhere with its free line of NOOK™
software specifi c application, which has won the Webby
People’s Voice Award. Customers can use Barnes & Noble’s
free eReading software to access and read books from
12 Barnes & Noble, Inc. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued