Sizzle/Fizzle

Sizzle/Fizzle: Barnes & Noble Founder Eyes Buyback, Job Growth Hits High

Barnes & Noble To Serve Beer, Wine, Food

It seems that Barnes & Noble as the world has known for the last four decades may be readying to sign off. The firm announced Wednesday of this week (October 3) that it will be naming a special committee tasked with reviewing bids for the long-struggling bookstore chain. Barnes & Noble officially reported it has received “expressions of interest” from “multiple parties.”

Among those parties is Barnes & Noble Chairman Leonard Riggio — who first founded the firm in 1965. Riggio currently owns 19 percent of Barnes & Noble’s stock, but has “committed to support and vote his shares in favor of any transaction recommended by the special committee” according to a statement from the retailer.

The move comes as the bookseller has found itself in a mostly losing struggle against Amazon for the last decade or so, despite a series of additions to its traditional lineup. The Nook eReader was released to compete with the Kindle, but never quite caught on with consumers. The firm has also suffered from a rotating cast at the head of the company, having run through four CEOs in six years. The firm’s most recent CEO, Demos Parneros, was let go this summer over sexual harassment allegations.

Meanwhile, its results by the numbers have continuously declined. In the fiscal first quarter that ended July 28, Barnes & Noble reported a  6.9 percent percent drop in revenue, with same-store sales showing a 6.1 percent decrease year-on-year. And those declines are part of a grimly consistent pattern: Barnes & Noble’s in-store sales have dropped for 20 out of the last 23 quarters.

Amazon’s share price has dropped 18 percent since January, and it persists in struggling to connect with consumers despite largely positive overall retail sales trends throughout most of 2018. In fact, Barnes & Noble’s single best day on the stock market in 2018 was the 30 percent increase it saw when it announced that the firm was quite possibly going up on the block for sale.

So why the fizzle marker? Particularly since it seems the firm’s founder is waiting in the wings to buy back Barnes & Noble.

And, in fairness, we might well be ruling Barnes & Noble as the greatest turnaround sizzle of all time — if the firm is bought out and emerges resurgent with 6 percent sale growth, instead of 6 percent declines.

But of course Barnes & Noble has to find a buyer, and that may end up being easier said than done in the current market. Barnes & Noble is a brand that has taken on Amazon directly for a long time — and is far worse for the wear. The firm’s market cap is a little under $400 million, so it would not be an overly expensive buy relative to its name recognition and scale, but with the persistent problems it has had attracting consumers, saying it would be a retail fixer-upper for a buy is a bit of an understatement.

In fact, for some market watchers, Amazon itself has become the favored dark horse buyer for the long-suffering book brand — on the argument that if anyone can run Barnes & Noble better than Barnes & Noble can, it’s Amazon. Moreover, watchers note, given the $20 billion in cash Amazon currently has on hand, the buy would be relatively cheap for the company, and would allow it to remove its last major competitor in the bookselling market.

For most, however, Executive Chairman Leonard Riggio looks like the mostly likely candidate for the job of Barnes & Noble buyer — but it is worth noting that Riggio has previously tried and failed to buy back the firm he founded. The rumors swirled, but he eventually walked away from the deal. In 2012 John Malone’s Liberty Media sought to buy control of the company, but came away with only 16 percent. It later sold off its position.

For the time being it remains to be seen just how many offers Barnes & Noble has, or how good or credible those offers are. If Riggio isn’t the buyer — and assuming Amazon doesn’t come out of the woodwork — it is hard to know what other firm would want Barnes & Noble, given its difficult recent history. Nordstrom, a retailer that has had some struggles not not anywhere near the level of Barnes & Noble’s was ultimately unable to find a buyer it could come to terms with during its search in 2017. Physical retail looks like a risky playing field these days, and investors are wary of what’s next for the space.

Barnes & Noble could still bounce back, and a new owner or new leadership could be the reset the firm has been searching for. But B&N has been searching for almost a decade now, and not quite finding anything solid to stand on. And even for a player nearly five decades old, time is not infinite. And when the best news your investors have gotten all year is that someone may soon be buying them out of the investment? Well, that’s pretty fizzley news, no matter how one slices it.

In other Sizzle/Fizzle news…

Sizzle

SMB lending: Turns out that there’s been some undercounting going on when it comes to business lending. The FDIC has determined that the volume of lending to SMBs has been understated significantly, to the tune of double-digit percentages. As many as half of loans above a $1 million benchmark are going to businesses that are typically defined as smaller ones.

Toys R Us: Could be coming back from the dead as lenders look to reorg and keep license agreements. Might the iconic brand be coming back to claim the whims of kids — and parental dollars — for generations to come?

Job growth: Hits highest level in seven months in September — even despite hurricane impact. It may be as good as it gets, but 230,000 jobs brings us to a roughly 200,000 monthly pace — and eyeing unemployment levels not seen since after World War II.

Fizzle

Tesco Bank: Fined more than 16 million pounds after cyber attack in 2016 — and findings from the Financial Conduct Authority that it did not protect its customers from risk. Regulators found “deficiencies” in debit cards and financial crime controls.

U.K. IPOs: IPOs may fizzle as Brexit has impact — dampening investor enthusiasm — because no one likes uncertainty. Aston Martin became the latest stock to take a dip, down mid-single-digit percentages below its offering price.

Stitch Fix has no easy fix: Customer reports active client counts that miss Wall Street estimates, and shows flat trajectory. Growth is, of course, important to the top line, which also missed estimates. But amid that fizzle the company is trying for some spark, having announced, for example, that it is expanding into the U.K., betting that the personalized shopping experience can gain traction internationally.

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