June 22, 2018
Barnes and Noble calls a net loss of $125.5 million part of a “long-term strategic turnaround plan,” which, OK, sure
by Simon Reichley
If you’re a publishing professional you probably logged on to the world wide web at some point yesterday, checked Publishers Weekly, and saw a striking headline: “B&N Posted Loss of $125 Million on 6% Sales Drop in FY ’18.” Your next thought was maybe something like, “I’m not a business genius, but that seems like a fucked-up situation for B&N.”
Most people would be hard-pressed to spin a net loss of 125 million dollars into anything other than “a fucked-up situation.” But, most people are not the CEO of a floundering national book chain. As luck would have it, Barnes and Noble CEO Demos Parneros is, and he doesn’t get paid two million dollars a year to say things like “People, we are in a real fucked-up situation.” He gets paid millions of dollars a year to tell investors that news like this reflects “a long-term strategic turnaround plan, which we continue to execute.” Parneros’s full statement, as reported in Shelf Awareness, reads,
In fiscal 2018 we developed a long-term strategic turnaround plan, which we continue to execute. Our plan, which includes sales improvements and cost reductions, is expected to yield immediate improvement in fiscal 2019, resulting in EBITDA of $175 million to $200 million, and further benefits in the following years. We also strengthened our leadership team in key areas of the business. They will be instrumental in overseeing the turnaround.
Now, you could read this a few ways. You could say, “Wow! This guy is really out to lunch; if I lost $125 million I’d have to flee the country. How do these people get away with it?”
You could also say, “Ah, yes, this makes sense. That loss is largely due to the massive restructuring that the company has undertaken, and includes a number of one-time expenses which should make for a cleaner balance sheet in the 2019 fiscal year. They’re really getting ‘lean and mean’ over at Barnes and Noble. I should buy stocks, with all of my investment money.”
We’re not here to tell you what to think, but while the first take is certainly the most fun, the second is not without merit. As B&N note in their financial disclosure, that net loss of $125 million accounts for about $3.66 billion in revenue, minus costs that include $135 million in “impairment charges” (more on that in a moment), $16.2 million in severance pay (ouch), and $15.3 million in “strategic initiative costs,” which includes the cost of opening new flagship stores, revitalizing the B&N website, etc. Two of those things, at least, are easy enough to understand. While it’s not an obviously smart thing to start firing senior staff as soon as things get tough, it is at least somewhat reasonable to start dramatically cutting long-term costs and to reinvest in facilities and new revenue streams.
That first, and biggest, cost is pretty opaque though. What the fuck is an impairment charge, anyways? Well, according to Rick Wayman at Investopedia, an impairment charge is “a relatively new term used to describe for writing off worthless goodwill,” which, ha ha, what are we talking about here, a bookstore, or about US foreign relations? Woof!
In this context, and again according to Investopedia, a company’s “goodwill” represents “the value of a company’s brand name, solid customer base, good customer relations, good employee relations, and any patents or proprietary technology.” Despite being almost entirely insubstantial, these factors are actually given a monetary value, and are included in a company’s balance sheet. Which is fucking insane, but hey, that’s capitalism baby.
This is really just a fancy way of saying that everyone hates Barnes and Noble, and that consumer and industry confidence in their business have plummeted so far that they’re now writing off assets. Which, corporate spin notwithstanding, could be terrible news for all of us.
Simon Reichley is the Director of Operations and Rights Manager at Melville House.