Barnes & Noble, Inc. (NYSE:BKS) is well on its way to becoming profitable again, despite all the negative attention associated with Barnes & Noble, Inc. (NYSE:BKS) and the sensationalizing of digital media formatted books along with the cheaper content collection provided through the Amazon.com, Inc. (NASDAQ:AMZN) book store. The fact is that there are people who prefer buying books in a retail store. In fact, I prefer buying books in person. The current short interest as a percentage of the float is 38.15%. If any of you are caught shorting the stock of Barnes & Noble, Inc. (NYSE:BKS), you should be cautious of the potential upside catalysts that could cause the stock to appreciate in a parabolic pattern.
Barnes & Noble, Inc. (NYSE:BKS) book stores (retail) have generated revenue growth of 1.4% in fiscal year 2012, and 0.7% revenue growth in fiscal year 2011. While I am willing to agree that the amount of growth that is presented by the stock is not anything substantial, I would also like to state that the growth is fairly reasonable in light of the fact that investors are short the stock hoping that the company may at one point file for bankruptcy.
Amazon.com, Inc. (NASDAQ:AMZN) was able to grow revenue in its media division (which includes books, music, movies, video games, software, and digital downloads) by 13% year-over-year in 2012. Amazon’s revenue growth is declining in its media division which may imply that Barnes & Noble, Inc. (NYSE:BKS) position as a brick and mortar store isn’t being subdued by its online rival. In fact, it may imply that the market for physical books will remain intact, for quite a while longer. Even if physical books were to become obsolete, the obsolescence will take many more years to fully play out, based on the revenue statistics Amazon.com, Inc. (NASDAQ:AMZN) and Barnes & Noble have been able to present for the most recent fiscal years.
One of the most dangerous things about shorting retail companies, especially diversified retail companies, is the large store foot print. Retail companies can turn a quick profit just by closing stores. Examples of this include Safeway, which was able to close 50 of its unprofitable stores between 2009 to 2011 and was able to generate net income of around $500 million. Barnes & Noble, Inc. (NYSE:BKS) closed over a hundred stores over the past year in order to generate profits. I have observed that time and time again, brand loyalty, and the intangibles add further value to the business than what accountants are willing to acknowledge.
Source: Barnes and Noble
Barnes & Noble stores will most likely generate a profit in the immediate future due to two overriding factors.
1. Barnes & Noble stores are generating revenue growth. This means that consumers are willing to walk into a book store and buy paper copies of a book. This implies that Barnes & Noble is not operating a legacy business model.