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Barnes & Noble, Inc. (BKS) Is Not Doomed

2. Barnes & Noble can close all of its un-profitable stores in order to generate profitability. You will often find that stores in certain locations will be able to generate profits while others won’t. Economics often refers to this phenomenon as locational monopoly. But, don’t look too deep into the terminology. The thesis is a lot simpler, the fact is Barnes & Noble can cut out all of its under-performing book stores in order to generate a profit from its low-growth book store concept.

Source: Barnes and Noble

Barnes & Noble generated substantial growth in its Nook division. In fact, both Barnes & Noble College and Nook are generating substantial sales growth. The Barnes & Noble College division has been able to generate reasonable revenue growth due to book sales on college campuses. University campuses aren’t going out of business any time soon, and it is likely that a certain population of college students will continue to buy books from the campus book store regardless of how much more expensive it is to buy books on campus. According to Sallie Mae, enrollment is projected to increase by a total of 11% between 2011 and 2020. This increase in enrollment is a positive factor that should add to Barnes and Noble’s book sales through its College campus division. Sallie Mae is a major student loan provider, and its analysis on future student enrollment is likely to be highly accurate. After all, who would know better than the biggest student loan bank?

Barnes & Noble’s business portfolio will become even more impressive due to its advances into the self-publishing space. While extremely similar to Amazon’s self-publishing platform, Barnes & Noble will give authors book space on its virtual platform for the Nook. According to Investor’s Business Daily:

Nook Media on Tuesday launched Nook Press, a self-publishing platform that gives authors a free way to write, edit, collaborate and publish e-books and directly distribute them to readers through the new Nook service.

Nook Press will generate additional revenue to Barnes & Noble and could contribute significantly to future growth, especially during a period when Barnes & Noble is cutting costs aggressively in order to generate profits for shareholders. The company will eventually carve a niche where it can generate substantial profits without sacrificing revenue.

I anticipate the company to report an EPS figure that will beat analyst expectation by 37%. Analysts on a consensus basis have quarter one earnings estimates at -.94 per share, I estimate earnings at -.62 per share. The stock could justify a higher valuation in future years due to cost-cutting in its retail business unit along with earnings growth in its Nook business unit.

The article Barnes & Noble Is Not Doomed originally appeared on and is written by Alexander Cho.

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