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BN.com posts wide loss
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July 31, 2000: 7:23 p.m. ET
Online book retailer misses estimates, but sees continued sales growth
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NEW YORK (CNNfn) - Barnesandnoble.com on Monday reported a much wider-than-expected second-quarter net loss, reflecting increased expenses that could cause the company to miss estimates for the year.
For the quarter ended June 30, the New York-based online division of the book giant Barnes and Noble Inc. (BKS: Research, Estimates) posted a pro forma net loss of $39 million, or 27 cents a share, compared with a pro forma net loss of $22 million, or 17 cents a share in the year-ago quarter.
The results excluded stock-based compensation charges and investment losses.
Including charges, the company posted a net loss of 31 cents a share compared with a net loss of 17 cents a share in the year-ago period.
Analysts polled by earnings tracker First Call/Thomson Financial had expected a loss of 18 cents a share for the company, which has been competing with larger rival Amazon.com (AMZN: Research, Estimates) for market share.
Revenue for the quarter increased 77 percent to $67.4 million, from $38.2 million in the year-ago quarter on the strength of more than 700,000 new customers. That brought the total customer count to 5.5 million.
Yet the sales growth was smaller than in the comparable period a year ago.
The company has $356 million cash and marketable securities and no debt, officials said.
Shares of barnesandnoble.com (BNBN: Research, Estimates) closed down 1/8 to 5-1/8 ahead of the announcement Monday.
But just as they had to Amazon, profit-conscious investors punished barnesandnoble.com for the earnings miss, sending its shares down 3/4, or 14.6 percent, to 4-3/8 in after-hours trading. Despite the continued popularity of online book buying, the poor performance of both companies reflects the difficulties of running a profitable e-commerce business.
Marie Toulantis, Barnesandnoble.com's chief financial officer, attributed the poor performance to a general seasonal sales slowdown for all online retailers. Expenses were also higher than anticipated because of several new initiatives. She expects the company to turn a profit within the next 24 months.
 "We are optimistic that sales for the remainder of this year will more than make up for the second-quarter shortfall from the record number of initiatives we rolled out," Toulantis said.
One of those initiatives took place in June, when the company took a 30 percent stake in MightyWords, a unit of Fatbrain.com that offers digital versions of books and texts that can be downloaded to a personal computer.
The company also introduced Barnes & Noble Television, a station broadcast over the Internet, in which users can view programs about featured products and buy them online.
A "publish your book" service also launched in the quarter and expanded its eBook initiative with the launch of the MicrosofPocket PC.
Barnesandnoble.com also entered an agreement with online university notharvard.com and launched a video store.
Despite the loss, Toulantis said the company remains debt-free and she expects gross margins to improve as it increases efficiency at its Memphis, Tenn., distribution center and opens a new distribution center in Reno, Nevada, later this year.
But Dan Ries, an analyst with C.E. Unterberg Towbin, believes the quarterly results reveal deeper trouble for the company that simply an off quarter.
Although Barnesandnoble.com is free of debt and has finished off its infrastructure, Ries said that its growth rates about the same as its much larger rival Amazon. And with enough new distribution space to handle $3 billion in sales compared with the $350 million-to-$400 million in sales the company expects, the new distribution centers could become a liability.
"I think Barnesandnoble's results indicate a problem. It's much smaller (than Amazon) and now they have about the same growth rate," Ries said. "They're never going to catch up if they're not growing at a greater rate."
Ries said he doesn't think the company's new ventures, particularly in music sales, are generating the hoped-for sales.
The company has also been searching for a new chief executive officer since former CEO Jonathan Bulkeley resigned in January to focus on Internet investments. Since then, barnesandnoble.com founder Steve Riggio has taken over as vice chairman and acting CEO.
Riggio told analysts during a conference call Monday that its two major shareholders, parent Barnes & Noble Inc. and German media conglomerate Bertelsmann AG, maintain their commitment to the company.
Riggio also said he does not see Bertelsmann's acquisition earlier this month of online music retailer CDNow.com, as a competitive threat because barnesandnoble.com's own music offerings are unique.
"We believe in the power of specialty retail. Music is important to us. We're very proud of how we treat it," Riggio told analysts. "It's like the retail equivalent of a competitor buying Musicland. We think we've got something very unique on our site." 
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