By Chelsey Dulaney
Barnes & Noble Inc. said it has terminated its commercial
agreement for its Nook e-reader with Microsoft Corp., a move it
said provides a clearer path toward the potential split of its
business.
The bookstore retailer bought out Microsoft's preferred interest
in Nook for about $120 million in cash and stock, freeing Microsoft
from further investments in the business.
Barnes & Noble, struggling to adapt as book buyers migrated
to online retailers like Amazon.com Inc., said Thursday that it
expects the planned split of its Nook Media unit from its retail
stores to occur by the end of August, behind its initial projection
for a March separation.
Microsoft invested in Nook in 2012, pledging more than $600
million to help prop up Barnes & Noble's digital-reading
business. In return, Barnes & Noble committed to creating
e-reading apps for new computers, phone and tablets powered by
Microsoft's Windows software.
But since the deal was struck, circumstances for both companies
have changed. Barnes & Noble slowed work on its e-reading
devices and tablets as its sales slumped and laid off much of the
workforce devoted to its Nook devices. Microsoft, which has its own
Windows tablets and smartphones, shifted its consumer-device
strategy following sales hiccups.
The companies also scaled back their partnership earlier this
year, allowing Barnes & Noble to stop developing the Nook
e-reading app for devices powered by Microsoft software.
The planned split of the retailer, along with sharply narrower
Nook losses and other promising signs, has driven up the retailer's
shares up 49% this year through Wednesday's close. Shares, however,
dropped about 8% premarket.
The company had sought to carve out its own niche in the tablet
and e-reader space, but the device failed to catch on, posting a
series of losses. Barnes & Noble said in September that it was
in discussions with partners in Nook Media, Microsoft and Pearson
PLC, as well as other possible partners about financing for the
unit, which houses both the Nook digital business and the company's
college stores.
For its second quarter ended Nov. 1, the Nook segment's revenue
fell 41% to $63.9 million, while digital content sales fell 21% to
$45.2 million.
Sales at the company's retail unit fell 3.6% in the quarter, due
partly to store closures.
Barnes & Noble has also sought to inject excitement into its
stores to combat the tepid store traffic that has plagued much of
the retail industry. The retailer has gotten more creative with how
it organizes its titles, added new displays and toys, and
introduced big-ticket gifts like a $100 Crosley turntable ahead of
the crucial holiday shopping season.
Revenue from its college unit ticked up 1.9%, buoyed in part by
the back-to-school rush season.
Overall, Barnes & Noble reported a profit of $12.3 million,
or 12 cents a share, down from $13.2 million, or 15 cents a share,
a year ago. Revenue fell 2.7% to $1.69 billion.
Analysts polled by Thomson Reuters had projected per-share
earnings of 31 cents and revenue of $1.69 billion.
Write to Chelsey Dulaney at chelsey.dulaney@wsj.com
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