By Chelsey Dulaney
Barnes & Noble Inc. has terminated its commercial agreement
for its Nook e-reader with Microsoft Corp., a move it said provides
a clearer path toward the impending split of its business.
The bookstore retailer bought out Microsoft's preferred interest
in Nook for about $120 million in cash and stock, freeing the
software giant from further investments in the business.
Barnes & Noble added 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 separation by March.
Ending the partnership would also make it easier for Barnes &
Noble to sell the division if it chooses to explore that
option.
The disclosure came as Barnes & Noble reported a much
weaker-than-expected profit for its November quarter, helping push
its shares down more than 13% in early trading.
Microsoft invested in Nook in 2012, pledging more than $600
million to help prop up Barnes & Noble's digital-reading
business, though part of that investment was to be paid out over
five years. 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.
In June, it signed deal to sell color tablets made by Samsung
Electronics Co. co-branded with the book chain's Nook label. The
deal was seen fulfilling Barnes & Noble's previously stated
plan to reduce its heavy investment in the Nook, allowing the
retailer to focus more on its stores and college business.
Meanwhile, Microsoft, which has its own Windows tablets and
smartphones, shifted its consumer-device strategy following sales
hiccups.
The companies 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, had driven the retailer's
shares up 49% this year through Wednesday's close.
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. Device sales fell 64%, though cost-cutting helped
stem the division's loss in the quarter.
Sales at the company's retail unit, meanwhile, fell 3.6% due
partly to store closures.
Barnes & Noble has 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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