Barnes & Noble Reports Preliminary 2006 Results: Issues First Quarter 2007 Guidance

Barnes & Noble, Inc. (NYSE: BKS), the world’s largest bookseller, today reported sales and preliminary financial results for the fourth quarter and the full year ended February 3, 2007, which consisted of fourteen weeks and fifty-three weeks, respectively. 2006 RESULTS As previously reported, Barnes & Noble store sales were $1,549 million for the quarter and $4,534 million for the full year. Excluding the impact of the extra week in this year’s fiscal calendar, Barnes & Noble store sales increased 2% for the quarter and the full year as compared to the same periods in fiscal 2005. Comparable store sales decreased 0.1% for the quarter and 0.3% for the year. B. Dalton store sales were $36 million for the quarter and $102 million for the full year. Excluding the impact of the extra week in this year’s fiscal calendar, B. Dalton store sales decreased 30% for the quarter and 29% for the full year as compared to the same periods in fiscal 2005, primarily due to the closing of 20 stores since the fourth quarter of 2005. Comparable store sales decreased 7.5% for the quarter and 6.1% for the year. Barnes & Noble.com sales were $164 million for the quarter and $433 million for the full year. Excluding the impact of the extra week in this year’s fiscal calendar, Barnes & Noble.com comparable sales increased 5.1% for the quarter and decreased 1.1% for the full year as compared to the same periods in fiscal 2005. Consolidated sales were $1,878 million for the quarter and $5,261 million for the full year. As previously announced, the company will close its Memphis, Tennessee, Internet distribution center in 2007, and as a result, the company incurred charges, net of tax benefits, of $2.2 million in 2006, or $0.03 per share, related to accelerated depreciation and severance associated with the close-down of the Memphis facility. Preliminary net earnings increased 3% to $127.0 million, or $1.84 per share for the fourth quarter, and increased 3% to $150.8 million, or $2.18 per share, for the full year, in line with guidance updated on March 5, 2007. The company has adopted Statement of Financial Accounting Standards No. 123(R) (As Amended), "Share-Based Payment” (SFAS 123(R)), and began expensing stock options at the beginning of fiscal year 2006. Fourth quarter and full-year results include stock compensation expenses of $0.03 per share and $0.14 per share, respectively. 2007 GUIDANCE The company expects first quarter comparable store sales at Barnes & Noble stores to be flat to slightly positive, and as previously announced, full-year comparable store sales are also expected to be flat to slightly positive. Barnes & Noble, Inc.’s first quarter loss is expected to be in a range of $(0.08) to $(0.12) per share. The first quarter loss will include charges, net of tax benefits, of $3.7 million, or $0.06 per share, related to the previously mentioned closing of its Internet distribution center. The first quarter loss will also include charges related to legal expenses in the company’s review of its stock option practices, net of tax benefits, of between $3.0 million and $4.5 million, or $0.05 to $0.07 per share. Excluding these charges, first quarter earnings (loss) per share are expected to be in a range of $(0.01) to $0.05 per share. As previously announced, Barnes & Noble, Inc.’s full-year earnings are expected to be in a range of $1.49 to $1.67 per share. The full-year earnings include expected charges, net of tax benefits, of $4.9 million, or $0.07 per share, related to the closing of its Internet distribution center. The full-year earnings also include expected charges related to legal expenses in the company’s review of its stock option practices, net of tax benefits, of between $4 million and $6 million, or $0.06 to $0.09 per share. Excluding these charges, full-year earnings per share are expected to be in a range of $1.65 to $1.80 per share. The share count used in the computation of earnings per share is based on a basic weighted average share count of 65.1 million shares for the first quarter, and a fully diluted weighted average share count of 70.0 million shares for the full year. As of February 3, 2007, the company operated 695 Barnes & Noble stores and 98 B. Dalton stores. During the fourth quarter, nine Barnes & Noble stores were opened and six were closed. Eleven B. Dalton stores were closed during the quarter. REVIEW OF STOCK OPTION PRACTICES The special committee of Barnes & Noble’s Board of Directors and its independent legal counsel have not yet finished their review of the company’s stock option practices. Accordingly, the company has not yet determined the amount of any additional non-cash stock-based compensation expense related to stock option grants that may be recorded, and the preliminary results and guidance set forth herein do not include any such additional charges and are subject to adjustment based on the results of the internal review. A conference call with Barnes & Noble, Inc.’s senior management will be webcast beginning at 10:00 A.M. ET on Thursday, March 22, 2007, and is accessible at www.barnesandnobleinc.com/webcasts. The call will also be archived at www.earnings.com for one year. Barnes & Noble, Inc. will report first quarter earnings on or about May 24, 2007. ABOUT BARNES & NOBLE, INC. Barnes & Noble, Inc. (NYSE: BKS), the world’s largest bookseller and a Fortune 500 company, operates 793 bookstores in 50 states. For the fifth year in a row, the company is the nation’s top retail brand for quality, according to the EquiTrend® Brand Study by Harris Interactive®. Barnes & Noble conducts its online business through Barnes & Noble.com (www.bn.com), one of the Web’s largest e-commerce sites and the number one online bookseller for quality among e-commerce companies, according to the latest EquiTrend survey. General information on Barnes & Noble, Inc. can be obtained via the Internet by visiting the company’s corporate Web site: http://www.barnesandnobleinc.com. SAFE HARBOR This press release contains "forward-looking statements.” Barnes & Noble is including this statement for the express purpose of availing itself of the protections of the safe harbor provided by the Private Securities Litigation Reform Act of 1995 with respect to all such forward-looking statements. These forward-looking statements are based on currently available information and represent the beliefs of the management of the company. These statements are subject to risks and uncertainties that could cause actual results to differ materially. These risks include, but are not limited to, the results of the internal review of the company’s stock option practices and the related inquiries by the Securities and Exchange Commission and the U.S. Department of Justice and related stockholder derivative lawsuits, general economic and market conditions, decreased consumer demand for the company’s products, possible disruptions in the company’s computer or telephone systems, possible work stoppages or increases in labor costs, possible increases in shipping rates or interruptions in shipping service, effects of competition, possible disruptions or delays in the opening of new stores or the inability to obtain suitable sites for new stores, higher than anticipated store closing or relocation costs, higher interest rates, the performance of the company’s online and other initiatives, the successful integration of acquired businesses, the successful integration of the company’s new New Jersey distribution center, unanticipated increases in merchandise or occupancy costs, unanticipated adverse litigation results or effects, product shortages, and other factors which may be outside of the company’s control. Please refer to the company’s annual, quarterly and periodic reports on file with the SEC for a more detailed discussion of these and other risks that could cause results to differ materially. BARNES & NOBLE, INC. AND SUBSIDIARIES Consolidated Statements of Operations (In thousands, except per share data)                       14 weeks ended   13 weeks ended   53 weeks ended 52 weeks ended February 3, 2007   January 28, 2006   February 3, 2007   January 28, 2006   Sales $ 1,878,402  1,753,249  5,261,254  5,103,004  Cost of sales and occupancy   1,259,407  1,176,720  3,622,962  3,535,837  Gross profit   618,995  576,529  1,638,292  1,567,167  Selling and administrative expenses 351,049  317,727  1,201,261  1,131,448  Depreciation and amortization 46,872  42,556  170,338  172,957  Pre-opening expenses   2,411  1,668  12,897  10,938  Operating profit 218,663  214,578  253,796  251,824  Interest (income) expense, net   1,645  496  1,537  (1,415) Income before taxes and minority interest 220,308  215,074  255,333  250,409  Income taxes   88,499  87,643  102,772  102,042  Income before minority interest 131,809  127,431  152,561  148,367  Minority interest   (4,831) (4,450) (1,788) (1,686) Net income $ 126,978  122,981  150,773  146,681    Income per common share: Basic $ 1.95  1.88  2.31  2.17  Diluted $ 1.84  1.76  2.18  2.03      Weighted average common shares outstanding Basic 65,095  65,374  65,212  67,560  Diluted 69,131  69,855  69,226  72,150      Percentage of sales: Sales 100.0% 100.0% 100.0% 100.0% Cost of sales and occupancy   67.0% 67.1% 68.9% 69.3% Gross profit   33.0% 32.9% 31.1% 30.7% Selling and administrative expenses 18.7% 18.1% 22.8% 22.2% Depreciation and amortization 2.5% 2.4% 3.2% 3.4% Pre-opening expenses   0.1% 0.1% 0.2% 0.2% Operating profit 11.6% 12.2% 4.8% 4.9% Interest (income) expense, net   0.1% 0.0% 0.0% 0.0% Income before taxes and minority interest 11.7% 12.3% 4.9% 4.9% Income taxes   4.7% 5.0% 2.0% 2.0% Income before minority interest 7.0% 7.3% 2.9% 2.9% Minority interest   -0.3% -0.3% 0.0% 0.0% Net income   6.8% 7.0% 2.9% 2.9% BARNES & NOBLE, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except per share data)           February 3, 2007 January 28, 2006     ASSETS Current assets: Cash and cash equivalents $ 348,767  372,586  Receivables, net 100,467  99,117  Merchandise inventories 1,354,580  1,313,997  Prepaid expenses and other current assets   132,781  74,476  Total current assets   1,936,595  1,860,176    Property and equipment: Land and land improvements 3,247  3,247  Buildings and leasehold improvements 990,058  984,535  Fixtures and equipment   1,310,026  1,174,973  2,303,331  2,162,755  Less accumulated depreciation and amortization   1,497,275  1,356,379  Net property and equipment   806,056  806,376    Goodwill 259,683  263,731  Intangible assets, net 91,176  93,834  Deferred taxes 140,318  114,046  Other noncurrent assets   13,342  25,969  Total assets $ 3,247,170  3,164,132    LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 792,977  828,852  Accrued liabilities   728,393  683,816  Total current liabilities   1,521,370  1,512,668    Long-term debt -  -  Deferred taxes 192,050  158,035  Other long-term liabilities 364,002  367,531    Minority interest 10,660  10,057    Shareholders' equity: Common stock; $.001 par value; 300,000 shares authorized; 84,608 and 83,370 shares issued, respectively 85  83  Additional paid-in capital 1,140,337  1,091,018  Accumulated other comprehensive loss (7,086) (9,085) Retained earnings 623,457  512,594  Treasury stock, at cost, 19,520 and 16,690 shares, respectively   (597,705) (478,769) Total shareholders' equity   1,159,088  1,115,841  Commitments and contingencies   -  -  Total liabilities and shareholders' equity $ 3,247,170  3,164,132