Barnes & Noble announced Wednesday that its board has approved the move to separate the company’s Nook and retail units into two public companies. Nook’s spinoff will be finalized by the end of the first quarter of next year, the company said.
"We have determined that these businesses will have the best chance of optimizing shareholder value if they are capitalized and operated separately," Barnes & Noble’s chief executive Michael P. Huseby said in a statement. "We fully expect that our Retail and Nook Media businesses will continue to have long-term, successful business relationships with each other after separation."
This isn’t so much a plot twist as an expected development -- the New York City-based company has been mulling over the plan for over two years. That said, in those two years much has changed.
Back in 2012, when Barnes & Noble first announced plans to spin off the Nook, its future still looked bright. Despite being unprofitable, “We see substantial value in what we’ve built with our Nook business in only two years, and we believe it’s the right time to investigate our options to unlock that value,” William J. Lynch Jr., Barnes & Noble’s than chief executive, said at the time.
But Nook failed to live up to Lynch’s great expectations, falling behind tablet competitors like Apple and Amazon. To try to revive the Nook unit, Barnes & Noble recently reduced its expense structure, focusing instead on media sales and forming partnerships with manufacturers including Samsung. Instead of maturing into a formidable weapon, the Nook division is currently dragging down Barnes & Noble's bottom line.
On Wednesday, the company posted its fourth quarter earnings. While Nook revenues slid to $87 million, down 22 percent from same time last year, the retail segment reported revenues of $955.6 million, up by 0.8 percent from the fourth quarter of last year. (Same store sales, excluding Nook items, were down by 1.9 percent.)
So why split now?
“We expect recent moves to reduce the Nook expenses structure (Samsung partnership and elimination of tablet R&D), has put Nook on the path to profitability,” an analyst at financial –service company Stifel said in a note. “The decision to spin off Nook suggests confidence in the sustainability of the standalone Nook business.”
Other analysts aren't as optimistic.
"Many investors on Wall Street have been pushing for a breakup for some time due to Nook’s performance," says Will McKitterick, an analyst with IBIS World in New York. While the company has already taken pains to draw a distinction between the two divisions in the eyes' of investors -- posting Nook's revenue as separate from its retail division's revenue -- the clean break helps further reduce the perception that the rest of Barnes & Noble is failing, he says.
While McKitterick did note that he believes the division gives Nook more "flexibility" to forge partnerships and develop new approaches to the market, "the move is not without its risks," he says. "Growing the brand will take time which may be too much to ask for from some investors. Nevertheless, the stock market has reacted favorably so far to the news, which is a good sign." (Barnes & Noble’s stock was up around 5 percent to $21.58 around 4pm eastern time on the day the news was announced.)
If Nook is unable to generate a turnaround, McKitterick added that the split makes it easier for Barnes & Noble to try and sell off the business.
Only time will tell what this next chapter brings for the company, but we'll be reading on.