In another sign of bad news for Barnes & Noble (NYSE:BKS), the largest U.S. bookselling chain said it is restating its financial results for much of the past two years because of "a material error," the Wall Street Journal reported.
The new version of the books shows that the chain actually did better than it previously reported, according to a Securities and Exchange Commission filing dated Monday (July 29). Net losses were slightly smaller, net profits were slightly larger, and the quarter that ended in October 2012 actually flipped from a $575,000 loss to a $501,000 profit.
But the fact that the financial fix-up was necessary is bad news for the chain, which says the accounting confusion was due to "inadequate controls over the accrual reconciliation process at its distribution centers."
That "suggests that Barnes & Noble itself was unable to properly account for the complexities of its business model," said Barclays Capital analyst Rory Freeborn. The chain sells through what are essentially two store chains—its consumer and college divisions—as well as through its e-commerce site and by way of the Nook e-reader.
With the Nook business losing money, Barnes & Noble founder Len Riggio has proposed buying the 700-store retail chain, which is profitable despite competition from Amazon (NASDAQ:AMZN) and mass merchandisers. (The fact that its biggest rival, Borders, went into bankruptcy in 2011 and Barnes & Noble eventually acquired the Borders loyalty-program customers hasn't hurt.)
But whether the retailer can afford to lose its profitable side—even if it's a chain of stores long viewed by many as Amazon-bait—isn't clear. Discovering that the last few years of financial statements got it wrong doesn't make that any clearer.
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