Barnes & Noble considers spin-off of Nook business

Barnes & Noble (s bks) is looking at separating its Nook business in what it calls an attempt to capitalize on the growth of digital content. The company said there’s no time-table for such a move, nor any guarantee it will happen, but the mention of it suggests it’s very possible.
The news comes after a strong holiday season in which the bookseller said sales of digital content during the nine-week holiday season increased 113 percent over the same period last year. Sales of the Nook Simple Touch, Nook Color and Nook Tablet were up 70 percent over the last year, though sales of the Simple Touch were below expectations.
Barnes & Noble now expects fiscal 2012 digital content sales to come in around $450 million with a run rate for digital content sales to hit $700-$750 by the end of fiscal 2012. And the Nook operation is now expected to generate $1.5 billion in sales this fiscal year. Here’s what William Lynch, CEO of Barnes & Noble had to say about the Nook business:

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. In Nook, we’ve established one of the world’s best retail platforms for the sale of digital copyright content. We have a large and growing installed base of millions of satisfied customers buying digital content from us, and we have a Nook business that’s growing rapidly year-over-year and should be approximately $1.5 billion in comparable sales this fiscal year. Between continued projected growth in the U.S., and the opportunity for Nook internationally in the next 12 months, we expect the business to continue to scale rapidly for the foreseeable future.

As Lynch mentioned, Barnes and & Noble is looking to expand internationally and is in talks with different potential partners including publishers, retailers, and technology companies. It’s understandable considering that the digital side of the business is outpacing the company’s traditional business. Barnes & Noble said retail store sales increased by 2.5 percent to $1.2 billion for the holiday season compared to the prior year. Comparable store sales increased by 3.4 percent this holiday season, but that was less than the 9.7 percent increase last year.
Meanwhile, holiday sales were up 43 percent to $327 million compared to the prior year, with comparable sales increasing 52 percent. The company said Nook business drove the increase of online sales and offset declines of physical product sales. Overall, the Nook business, including sales of digital content, device hardware and related accessories, increased 43 percent during the holiday period to $448 million. The company has lowered its full fiscal year 2012 forecast, saying consolidated sales will now be $7.0 billion to $7.2 billion with earnings before interest, taxes, depreciation and amortization to come in at $150 to $180 million because of the performance of the Simple Touch.
The stock is getting hammered prior to the open of the market, perhaps due to concerns that spinning off the Nook business could strip away the growing part of the company. But giving Nook its independence could allow that business to grow faster and make more aggressive moves if it’s not weighed down by the parent company.