Now that the 2008 Beijing Olympics are in full swing, JP Morgan reaffirms its belief that the Olympics and many other factors are dooming brick-and-mortar book sellers Barnes & Noble (BKS) and Borders (BGP):
All in, we remain bearish on the book retailers as (1) macro factors pressure traffic with consumers shying away from discretionary purchases, (2) secular issues weigh on profitability, and (3) distracting media events (e.g., Olympics, Presidential election) near. With the next potential positive data point for the industry still five months away (assuming a rebound in trend on an easy compare for the Holiday 2008 selling period), we’re comfortable with our Underweight rating on Barnes & Noble and Neutral on Borders.
Once the games are over, of course, BKS and BGP still have to deal with:
- a lackluster slate of new books (especially compared to a very strong lineup in 2007) coupled with a more pronounced deterioration in CD sales
- continued category encroachment on traffic-driving titles from the discount, mass, and warehouse club channels
- consumer migration toward e-reading (e.g., Kindle)
JP Morgan reiterates UNDERWEIGHT on Barnes & Noble (BKS).
JP Morgan reiterates NEUTRAL on Borders (BGP).
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