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Greenberg: Barnes & Noble Proves Guidance Is a Game

Tuesday, 30 Nov 2010 | 12:51 PM ET

I’ve always thought guidance was somewhat of a game, if not a joke.

Barnes and Nobles
AP
Barnes and Nobles

Now for the evidence, your honor: Barnes & Noble.

In its earnings release this morning, the company said, “The consolidated second quarter net loss was $12.6 million, or $0.22 per share, in line with previously issued guidance of earnings of $0.05 per share to a loss of $0.25 per share.”

Guidance of earning 5 cents to losing 25 cents? You could fly a "wide load" through guidance that wide.

Never mind that analysts had been expecting a loss of 8 cents a share. With guidance like that, what’s the point of issuing guidance in the first place?

At Barnes & Noble, as CBNC’s crackerjack keeper of earnings Juan Aruego pointed out to me, ridiculously wide guidance that appears to be the rule.

As a result, while the company may miss analyst estimates, it somehow seems to make its own guidance.

For example, In January it had reduced its estimates for the third fiscal quarter to a range of $1.20 to $1.40 from $1.30 to $1.50 per share—a 20-cent spread. (The actual number reported in February: $1.38)

At the time it offered guidance for the fourth fiscal quarter: A 30-cent range of a loss of 85 cents to a loss of $1.15. The actual number, when reported in June: 89 cents, well within the range.

Guidance for the first fiscal quarter: A loss of 85 cents to $1.15—yes, the same as the fourth quarter. When it reported in August (surprise, surprise) the final tally: $1.02, with second quarter guidance calling for range of a 25 cent loss to a profit of 5 cents. (Another 30 cent spread.)

Which gets us to where we are today, with fiscal third-quarter guidance in a 30-cent range of profit of 90 cents to $1.20.

Let me guess: They won’t miss.

My take: The whole thing is game. If it weren’t, company guidance would be more important than analyst estimates. Judging by Barnes & Noble’s decline today, that ain’t the case.

Watch Herb's TV reports about Barnes & Noble today on Power Lunch at 1pm ET and Closing Bell at 4pm ET.

Questions? Comments? Write to HerbOnTheStreet@cnbc.com

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