Barnes & Noble Inc. tumbled the most in more than three months Friday after disclosing an investigation by the Securities and Exchange Commission into its restatement of earnings and a former employee’s allegation of improper accounting.
The shares fell 12 percent to $14.43 at the close in New York for the biggest one-day decline since Aug. 20. Barnes & Noble dropped 4.4 percent this year.
The New York regional office of the SEC notified the company that it had began a probe on Oct. 16, according to a filing Thursday after the close of trading. Barnes & Noble, based in New York, said it’s cooperating with the SEC and responding to requests for documents.
“The market seems to be overreacting to the news,” said Michael Souers, an analyst for Standard & Poor’s in New York. While this “won’t do much to impact future results” it’s “a black eye for a company that is struggling to maintain relevance.”
In July, Barnes & Noble, the largest U.S. bookstore chain, restated earnings from fiscal 2008 to 2012. In the year ended April 28, 2012, the restated earnings narrowed the net loss to $64.8 million from $68.9 million because of “inadequate controls” for accounting overstated certain items.
Mary Ellen Keating, a Barnes & Noble spokeswoman, declined to comment on the investigation.
A former employee, whom the company described as a non- executive, is alleging Barnes & Noble improperly allocated certain expenses between its Nook and retail segments for the purposes of reporting, according to the filing.
Barnes & Noble began reporting separate revenue and earnings before interest, taxes, depreciation and amortization for the Nook unit in 2012. The move was an attempt to get investors to see the value in the Nook, and boost the shares.
The investigation is the latest hurdle for Barnes & Noble, which has been losing money for more than three years as it grapples with a shift to digital books. The chain, which has more than 680 stores, has been heavily investing in its Nook digital unit to gain a foothold in electronic books.
The SEC probe “could take their focus away from their strategic goals,” said Souers, who recommends holding Barnes & Noble’s shares. “This is the holiday season right now, and they have to perform well. It’s going to be challenging.”
After some initial success with its Nook e-readers and tablets, the division’s sales slumped last year during the holidays, and haven’t recovered. In the past four quarters, companywide sales declined 8.3 percent to $6.56 billion with a net loss of $198.5 million.
Chief Executive Officer William Lynch resigned in July, and has yet to be replaced. Michael Huseby was promoted from chief financial officer to president of the company and is currently the highest-ranking executive.
In August, Chairman Leonard Riggio, also the company’s founder and largest shareholders, ended his efforts to buy the chain’s bookstores and website.