Barnes & Noble 3Q Net Income Falls

MAE ANDERSON | AP Retail Writer

NEW YORK (AP) – Book seller Barnes & Noble's third-quarter revenue rose, but its net income fell 25 percent as it continued to invest in its online operations and Nook e-readers, the company said Tuesday.

The largest U.S. traditional book store chain also said it was suspending its quarterly dividend, and it doesn't plan to forecast its fourth-quarter or full-year earnings due to the effect of last week's bankruptcy filing by its chief rival, Borders Group Inc.

Borders is closing 200 stores, about one-third of its total. Barnes & Noble CEO William Lynch said his company might be interested in "a minority" of the 200 locations. Suspending the company's dividend will give it $60 million in cash and more flexibility to expand, Lynch said.

"Some of (the closing Borders stores) appear attractive to us," Lynch said. "And having the financial flexibility to negotiate with landlords and opportunistically put up stores in those locations could be attractive to us as well."

The bankruptcy could hurt Barnes & Noble in the short run, said S&P analyst Michael Souers, who kept his "Hold" recommendation on the shares.

"We expect significant sales and margin gains as a result of Borders store closures, with 75 percent of shuttered stores in close proximity to Barnes & Noble stores, but the resulting clearance sales could pressure Barnes & Noble margins near term," he wrote in a client note.

The company said its quarterly net income fell to $60.6 million, or $1 per share, from $80.4 million, or $1.38 per share. Analysts expected $1.13 per share, according to FactSet.

Revenue rose 7 percent to $2.33 billion. The company said its sales at stores open at least a year rose 7.3 percent, beating its forecast for a 5 percent to 7 percent increase.

Online sales were a bright spot, rising 53 percent. Online sales have steadily increased since the company introduced its Nook electronic reader in 2009. Barnes & Noble estimates it has one-fourth of the e-book market. and its Kindle have led in electronic books and e-readers since the Kindle launched in 2007.

Barnes & Noble has invested heavily in e-books and beefed up its offerings of toys and educational games, but CEO William Lynch said doesn't want to replicate the offerings of mass merchants.

"We've carefully built our toys and games merchandising with an emphasis on educational and developmental product, he said. "We believe this approach is in keeping with our brand."

The company blamed bad weather for a 2.2 percent drop in revenue at its college bookstores open at least a year.

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