Barnes & Noble's 2Q profits fall 15 percent

PORTLAND — Barnes & Noble Inc., the nation's largest bookseller, posted a 15 percent drop in second-quarter profit Thursday as it struggles with sluggish consumer spending.

The New York-based retailer also projected that sales at established stores would be weaker than expected, but reiterated its earnings guidance for the year.

Investors were not appeased, sending shares of the company down more than 4 percent, or $1.07, to $24.67 in Thursday trading.

Barnes & Noble, which had benefited from sales of "Harry Potter and the Deathly Hallows" during the second quarter of last year, also had some big sellers this year such as Stephenie Meyer's "Breaking Dawn" and Randy Pausch's "The Last Lecture."

"The closer examination of sales will reveal that even in this soft retail environment across America, the book business is stubbornly holding up," said Chief Executive Steve Riggio.

The company saw double-digit declines in sales of music but saw its online business boom - growing 13.9 percent, excluding the effect of Harry Potter. The head of the company's online business division resigned this week and will stay on as a consultant.

Barnes & Noble earned $15.4 million, or 27 cents per share, in the three months ended Aug. 2. That compares to $18.05 million, or 26 cents per share, a year earlier.

The 2008 quarterly earnings results included an after-tax benefit of 12 cents per share, resulting from a more favorable physical inventory shortage rate than previously estimated. Excluding this benefit, second-quarter earnings were 15 cents per share.

Sales slipped 1.6 percent to $1.22 billion, down from $1.24 billion a year earlier. Same-store sales, or sales at stores opened at least a year, fell 4.7 percent.

Analysts surveyed by Thomson Reuters expected a profit of 9 cents per share on revenue of $1.24 billion in the second quarter.

Barnes & Noble said it now expects same-store sales to decrease in the low single digits for the year. In May, the company had pared its sales forecast to be slightly negative, from slightly positive.

Still, the company reiterated its full-year earnings guidance, which calls for a range of $1.70 to $1.90 per share, saying it continues control its expenses and improved gross margins.

Analysts surveyed by Thomson Reuters expect $1.74 per share for the year.

"We continue to manage the business extremely well in the trenches, in the midst of what is a very soft retail environment," Riggio said.

But Standard & Poor's Equity Research said in a note Thursday that while Barnes & Noble "has managed costs well in this challenging environment, we are growing increasingly concerned by potential price erosion, driven by online competitors."

S&P lowered its 2009 fiscal year earnings estimate down to a range of $1.76 to $1.80, lower than the previously estimated $1.81 and $1.86. S&P also lowered its target price by $2 to $26.

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