Barnes & Noble is reporting operating losses of $190 million for its Nook business in its most recent quarter, more than twice the loss posted a year ago — the latest sign that the bookseller is struggling to keep up with in the market for digital books and devices.

Sales declined 26 percent in the Nook business, to $316 million.

Barnes & Noble overall reported revenue of $2.2 billion, down 8.8 percent, and a net loss of $6.1 million, down from a profit of $52 million in the same quarter last year. The results are for the fiscal quarter ended Jan. 26, which includes the key holiday shopping season.

The situation also has implications for Microsoft, which owns 16.8 percent of the Nook business. The larger loss comes as Barnes & Noble evaluates a proposal by its founder to buy back the traditional Barnes & Noble retail business.

In a statement, Barnes & Noble CEO William Lynch said the company “remains committed” to the Nook devices and content. Here’s an excerpt from Barnes & Noble’s earnings release detailing the challenges that the Nook business is facing.

The NOOK segment, which consists of the company’s digital business (including devices, digital content and accessories), had revenues of $316 million for the quarter. This represents a decline of 26% as compared to the same period a year ago, primarily as a result of lower device unit volume. In addition, the company recorded $21 million of incremental channel partner returns given the holiday sales shortfall, as well as $15 million of promotional allowances to optimize future sales opportunities. Digital content sales increased 6.8% for the third quarter over the prior year.

NOOK EBITDA losses were $190 million for the third quarter, as compared to $83 million a year ago, primarily resulting from the previously noted sales shortfall, inventory charges, and higher operating expenses. The company recorded $59 million of additional inventory charges during the third quarter, as the holiday sales shortfall resulted in higher than anticipated levels of finished and unfinished goods. Operating expenses increased over the prior year on higher advertising costs.

In response to the device sales shortfall over the holiday season, NOOK is calibrating its business model and has implemented a cost reduction program that the company projects will significantly reduce NOOK’s expenses.

“In terms of the NOOK Media business, we’ve taken significant actions to begin to right size our cost structure in the NOOK segment, while also taking a large markdown on NOOK devices in order to enhance our ability to achieve our estimated sales plans in subsequent quarters,” said William Lynch, Chief Executive Officer of Barnes & Noble. “NOOK Media has been financing itself since October of 2012 due to the strong investment partners we’ve been able to attract in Microsoft and Pearson. Coming off the holiday shortfall, we’re in the process of making some adjustments to our strategy as we continue to pursue the exciting growth opportunities ahead for us in the consumer and digital education content markets.” Mr. Lynch also said that going forward NOOK Media still remains committed to its Tablet and e-Reader business. And, he reiterated that NOOK and Barnes & Noble bookstores will continue to have a close relationship. “Without question, our bookstores have made a significant contribution to NOOK’s success over the past three years. And, in turn, our award-winning line of NOOK products have proven to be a strong driver of traffic to our stores.”

More: PaidContent, Reuters, New York Times.

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  • FrankCatalano

    A couple of interesting tidbits deeper in the numbers. While Nook device sales were down, Nook content sales were actually up 6.8% (and those can be either on a dedicated Nook device or on any device that can run the Nook reader app).

    College bookstore sales (which are part of the Nook business) were essentially flat. That’s important to another investor in the Nook business along with Microsoft, the education publisher Pearson.

    Finally, near the end of the Publisher’s Weekly story on the B&N results is a comment that B&N sees growth opportunities in digital education for the Nook business, and announcements will be forthcoming (

  • Ballmer the clown

    That MS investment is looking smarter and smarter all the time. /s

    • n8

      Surprise, surprise Microsoft continues to pick winners!

  • Scott Moore

    Everything is relative, so what’s important to understanding the industry is understanding how the nook sales compare to the kindle and other devices used for reading ebooks.

    Other articles would suggest that ebooks are going well, the kindle is selling well, and the ipad, increasingly used as a reader, is selling like hot cakes.

    The nook, it would appear, is suffering the same fate is Windows phone – too little too late.

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