Barnes & Noble Inc (BKS.N) reported a net loss for the holiday quarter, hurt by a sharp decline in sales in its Nook device and e-books business, at a time that Chairman Leonard Riggio is trying to buy the company's profitable bookstore unit.
The company said earlier this week that Riggio plans to make an offer for the main bookstore business, but not its Nook and e-book business and its college bookstores.
Revenue at its Nook business, including e-books and devices, fell 25.9 percent to $316 million in the fiscal third quarter that ended January 26, as it sold fewer e-readers and tablets and had to cut prices, losing ground to big-pocketed tech rivals..
"It simply doesn't have the assets to make its tablet a useful productivity tool the way Apple and Google do," Forrester Research analyst James McQuivey said in a note.
Last year Barnes & Noble carved out Nook and its college bookstore business into a new unit called Nook Media. That has attracted investments from Microsoft Corp (MSFT.O) and Pearson LLC (PSON.L), but Barnes & Noble still owns 78 percent.
Barnes & Noble's weak quarter raised the odds of a deal that would divide the company, and shares finished the day up 3.3 percent.
"Barnes & Noble stands at a fork in the road and rather than choose one path, it will likely need to split into two companies," McQuivey said.
The loss on the Nook business more than doubled to $190.4 million and the disastrous holiday performance puts additional pressure to quickly find other investors for Nook.
"The window of opportunity to sell Nook is closing," Morningstar analyst Peter Wahlstrom told Reuters.
Despite Nook's problems, Barnes & Noble Chief Executive William Lynch said the company "remains committed" to the Nook devices.
Digital content sales rose 7 percent in the holiday quarter even though Nook device sales fell, and Barnes & Noble is in discussions for partnerships to sell the digital content it owns, he said.
Barnes & Noble, the largest U.S. bookstore chain, launched the first iteration of the Nook e-reader in 2009. At first the device was a hit, winning the retailer as much as 27 percent of the U.S. e-books market.
But more recently, the tablet version of Nook has struggled against rival devices from Amazon.com Inc (AMZN.O) and Google Inc (GOOG.O), which offer far more apps and content and have improved their e-reading functions.
Barnes & Noble said that at its namesake book superstores, sales at stores open at least 15 months, excluding Nook products, slipped 2.2 percent in the latest quarter.
At its college bookstores, same-store sales fell 5.2 percent.
The company posted a net loss of $6.1 million, or 18 cents per share, compared with a profit of $52 million, or 71 cents, a year earlier.
Revenue was down 10.3 percent to $2.23 billion, below the $2.4 billion Wall Street was projecting, according to Thomson Reuters I/B/E/S.
(Reporting by Phil Wahba in Toronto; additional reporting by Brad Dorfman in Chicago; editing by John Wallace, Bernard Orr)