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Barnes & Noble chairman halts plan to buy stores as sales slide

People walk past the Barnes and Noble bookstore on the corner of Warren and Greenwich street in New York June 29, 2010. REUTERS/Lily Bowers
People walk past the Barnes and Noble bookstore on the corner of Warren and Greenwich street in New York June 29, 2010. REUTERS/Lily Bowers

By Jessica Wohl and Phil Wahba

(Reuters) - Barnes & Noble Inc's founder and largest shareholder on Tuesday suspended his plan to buy the bookseller's stores, dashing investor hopes for a deal as the company again reported poor quarterly results.

B&N shares fell 15 percent to $14.17, their lowest level since February, when Leonard Riggio, who is also chairman, said he planned to make an offer for B&N's retail business.

News of Riggio's change of heart came as the company reported a 10 percent decline in sales at its bookstores and bn.com website for the latest quarter, hurt by a drop in sales of Nook e-readers and tablets at its stores and the absence of a mega-bestseller like the "Fifty Shades of Grey" trilogy that boosted business last year.

A deal would have resulted in splitting stores off from B&N's Nook and college bookstore businesses.

Now, investors who were waiting for a deal are moving on.

"Right now, the issue is you've got a lot of short-term deal investors in the stock and there's no deal," said Maxim Group analyst John Tinker. Investors will now focus on business fundamentals instead, he said.

And those were weak - comparable sales fell at its college bookstore chain in the latest quarter, while the Nook unit's revenue fell 20 percent and Barnes & Noble's share of the U.S. ebooks market slipped.

Despite another quarter of losses, the company said its cash position was sound and its $1 billion credit facility nearly untouched. Its stores generate a lot of cash and are still very profitable.

The largest U.S. bookstore chain said it would still entertain offers for all or part of the company, and Riggio said he reserved the right to make another bid someday, but the focus now would be on a more "integrated" company.

"Nothing is taken off the table," B&N President Michael Huseby told Reuters. "We're at the point now where we're going to focus on operating the businesses to improve the value of each one."

This includes launching a new website next year with up-to-date technology to reverse an online sales slide and compete more forcefully with archrival Amazon.com Inc.

"Every publisher I've talked to fervently wants Barnes & Noble to retain its viability both at retail and in e-commerce," said Lorraine Shanley, co-founder of Market Partners International.

She said thousands of author readings the retailer hosts each year help lift book and author profiles.

B&N has said it still plans to close about 15 stores a year and could easily close more if needed: 442 leases out of 674 superstores are up for renewal within the next three years.

The company put itself up for sale in 2010, but the only offer came from Liberty Interactive. Liberty backed down from an initial $1 billion bid and instead bought $204 million of preferred shares convertible for $17 apiece in 2011.

Last year, Microsoft Corp took a 17.6 percent stake in Nook Media, and British publisher Pearson Plc bought 5 percent. Barnes & Noble owns the rest.

Riggio bought the original Barnes & Noble store in Manhattan in the 1970s and used it to launch a national chain of big-box stores. He holds nearly 30 percent of the company's stock.

FIRING ON NO CYLINDERS

The latest quarter was a tumultuous one.

William Lynch resigned as CEO on July 8, soon after the company announced a 34 percent quarterly revenue drop in its Nook digital business, a venture he spearheaded that has cost the company hundreds of millions of dollars. The company on Tuesday blamed those losses on overly optimistic projections in the past for the Nook.

Company executives said B&N has a 22 percent share of the U.S. e-books market, down from 27 percent in February.

B&N said in June it would no longer make new tablets unless it found a partner. An August Ipsos poll conducted for Reuters found that only 2 percent of those very or somewhat interested in purchasing a tablet in the upcoming holiday season were inclined toward a Nook, with Apple's Inc's iPad, Amazon's Kindle Fire and the Samsung Galaxy far ahead.

B&N hasn't given up on color and black-and-white e-readers: The company said on Tuesday it plans to release at least one new Nook device for the upcoming holiday season and that other products are in development.

Still, the chain has slashed prices on its Simple Touch e-readers, suggesting demand for the device was weak.

Sales of B&N's Nook device and e-books plunged 20.2 percent in the latest quarter, and same-store sales at its college chain fell 1.2 percent.

B&N reported a net loss of $87 million, or $1.56 per share, for the fiscal first quarter ended July 27, compared with a loss of $39.8 million, or 76 cents per share, a year earlier.

An adjusted loss of 86 cents per share, which excludes a valuation allowance against certain deferred tax assets, was narrower than the loss of 89 cents per share expected by analysts, according to Thomson Reuters I/B/E/S.

Revenue fell 8.5 percent to $1.33 billion, slightly better than the $1.32 billion analysts had expected.

B&N said it still expects retail comparable-store sales to be down by a high-single-digit percentage in the current fiscal year.

(Reporting by Jessica Wohl in Chicago and Phil Wahba in New York; Editing by Gerald E. McCormick and John Wallace)

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