Barnes & Noble Inc. suspended its dividend to preserve its shrinking cash reserves and reported disappointing holiday quarter results as its e-books strategy continued to dent profitability, sending its shares down nearly more than 9 percent.
The bookseller also decided not to give investors a sales and profit forecast for the current quarter, saying that going-out-of-business sales at 200 locations operated by its bankrupt rival, Borders Group Ltd., could pressure it in the short term.
Barnes & Noble introduced its Nook e-reader in 2009 to win a share of the growing e-books market and compete with Amazon.com Inc and its market-leading Kindle.
"We intend for Barnes & Noble to be a leader in the exploding market for digital content," Chief Executive William Lynch said on a call with analysts, estimating that his company now commands 25 percent of the U.S. e-books market.
But developing the Nook has dented Barnes & Noble results in recent quarters and the company said it needs the money it would have paid in dividends to further enhance the Nook.
Morningstar analyst Pete Wahlstrom said that, had the company not done so, investors would be asking, "if digital is so important, why are you shipping $57 million out the door annually ... instead of investing that cash?"
The company had been tapping its credit facility to pay the 25 cent quarterly dividend, raising investor concerns.
Barnes & Noble reported it had $26.5 million in cash and cash equivalents on hand as of Jan. 29, down from $40.2 million a year earlier. But Chief Financial Officer Joseph Lombardi told analysts the company has "ample financial capacity" to operate and develop its e-books business.
The bookseller reported a profit of $60.6 million, or $1.00 per share, for the fiscal third quarter ended Jan. 29, down 24.7 percent from $80.4 million, or $1.38 a share, a year earlier. Analysts on average were expecting $1.13 per share, according to Thomson Reuters I/B/E/S.
Total net losses in the first three quarters of the current fiscal year have totaled $14.5 million.
The company's shares were down $1.77 to $16.84 in midday trading.
SOME HELP FROM BORDERS PROBLEMS
Borders filed for Chapter 11 bankruptcy protection last week after struggling with severe sales declines and cash liquidity problems for years. About three-quarters of the stores it is closing are near a Barnes & Noble store.
Still, Lynch said only a minority of those Borders locations are "attractive" and the company expects the number of superstores it operates to remain stable.
Borders' sales declines in recent years have been far more pronounced than Barnes & Noble's. But analysts said last week a smaller Borders chain would give Barnes & Noble only a little breathing room given what is seen as a permanent migration to e-books by book buyers.
Barnes & Noble said sales at its namesake superstores open at least 15 months rose 7.3 percent over the holidays, led primarily by the popularity of the Nook, even as physical book sales continue sliding. The company operates 717 superstores.
Sales at its College bookstore chain, which it bought from Chairman and founder Leonard Riggio for $514 million in 2009, fell 2.2 percent. That business accounts for just under a quarter of the company's sales.
Overall third-quarter sales were up 6.9 percent at $2.3 billion.
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