UPDATE 1-Barnes & Noble retail revenue falls, sells fewer Nooks
* Nook segment revenues down 12.6 pct in Nov-Dec
* Same-store sales excluding Nook down 3.1 pct
* Shares down 0.3 pct
By Phil Wahba
Jan 3 (Reuters) - Barnes & Noble Inc on Thursday reported a sharp drop in revenue in its Nook business as it sold fewer e-readers and tablets at its own stores.
The bookseller, which also saw fewer shoppers come in to its bookstores, has bet heavily on its Nook business, which includes e-readers and tablets as well as digital books, as a source of growth.
But the Nook segment saw revenue fall 12.6 percent from a year earlier during the nine weeks ended Dec. 29 as it cut prices to compete with Amazon.com Inc's Kindle and Apple Inc's iPad.
"Clearly what management is trying to do is buy market share, expecting digital content to drive profits," said Morningstar analyst Peter Wahlstrom.
But the facts that unit sales fell and that digital content sales rose 13.1 percent, a far slower pace than earlier in the year, raise questions about Nook's longer-term prospects against Kindle, Wahlstrom said.
Nook sales got off to a strong start over the Black Friday weekend, which follows Thanksgiving and kicks off the holiday season in earnest.
But for the rest of season they were weak, and Chief Executive William Lynch said in a statement that Barnes & Noble is "examining the root cause" of the shortfall and will adjust its strategy.
Barnes & Noble, which had enjoyed a sales bump after onetime rival Borders Group liquidated in 2011, reported a 10.9 percent decrease in sales at its bookstores and on its website over the holiday period. Sales at stores open at least 15 months fell 3.1 percent, excluding Nook products.
The retailer still expects Nook segment sales of $3 billion this fiscal year, keeping a forecast it gave in October.
The results follow a warning from Barnes & Noble in a filing last week that holiday sales would come in below its expectations. The company will report full quarterly results in late February.
Last week, the company also announced that British education and media publisher Pearson Plc would take a 5 percent stake in Barnes & Noble's Nook Media unit for $89.5 million.
Shares were down 0.3 percent at $14.48 in early trading.
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