Barnes & Noble net falls; Borders mulls sale

ATLANTA (Reuters) - Bookseller Barnes & Noble Inc (BKS.N) reported a lower quarterly profit Thursday as a deteriorating economy hurt sales, while chief rival Borders Group Inc (BGP.N) said it might put itself up for sale.

Barnes & Noble, the world's largest specialty book retailer, boosted its quarterly dividend and said it expects same-store sales in the current quarter to fall slightly. Its shares rose nearly 9 percent, while Borders shares fell more almost 40 percent.

Booksellers, like many other retailers, face challenging times as rising gasoline and food prices take a bigger bite out of consumers' paychecks.

Borders suspended its quarterly dividend in a bid to conserve cash and said it was reviewing its options, including the sale of some or all of its businesses.

Mitchell Klipper, Barnes & Noble's chief operating officer, said, "We haven't been approached by Borders' investment bankers, and if we are, we'll certainly take a good look at the company and put it under review."

Barnes & Noble reported net income of $115 million, or $1.79 a share, for the fiscal fourth quarter ended February 2, down 9 percent from $126.7 million, or $1.83 a share, a year earlier.

Excluding benefits from property insurance and litigation settlements, earnings were $1.69 a share, a penny below analysts' average forecast, according to Reuters Estimates.

Consolidated sales fell 2 percent to $1.85 billion. The year-earlier period included an extra week.

Sales at stores open at least a year fell 0.5 percent, hurt by weaker music sales, the company said.

"You have a deteriorating economy and it's affecting even the gold standard, Barnes & Noble," said Howard Davidowitz, chairman of Davidowitz & Associates, a New York retail consulting firm.

Barnes & Noble said its board raised its quarterly dividend to 25 cents a share from 15 cents, effective with the June payout.

BORDERS GETS LOAN

Borders said its largest shareholder, Pershing Square Capital Management, has agreed to loan it $42.5 million at an interest rate of 12.5 percent per year. Pershing Square will receive options to buy a 19.99 percent stake in Borders for $7 a share.

Without the funding, Borders may have faced liquidity problems in the next few months, its chief executive said.

Barnes & Noble reiterated a full-year forecast made earlier this month calling for earnings of $1.70 to $1.90 a share, about flat with the previous year on an operating basis.

For the first quarter, it forecast 5 cents to 10 cents a share.

Analysts were expecting a loss of 1 cent a share for the first quarter and a profit of $1.77 a share for the year, according to Reuters Estimates.

The company said it would open up to 40 stores this year and close 20.

Barnes & Noble shares were up $2.48 to $30.48 in afternoon trading on the New York Stock Exchange, while Borders sank $2.85 to $4.25.

(Reporting by Karen Jacobs, editing by John Wallace)