Barnes & Noble issues weak forecast

NEW YORK (Reuters) - Top U.S. book retailer Barnes & Noble Inc. (BKS.N) on Monday forecast fiscal 2007 earnings well below the average Wall Street estimate, sending its shares down 10 percent.

The company forecast earnings of $1.65 to $1.80 a share, excluding charges for closing its Memphis distribution center. Analysts' average forecast was $2.42 a share, according to Reuters Estimates.

B&N Chief Financial Officer Joseph Lombardi said modest sales at stores open at least a year and higher-than-expected enrollment in one of its discount programs hurt profit margins.

Over the holiday season, in an attempt to drive sales, the company offered a 40 percent discount on hardcover books to those who paid a $25 annual fee to join the discount program.

"Enrollment rates have increased at a rate much higher than we forecast, leading to more margin decline," Lombardi said.

Members can buy the much-anticipated final Harry Potter book, slated for release on July 21, at that 40 percent discount for $20.99.

B&N shares were down $4 to $36.12 in morning trade on the New York Stock Exchange after falling as low as $35.42 earlier in the session.

The company said sales in the fourth quarter, ended February 3, increased 2 percent, and it backed its previous earnings guidance for fiscal 2006.

It said fourth-quarter store sales were $1.5 billion. Sales at stores open at least a year decreased 0.1 percent in the quarter and 0.3 percent for the year.

The New York-based company said it still expects to earn between $1.86 and $1.96 a share for the fourth quarter, and between $2.20 and $2.30 a share for the year.

Analysts, on average, expect $1.89 a share for the quarter and $2.24 a share for the year, the company said.

Barnes & Noble said it would close its Internet distribution center in Memphis, Tennessee, and start sending out Web-based orders from its new Monroe, New Jersey, location.

That will result in net charges of $2.2 million, or 3 cents a share, in 2006, and $4.9 million, or 7 cents a share, in 2007, the company said.

Including those charges and legal fees, the company expects to earn between $1.49 and $1.67 a share for 2007.

A special committee is still investigating its stock option practices, and as a consequence, no expenses have yet been recorded for stock-based compensation, the company said.