Barnes & Noble reported declining sales in its stores and increasing sales online in its fiscal Q1 (ending July 31) on Tuesday.  The company lost $63 million, a significant decline from a $12 million profit in the year ago period.  Losses were attributed to around $10 million in legal expenses related to management’s fight with investor Ron Burkle (see “Burkle Fighting B&N’s Poison Pill”) and investment in the company’s new digital strategy, which revolves around the Nook e-book reader. 

B&N comp store sales were down around 1% for the quarter.  Online sales, including Nook and digital sales, were up 42%.  The company says its Nook sales have been consistently above plan.  B&N Member customers with Nooks increase their total purchases 20% after the e-book reader purchase, and the Nook is also attracting new customers, according to the company. 

B&N revised its full year guidance down, anticipating additional high legal expenses related to its Burkle battle and proxy fight (see “B&N Proxy Fight”). 

The company’s loss was about 20% worse than expected by analysts, which weakens chairman Leonard Riggio’s hand in the proxy battle (see “Riggio Doubles Down”), since stockholders will be less likely to vote for his slate unless they see it as offering better prospects than Burkle’s.