updated 11/24/2009 9:58:09 AM ET 2009-11-24T14:58:09

Barnes & Noble and Borders Group lost money in the most-recent quarter as the booksellers faced increased competition from discounters and online retailers who have significantly lowered their prices to snag more business.

The recession has compounded the problem, with shoppers limiting spending on discretionary items like books.

Barnes & Noble on Tuesday posted a loss in the fiscal second quarter and lowered its guidance due to expected weak holiday sales and higher-than-expected costs to ramp up production of its electronic book reader, the Nook.

Barnes & Noble launched its e-reader Nook, a competitor with Amazon.com's popular Kindle, last month and said the device would begin to ship in late November. Last week, it said the Nook had sold out and orders placed beginning Nov. 20 would be fulfilled Jan. 4.

On Tuesday, the company said it was ramping up production for the Nook, causing higher-than expected production costs, and said it would increase future investment in its digital strategy.

The bookseller's fiscal second-quarter loss totaled $24 million, or 43 cents per share. That compares with a loss of $16 million, or 34 cents per share, last year. Excluding costs related to purchasing its college bookstore unit from its chairman, the loss totaled 30 cents per share.

Revenue rose 4 percent to $1.16 billion from $1.11 billion last year for the period ended Oct. 31. Best sellers included Dan Brown's "The Lost Symbol," Jeff Kinney's "Dog Days" from the "Diary of a Wimpy Kid" series and Mitch Albom's "Have a Little Faith."

Sales in stores open at least one year, considered a key retail measurement because it excludes the effect of adding or closing stores, fell 3.2 percent.

The company, based in New York, now expects fiscal-year earnings of 33 to 63 cents per share, down from previous guidance of 59 to 89 cents per share. Analysts predict a profit of 99 cents per share. It expects sales in stores open at least a year to fall 1 to 3 percent.

Borders' loss comes after cutting jobs, stores
Borders Group says it lost money for the third straight quarter as sales at its bookstores continued to decline, but the loss was smaller than a year ago.

Borders has cut jobs, closed stores and put new leadership in place to cope with the challenges. It unsuccessfully explored the possible sale of the company more than a year ago but did sell some business segments.

Borders lost $38.5 million, or 64 cents per share, in the third quarter. That compares with a loss of $172.2 million, or $2.85 per share, during the same period a year earlier.

Revenue for the three months ended Oct. 31 dropped 13 percent to $602.5 million. Sales at Borders superstores open at least a year fell 12.1 percent, while sales at Waldenbooks stores open at least a year slipped 7.2 percent. This figure is a key indicator of retailer performance since it measures growth at existing stores rather than newly opened ones.

Borders, one of the nation's largest booksellers, has been trying to turn around its business for some time. The bookseller continued its efforts during the quarter, trimming inventory by $99.1 million and lowering its selling, general and administrative expenses by $27.1 million. Total debt was $375 million at quarter's end, a reduction of $112 million.

The company based in Ann Arbor, Mich. has also shifted its focus away from fading and less profitable categories like music and tried to expand in areas such as children's books, toys, stationery and its cafe.

Borders is making a strong push for holiday business this year, boosting its core book inventories and using various in-store promotions to drive shoppers to its locations. It has also started an in-stock guarantee, whereby customers will get free shipping of the book to their home if the book is not in stock at a store.

The bookseller announced earlier this month that it plans to close about 200 of its Waldenbooks stores in January as part of its strategy to have a smaller, more profitable mall business.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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