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Article by DailyStocks_admin    (01-15-09 03:42 AM)

Filed with the SEC from Jan 01 to Jan 07:

Barnes & Noble (BKS)
Supermarket magnate Ron Burkle's Yucaipa American Management reported ownership of 4,584,313 shares (8.3%), purchased from Nov. 24 to Dec. 31, 2008 at prices that ranged from $13.20 to $16.39.

BUSINESS OVERVIEW

General

Barnes & Noble, Inc. (Barnes & Noble or the Company), the nation’s largest bookseller 1 , as of February 2, 2008 operated 798 bookstores and a website. Of the 798 bookstores, 713 operate primarily under the Barnes & Noble Booksellers trade name (31 of which were opened during the 52 weeks ended February 2, 2008 (fiscal 2007)) and 85 operate primarily under the B. Dalton Bookseller trade name. Barnes & Noble conducts the online part of its business through barnesandnoble.com llc (Barnes & Noble.com), one of the largest sellers of books on the Internet. Through Sterling Publishing Co., Inc. (Sterling or Sterling Publishing), the Company is a leading general trade book publisher. Additionally, the Company owns an approximate 74% interest in Calendar Club, L.L.C. (Calendar Club), an operator of seasonal kiosks.

The Company’s principal business is the sale of trade books (generally hardcover and paperback consumer titles, excluding educational textbooks and specialized religious titles), mass market paperbacks (such as mystery, romance, science fiction and other popular fiction), children’s books, bargain books, magazines, gift, music and movies direct to customers. These collectively account for substantially all of the Company’s sales. During fiscal 2007, the Company’s share of the consumer book market was approximately 17.2%. Bestsellers (the “top ten” highest selling hardcover fiction, hardcover non-fiction and trade paperback titles) typically represent between 3% and 5% of Barnes & Noble store sales.

The Company’s fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of January. Fiscal 2007 ended February 2, 2008 and was comprised of 52 weeks. The fiscal year ended February 3, 2007 (fiscal 2006) was comprised of 53 weeks.

The Company was incorporated in Delaware in 1986.

Barnes & Noble is the nation’s largest operator of bookstores 1 with 713 Barnes & Noble stores located in all 50 states and the District of Columbia as of February 2, 2008. With over 40 years of bookselling experience, management has a strong sense of customers’ changing needs and the Company leads book retailing with a “community store” concept. Barnes & Noble’s typical store offers a comprehensive title base, a café, a children’s section, a music/DVD department, a magazine section and a calendar of ongoing events, including author appearances and children’s activities, that make each Barnes & Noble store an active part of its community.

Barnes & Noble stores range in size from 10,000 to 60,000 square feet depending upon market size, with an overall average store size of 26,000 square feet. Barnes & Noble stores opened during fiscal 2007 added 0.7 million square feet to the Barnes & Noble store base, bringing the total square footage to 18.2 million square feet, a 4% increase over the prior fiscal year. The Company plans to open between 35 and 40 Barnes & Noble stores in the fiscal year ending January 31, 2009 (fiscal 2008), which are expected to average 30,000 square feet in size.



1


Based upon sales reported in trade publications and public filings.

At the end of fiscal 2007, the Company operated 85 B. Dalton bookstores. Most of the B. Dalton stores range in size from 2,000 to 6,000 square feet. B. Dalton generally discounts between 15% and 30% off publishers’ suggested retail prices for hardcover bestsellers. B. Dalton also offers the Barnes & Noble Member program which gives members additional discounts and other benefits.

The Company is continuing its controlled descent in the number of its B. Dalton stores in response to declining sales attributable primarily to superstore competition. Part of the Company’s strategy has been to close underperforming stores, which has resulted in the closing of 882 (13 in fiscal 2007) B. Dalton bookstores since 1989.

The Company believes that the key elements contributing to the success of the Barnes & Noble stores are:

Proximity to Customers. The Company’s strategy is to increase its share of the consumer book market, as well as to increase the size of the market. Since it began its bookstore roll-out, the Company has employed a market clustering strategy. As of February 2, 2008, Barnes & Noble had stores in 162 of the total 210 DMA (Designated Market Area) markets. In 67 of the 162 markets, the Company has only one Barnes & Noble store. The Company believes its bookstores’ proximity to their customers strengthens its market position and increases the value of its brand. Most Barnes & Noble stores are located in high-traffic areas with convenient access to major commercial thoroughfares and ample parking. Most stores offer extended shopping hours, generally 9:00 a.m. to 11:00 p.m., seven days a week.

Dominant Title Selection. Each Barnes & Noble store features an authoritative selection of books, ranging from 60,000 to 200,000 titles. The comprehensive title selection is diverse and reflects local interests. In addition, Barnes & Noble emphasizes books published by small and independent publishers and university presses. Bestsellers typically represent between 3% and 5% of Barnes & Noble store sales. Complementing this extensive on-site selection, all Barnes & Noble stores provide customers with access to the millions of books available to online shoppers at Barnes & Noble.com while offering an option to have the book sent to the store or shipped directly to the customer. The Company believes that its tremendous selection, including many otherwise hard-to-find titles, builds customer loyalty.

Store Design and Ambiance . Many of the Barnes & Noble stores create a comfortable atmosphere with ample public space, a café offering, among other things, sandwiches and bakery items, and public restrooms. The cafés, for which the Starbucks Corporation is the sole provider of coffee products, foster the image of the stores as a community meeting place. In addition, the Company continues to develop and introduce new product line extensions, such as gift, game, music, DVD and children’s sections, to meet customers’ changing tastes and needs. These offerings and services have helped to make many of the stores neighborhood institutions.

Music/DVD Departments. Many of the Barnes & Noble stores have music/DVD departments, which range in size from 1,700 to 7,800 square feet. The music/DVD departments stock over 30,000 titles. The Company’s DVD selection is focused on foreign films, documentaries and episodic TV shows. In 2008, the Company is introducing an extensive selection of BluRay discs. The music selection is tailored to the tastes of the Company’s core customers, focused on classical music, opera, jazz, blues and pop rock. The music department features RedDotNet, an advanced listening station technology. RedDotNet enables customers to listen to any compact disc in the store, sampling up to 200,000 music titles using scanner technology. RedDotNet is connected to the Company’s online electronic music catalog.

Discount Pricing. Barnes & Noble stores employ an aggressive nationwide discount pricing strategy. The current pricing is 30% off publishers’ suggested retail prices for hardcover bestsellers, 20% off trade paperback bestsellers and 20% off select feature titles in departments such as children’s books and computer books. The Barnes & Noble Member program offers members greater discounts. For an annual fee of $25, members receive discounts of 40% off publishers’ suggested retail prices on hardcover bestsellers, 20% off adult hardcovers, and 10% off on all other merchandise. These discounts are available to members for purchases made at Barnes & Noble stores, B. Dalton bookstores and on Barnes & Noble.com. In addition, members receive exclusive offers and promotions via direct mail and email.

Marketing and Community Relations. Barnes & Noble stores are launched with a major grand opening campaign involving extensive print and radio advertising, direct-mail marketing and community events. Each store plans its own community-based calendar of events, including author appearances, children’s storytelling hours, poetry readings and discussion groups. The Company believes its community focus encourages customer loyalty, word-of-mouth publicity and media coverage. The Company also supports communities through efforts on behalf of local non-profit organizations that focus on literacy, the arts or education (K-12).

Merchandising and Marketing

The Company’s merchandising strategy for its Barnes & Noble stores is to be the authoritative community bookstore carrying a dominant selection of titles in all subjects, including an extensive selection of titles from small independent publishers and university presses. Each Barnes & Noble store features an extensive selection of books from 60,000 to 200,000 unique titles, of which approximately 50,000 titles are common to all stores. The balance is crafted to reflect the lifestyles and interests of each store’s customers. Before a store opens, the Company’s buyers study the community and customize the title selection with offerings from the store’s local publishers and authors. After the store opens, each Barnes & Noble store manager is responsible for adjusting the buyers’ selection to the interests, lifestyles and demands of the store’s local customers. BookMaster, the Company’s proprietary inventory management database, has more than seven million titles. It includes over 2.4 million active titles in over 200 subjects and provides each store with comprehensive title selections in those subjects in which it seeks to expand. By enhancing the Company’s existing merchandise replenishment systems, BookMaster allows the Company to achieve high in-stock positions and productivity at the store level through efficiencies in receiving, cashiering and returns processing. The Company also leverages its system investments through utilization of Barnes & Noble.com’s proprietary order management system, which enables customers to place orders at stores for any of the over one million titles in stock throughout the Company’s supply chain.

The Company has a multi-channel marketing strategy that deploys various merchandising programs and promotional activities to drive traffic to both its stores and website. At the center of this program is Barnes & Noble.com, which receives over 138 million visits annually, ranking it among the top 15 multi-channel retailer websites in terms of traffic, as measured by Comscore Media Metrix. As a result of this reach, the Company believes that the website provides significant advertising power which would be valued in the tens of millions of dollars if such advertising were placed with third-party websites with comparable reach. In this way, Barnes & Noble.com serves as both the Company’s direct-to-home delivery service and as an important broadcast channel and advertising medium for the Barnes & Noble brand. For example, the online store locator at Barnes & Noble.com receives millions of customer visits each year providing store hours, directions, information about author events and other in-store activities.

The Company’s multi-channel marketing strategy enables it to have consistent cross-channel promotions which are primarily communicated via email. In addition, Barnes & Noble.com is an important component in the Company’s Member program.

Another example of a multi-channel initiative is the Barnes & Noble MasterCard, an affinity credit card, issued by Barclays Bank Delaware. Holders of the card receive an additional 5% rebate for all purchases made in Barnes & Noble stores, B. Dalton bookstores or at Barnes & Noble.com. In addition, points are accumulated for purchases made elsewhere, and redeemed for Barnes & Noble gift cards which can be used for purchases in either channel. The Company firmly believes that its website is a key factor behind its industry-leading comparable store sales gains.

Store Locations and Properties

The Company’s experienced real estate personnel select sites for new Barnes & Noble stores after an extensive review of demographic data and other information relating to market potential, bookstore visibility and access, available parking, surrounding businesses, compatible nearby tenants, competition and the location of other Barnes & Noble stores. Most stores are located in high-visibility areas adjacent to main traffic corridors in strip shopping centers or freestanding buildings and regional shopping malls.

Expansion

According to Veronis Suhler Stevenson Communications Industry Forecast (Veronis Suhler), total U.S. consumer spending on books is expected to increase at a compound annual growth rate of 2.6%, from approximately $20.9 billion in 2006 to approximately $23.8 billion in 2011. The Company believes Barnes & Noble stores offer the greatest opportunity to increase the Company’s share of the expanding consumer book market. The Company expects to open approximately 35 to 40 new Barnes & Noble stores during fiscal 2008. Management positions in those stores are expected to be filled mostly by employees from existing stores.

Sterling Publishing

The Company’s subsidiary, Sterling Publishing, is one of the world’s leading publishers of non-fiction titles, with more than 5,000 books in print. Among its best-selling titles are Windows on the World Complete Wine Course, The Good Housekeeping Cookbook, The Big Book of Knitting, Chapman Piloting & Seamanship, Puff, the Magic Dragon, the Poetry for Young People series, Classic Starts series, Real History of the American Revolution and The Cosmo Kama Sutra.

Founded in 1949, Sterling publishes a wide range of non-fiction and illustrated books, consisting primarily of reference and “how-to” titles on subjects such as crafts, food and wine, home design, woodworking, puzzles and games, and children’s books. Sterling also publishes books for a number of brands, including many of the Hearst magazines, Hasbro, Mensa and AARP.

The newest addition to Sterling’s imprint list is Union Square Press, which launched in June 2007. These books are predominantly based on social issues, current affairs and politics. The Hearst Books imprint includes titles from Cosmopolitan, Good Housekeeping, Popular Mechanics, Town and Country, Redbook, Marie Claire, Seventeen, Esquire, Harper’s Bazaar, House Beautiful, CosmoGirl! and Teen Magazine.

Lark Books, an imprint of Altamont Press, Inc., a wholly owned subsidiary of Sterling, creates books that are beautiful, informative and fun on subjects such as crafting, decorating, outdoor living and photography, including branded books by Kodak and Magic Lantern.

Calendar Club

The Company owns an approximately 74% interest in Calendar Club, L.L.C., an operator of seasonal kiosks.

Store Operations

The Company has seasoned management teams for its stores, including those for real estate, merchandising and store operations. Field management includes regional directors and district managers supervising multiple store locations.

Each Barnes & Noble store generally employs a store manager, two assistant store managers, a café manager and approximately 50 full- and part-time booksellers. Many Barnes & Noble stores also employ a full-time community relations manager. The large employee base provides the Company with experienced booksellers to fill positions in the Company’s new Barnes & Noble stores. The Company anticipates that a significant percentage of the personnel required to manage its expanding business will continue to come from within its existing operations.

Field management for all of the Company’s bookstores, including regional directors, district managers and store managers, participate in an incentive program tied to store productivity. The Company believes that the compensation of its field management is competitive with that offered by other specialty retailers of comparable size.

Barnes & Noble has in-store training programs providing specific information needed for success at each level, beginning with the entry-level positions of bookseller. Store managers attend annual merchandising conferences every fall, and district managers participate in semi-annual training and merchandising conferences. Store managers are generally responsible for training other booksellers and employees in accordance with detailed procedures and guidelines prescribed by the Company utilizing a blended learning approach, including on-the job training, e-learning, facilitator-led training and training aids available at each bookstore.

Purchasing

Barnes & Noble’s buyers negotiate terms, discounts and cooperative advertising allowances with publishers and other suppliers for all of the Company’s bookstores. The Company’s distribution centers enable it to maximize available discounts and enhance its ability to create marketing programs with many of its vendors. The Company has buyers who specialize in customizing inventory for bookselling in stores and online. Store inventories are further customized by store managers, who may respond to local demand by purchasing a limited amount of fast-selling titles through a nationwide wholesaling network, including the Company’s distribution centers.

The Company purchases books on a regular basis from over 1,700 publishers and approximately 60 wholesalers and distributors. Purchases from the top five suppliers (including publishers, wholesalers and distributors) accounted for approximately 47% of the Company’s book purchases during fiscal 2007, and no single supplier accounted for more than 13% of the Company’s purchases during this period. Consistent with industry practice, a substantial majority of the Company’s book purchases are returnable for full credit, a practice which substantially reduces the Company’s risk of inventory obsolescence.

Publishers control the distribution of titles by virtue of copyright protection, which limits availability on most titles to a single publisher. Since the retail, or list, prices of titles, as well as the retailers’ cost price, are also generally determined by publishers, the Company has limited options concerning availability, cost and profitability of its book inventory. However, these limitations are mitigated by the substantial number of titles available, the Company’s ability to maximize available discounts and its well-established relationships with publishers, which are enhanced by the Company’s significant purchasing volume.

Publishers periodically offer their excess inventory in the form of remainder books to book retailers and wholesalers through an auction process which generally favors booksellers such as the Company, who are able to buy substantial quantities. These books are generally purchased in large quantities at favorable prices and are then sold to consumers at significant discounts off publishers’ list prices.

Distribution

The Company has invested significant capital in its systems and technology by building new platforms, implementing new software applications and building and maintaining efficient distribution centers. This investment has enabled the Company to source an increasingly larger percentage of its inventory through its own distribution centers, resulting in increased direct buying from publishers rather than wholesalers. This has also led to improved just-in-time deliveries to stores and the ability to offer “Fast&Free Delivery” through its website and for in-store orders placed by customers for home delivery.

As of February 2, 2008, the Company had approximately 1.9 million square feet of distribution center capacity. The Company’s new 1,145,000 square foot distribution center in Monroe Township, New Jersey became operational in August 2005 and since then has been shipping merchandise to stores throughout the country and to online customers. In fiscal 2006, the Company closed four smaller facilities located in New Jersey. The Company closed its facility located in Memphis, Tennessee in fiscal 2007.

The Company also has a 600,000 square foot distribution center in Reno, Nevada, which is used to facilitate distribution to stores and online customers in the western United States. The Company also has 138,658 square feet of distribution center capacity for facilitating Sterling Publishing third-party sales.

Management Information and Control Systems

The Company has focused a majority of its information resources on strategically positioning and implementing systems to support store operations, online technology requirements, merchandising, distribution, marketing and finance.

BookMaster, the Company’s bookstore inventory management system, integrates point-of-sale features that utilize a proprietary data-warehouse based replenishment system. BookMaster enhances communications and real-time access to the Company’s network of bookstores, distribution centers and wholesalers. In addition, the implementation of just-in-time replenishment has provided for more rapid replenishment of books to all of the Company’s bookstores, resulting in higher in-stock positions and better productivity at the bookstore level through efficiencies in receiving, cashiering and returns processing.

The Company believes that it has built a leading interactive e-commerce platform, and plans to continue to invest in technologies that will enable it to offer its customers the most convenient and user-friendly online shopping experience. Barnes & Noble.com has licensed existing commercial technology when available and has focused its internal development efforts on those proprietary systems necessary to provide the highest level of service to its customers. The overall mix of technologies and applications allows the Company to support a distributed, scalable and secure e-commerce environment.

The Company uses Intel-based server technology in a fully redundant configuration to power its website, which is hosted in two locations. At these locations, the Company maintains computers that store its web pages in electronic form and transmits them to requesting users. Such storage and transmittal is called hosting. The Company utilizes two hosting locations. One is hosted internally at the Company’s distribution center in Monroe Township, New Jersey and the other is maintained by a third-party hosting vendor. Either site has sufficient capacity to support the volume of traffic directed toward the Company’s website during peak periods. Both hosting locations are configured with excess Internet telecommunications capacity to ensure quick response time and three separate Internet service providers are used. By maintaining redundant host locations, the Company has significantly reduced its exposure to downtime and service outages. Additionally, the Company believes its technology investments are scalable.

The Company continues to implement systems to improve efficiencies in back office processing in the human resources, finance and merchandising areas. An offsite business recovery capability has been developed and implemented to help assure uninterrupted systems support.

Competition

The book business is highly competitive in every channel in which Barnes & Noble competes. The Company competes with large bookstores including Borders Group, Inc. (Borders) and Books-A-Million and smaller format bookstores such as Waldenbooks. The Company faces competition with many e-commerce businesses, notably Amazon.com. The Company also faces competition from mass merchandisers, such as Wal-Mart and Costco, some of which may have greater financial and other resources than the Company. The Company’s bookstores also compete with specialty retail stores that offer books in particular subject areas, independent store operators, variety discounters, drug stores, warehouse clubs, mail-order clubs and other retailers offering books and music. In addition, the Company’s bookstores may also face competition from the expanding market for electronic books and digital distribution of book content.

The music and movie businesses are also highly competitive and the Company faces competition from large established music retail chains, established movie retail chains, as well as specialty retail stores, e-commerce businesses, movie rental stores, discount stores, warehouse clubs and mass merchandisers. In addition, consumers receive television and mail-order offers and have access to mail-order clubs. The largest mail-order clubs are affiliated with major manufacturers of pre-recorded music and may have advantageous marketing relationships with their affiliates. In addition, the Company faces competition from the growing popularity of music downloading services.

CEO BACKGROUND

General

Barnes & Noble, Inc. (Barnes & Noble or the Company), the nation’s largest bookseller 1 , as of February 2, 2008 operated 798 bookstores and a website. Of the 798 bookstores, 713 operate primarily under the Barnes & Noble Booksellers trade name (31 of which were opened during the 52 weeks ended February 2, 2008 (fiscal 2007)) and 85 operate primarily under the B. Dalton Bookseller trade name. Barnes & Noble conducts the online part of its business through barnesandnoble.com llc (Barnes & Noble.com), one of the largest sellers of books on the Internet. Through Sterling Publishing Co., Inc. (Sterling or Sterling Publishing), the Company is a leading general trade book publisher. Additionally, the Company owns an approximate 74% interest in Calendar Club, L.L.C. (Calendar Club), an operator of seasonal kiosks.

The Company’s principal business is the sale of trade books (generally hardcover and paperback consumer titles, excluding educational textbooks and specialized religious titles), mass market paperbacks (such as mystery, romance, science fiction and other popular fiction), children’s books, bargain books, magazines, gift, music and movies direct to customers. These collectively account for substantially all of the Company’s sales. During fiscal 2007, the Company’s share of the consumer book market was approximately 17.2%. Bestsellers (the “top ten” highest selling hardcover fiction, hardcover non-fiction and trade paperback titles) typically represent between 3% and 5% of Barnes & Noble store sales.

The Company’s fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of January. Fiscal 2007 ended February 2, 2008 and was comprised of 52 weeks. The fiscal year ended February 3, 2007 (fiscal 2006) was comprised of 53 weeks.

The Company was incorporated in Delaware in 1986.

Barnes & Noble is the nation’s largest operator of bookstores 1 with 713 Barnes & Noble stores located in all 50 states and the District of Columbia as of February 2, 2008. With over 40 years of bookselling experience, management has a strong sense of customers’ changing needs and the Company leads book retailing with a “community store” concept. Barnes & Noble’s typical store offers a comprehensive title base, a café, a children’s section, a music/DVD department, a magazine section and a calendar of ongoing events, including author appearances and children’s activities, that make each Barnes & Noble store an active part of its community.

Barnes & Noble stores range in size from 10,000 to 60,000 square feet depending upon market size, with an overall average store size of 26,000 square feet. Barnes & Noble stores opened during fiscal 2007 added 0.7 million square feet to the Barnes & Noble store base, bringing the total square footage to 18.2 million square feet, a 4% increase over the prior fiscal year. The Company plans to open between 35 and 40 Barnes & Noble stores in the fiscal year ending January 31, 2009 (fiscal 2008), which are expected to average 30,000 square feet in size.



1


Based upon sales reported in trade publications and public filings.

At the end of fiscal 2007, the Company operated 85 B. Dalton bookstores. Most of the B. Dalton stores range in size from 2,000 to 6,000 square feet. B. Dalton generally discounts between 15% and 30% off publishers’ suggested retail prices for hardcover bestsellers. B. Dalton also offers the Barnes & Noble Member program which gives members additional discounts and other benefits.

The Company is continuing its controlled descent in the number of its B. Dalton stores in response to declining sales attributable primarily to superstore competition. Part of the Company’s strategy has been to close underperforming stores, which has resulted in the closing of 882 (13 in fiscal 2007) B. Dalton bookstores since 1989.

The Company believes that the key elements contributing to the success of the Barnes & Noble stores are:

Proximity to Customers. The Company’s strategy is to increase its share of the consumer book market, as well as to increase the size of the market. Since it began its bookstore roll-out, the Company has employed a market clustering strategy. As of February 2, 2008, Barnes & Noble had stores in 162 of the total 210 DMA (Designated Market Area) markets. In 67 of the 162 markets, the Company has only one Barnes & Noble store. The Company believes its bookstores’ proximity to their customers strengthens its market position and increases the value of its brand. Most Barnes & Noble stores are located in high-traffic areas with convenient access to major commercial thoroughfares and ample parking. Most stores offer extended shopping hours, generally 9:00 a.m. to 11:00 p.m., seven days a week.

Dominant Title Selection. Each Barnes & Noble store features an authoritative selection of books, ranging from 60,000 to 200,000 titles. The comprehensive title selection is diverse and reflects local interests. In addition, Barnes & Noble emphasizes books published by small and independent publishers and university presses. Bestsellers typically represent between 3% and 5% of Barnes & Noble store sales. Complementing this extensive on-site selection, all Barnes & Noble stores provide customers with access to the millions of books available to online shoppers at Barnes & Noble.com while offering an option to have the book sent to the store or shipped directly to the customer. The Company believes that its tremendous selection, including many otherwise hard-to-find titles, builds customer loyalty.

Store Design and Ambiance . Many of the Barnes & Noble stores create a comfortable atmosphere with ample public space, a café offering, among other things, sandwiches and bakery items, and public restrooms. The cafés, for which the Starbucks Corporation is the sole provider of coffee products, foster the image of the stores as a community meeting place. In addition, the Company continues to develop and introduce new product line extensions, such as gift, game, music, DVD and children’s sections, to meet customers’ changing tastes and needs. These offerings and services have helped to make many of the stores neighborhood institutions.

Music/DVD Departments. Many of the Barnes & Noble stores have music/DVD departments, which range in size from 1,700 to 7,800 square feet. The music/DVD departments stock over 30,000 titles. The Company’s DVD selection is focused on foreign films, documentaries and episodic TV shows. In 2008, the Company is introducing an extensive selection of BluRay discs. The music selection is tailored to the tastes of the Company’s core customers, focused on classical music, opera, jazz, blues and pop rock. The music department features RedDotNet, an advanced listening station technology. RedDotNet enables customers to listen to any compact disc in the store, sampling up to 200,000 music titles using scanner technology. RedDotNet is connected to the Company’s online electronic music catalog.

Discount Pricing. Barnes & Noble stores employ an aggressive nationwide discount pricing strategy. The current pricing is 30% off publishers’ suggested retail prices for hardcover bestsellers, 20% off trade paperback bestsellers and 20% off select feature titles in departments such as children’s books and computer books. The Barnes & Noble Member program offers members greater discounts. For an annual fee of $25, members receive discounts of 40% off publishers’ suggested retail prices on hardcover bestsellers, 20% off adult hardcovers, and 10% off on all other merchandise. These discounts are available to members for purchases made at Barnes & Noble stores, B. Dalton bookstores and on Barnes & Noble.com. In addition, members receive exclusive offers and promotions via direct mail and email.

Marketing and Community Relations. Barnes & Noble stores are launched with a major grand opening campaign involving extensive print and radio advertising, direct-mail marketing and community events. Each store plans its own community-based calendar of events, including author appearances, children’s storytelling hours, poetry readings and discussion groups. The Company believes its community focus encourages customer loyalty, word-of-mouth publicity and media coverage. The Company also supports communities through efforts on behalf of local non-profit organizations that focus on literacy, the arts or education (K-12).

Merchandising and Marketing

The Company’s merchandising strategy for its Barnes & Noble stores is to be the authoritative community bookstore carrying a dominant selection of titles in all subjects, including an extensive selection of titles from small independent publishers and university presses. Each Barnes & Noble store features an extensive selection of books from 60,000 to 200,000 unique titles, of which approximately 50,000 titles are common to all stores. The balance is crafted to reflect the lifestyles and interests of each store’s customers. Before a store opens, the Company’s buyers study the community and customize the title selection with offerings from the store’s local publishers and authors. After the store opens, each Barnes & Noble store manager is responsible for adjusting the buyers’ selection to the interests, lifestyles and demands of the store’s local customers. BookMaster, the Company’s proprietary inventory management database, has more than seven million titles. It includes over 2.4 million active titles in over 200 subjects and provides each store with comprehensive title selections in those subjects in which it seeks to expand. By enhancing the Company’s existing merchandise replenishment systems, BookMaster allows the Company to achieve high in-stock positions and productivity at the store level through efficiencies in receiving, cashiering and returns processing. The Company also leverages its system investments through utilization of Barnes & Noble.com’s proprietary order management system, which enables customers to place orders at stores for any of the over one million titles in stock throughout the Company’s supply chain.

The Company has a multi-channel marketing strategy that deploys various merchandising programs and promotional activities to drive traffic to both its stores and website. At the center of this program is Barnes & Noble.com, which receives over 138 million visits annually, ranking it among the top 15 multi-channel retailer websites in terms of traffic, as measured by Comscore Media Metrix. As a result of this reach, the Company believes that the website provides significant advertising power which would be valued in the tens of millions of dollars if such advertising were placed with third-party websites with comparable reach. In this way, Barnes & Noble.com serves as both the Company’s direct-to-home delivery service and as an important broadcast channel and advertising medium for the Barnes & Noble brand. For example, the online store locator at Barnes & Noble.com receives millions of customer visits each year providing store hours, directions, information about author events and other in-store activities.

The Company’s multi-channel marketing strategy enables it to have consistent cross-channel promotions which are primarily communicated via email. In addition, Barnes & Noble.com is an important component in the Company’s Member program.

Another example of a multi-channel initiative is the Barnes & Noble MasterCard, an affinity credit card, issued by Barclays Bank Delaware. Holders of the card receive an additional 5% rebate for all purchases made in Barnes & Noble stores, B. Dalton bookstores or at Barnes & Noble.com. In addition, points are accumulated for purchases made elsewhere, and redeemed for Barnes & Noble gift cards which can be used for purchases in either channel. The Company firmly believes that its website is a key factor behind its industry-leading comparable store sales gains.

Store Locations and Properties

The Company’s experienced real estate personnel select sites for new Barnes & Noble stores after an extensive review of demographic data and other information relating to market potential, bookstore visibility and access, available parking, surrounding businesses, compatible nearby tenants, competition and the location of other Barnes & Noble stores. Most stores are located in high-visibility areas adjacent to main traffic corridors in strip shopping centers or freestanding buildings and regional shopping malls.

Expansion

According to Veronis Suhler Stevenson Communications Industry Forecast (Veronis Suhler), total U.S. consumer spending on books is expected to increase at a compound annual growth rate of 2.6%, from approximately $20.9 billion in 2006 to approximately $23.8 billion in 2011. The Company believes Barnes & Noble stores offer the greatest opportunity to increase the Company’s share of the expanding consumer book market. The Company expects to open approximately 35 to 40 new Barnes & Noble stores during fiscal 2008. Management positions in those stores are expected to be filled mostly by employees from existing stores.

Sterling Publishing

The Company’s subsidiary, Sterling Publishing, is one of the world’s leading publishers of non-fiction titles, with more than 5,000 books in print. Among its best-selling titles are Windows on the World Complete Wine Course, The Good Housekeeping Cookbook, The Big Book of Knitting, Chapman Piloting & Seamanship, Puff, the Magic Dragon, the Poetry for Young People series, Classic Starts series, Real History of the American Revolution and The Cosmo Kama Sutra.

Founded in 1949, Sterling publishes a wide range of non-fiction and illustrated books, consisting primarily of reference and “how-to” titles on subjects such as crafts, food and wine, home design, woodworking, puzzles and games, and children’s books. Sterling also publishes books for a number of brands, including many of the Hearst magazines, Hasbro, Mensa and AARP.

The newest addition to Sterling’s imprint list is Union Square Press, which launched in June 2007. These books are predominantly based on social issues, current affairs and politics. The Hearst Books imprint includes titles from Cosmopolitan, Good Housekeeping, Popular Mechanics, Town and Country, Redbook, Marie Claire, Seventeen, Esquire, Harper’s Bazaar, House Beautiful, CosmoGirl! and Teen Magazine.

Lark Books, an imprint of Altamont Press, Inc., a wholly owned subsidiary of Sterling, creates books that are beautiful, informative and fun on subjects such as crafting, decorating, outdoor living and photography, including branded books by Kodak and Magic Lantern.

Calendar Club

The Company owns an approximately 74% interest in Calendar Club, L.L.C., an operator of seasonal kiosks.

Store Operations

The Company has seasoned management teams for its stores, including those for real estate, merchandising and store operations. Field management includes regional directors and district managers supervising multiple store locations.

Each Barnes & Noble store generally employs a store manager, two assistant store managers, a café manager and approximately 50 full- and part-time booksellers. Many Barnes & Noble stores also employ a full-time community relations manager. The large employee base provides the Company with experienced booksellers to fill positions in the Company’s new Barnes & Noble stores. The Company anticipates that a significant percentage of the personnel required to manage its expanding business will continue to come from within its existing operations.

Field management for all of the Company’s bookstores, including regional directors, district managers and store managers, participate in an incentive program tied to store productivity. The Company believes that the compensation of its field management is competitive with that offered by other specialty retailers of comparable size.

Barnes & Noble has in-store training programs providing specific information needed for success at each level, beginning with the entry-level positions of bookseller. Store managers attend annual merchandising conferences every fall, and district managers participate in semi-annual training and merchandising conferences. Store managers are generally responsible for training other booksellers and employees in accordance with detailed procedures and guidelines prescribed by the Company utilizing a blended learning approach, including on-the job training, e-learning, facilitator-led training and training aids available at each bookstore.

Purchasing

Barnes & Noble’s buyers negotiate terms, discounts and cooperative advertising allowances with publishers and other suppliers for all of the Company’s bookstores. The Company’s distribution centers enable it to maximize available discounts and enhance its ability to create marketing programs with many of its vendors. The Company has buyers who specialize in customizing inventory for bookselling in stores and online. Store inventories are further customized by store managers, who may respond to local demand by purchasing a limited amount of fast-selling titles through a nationwide wholesaling network, including the Company’s distribution centers.

The Company purchases books on a regular basis from over 1,700 publishers and approximately 60 wholesalers and distributors. Purchases from the top five suppliers (including publishers, wholesalers and distributors) accounted for approximately 47% of the Company’s book purchases during fiscal 2007, and no single supplier accounted for more than 13% of the Company’s purchases during this period. Consistent with industry practice, a substantial majority of the Company’s book purchases are returnable for full credit, a practice which substantially reduces the Company’s risk of inventory obsolescence.

Publishers control the distribution of titles by virtue of copyright protection, which limits availability on most titles to a single publisher. Since the retail, or list, prices of titles, as well as the retailers’ cost price, are also generally determined by publishers, the Company has limited options concerning availability, cost and profitability of its book inventory. However, these limitations are mitigated by the substantial number of titles available, the Company’s ability to maximize available discounts and its well-established relationships with publishers, which are enhanced by the Company’s significant purchasing volume.

Publishers periodically offer their excess inventory in the form of remainder books to book retailers and wholesalers through an auction process which generally favors booksellers such as the Company, who are able to buy substantial quantities. These books are generally purchased in large quantities at favorable prices and are then sold to consumers at significant discounts off publishers’ list prices.

Distribution

The Company has invested significant capital in its systems and technology by building new platforms, implementing new software applications and building and maintaining efficient distribution centers. This investment has enabled the Company to source an increasingly larger percentage of its inventory through its own distribution centers, resulting in increased direct buying from publishers rather than wholesalers. This has also led to improved just-in-time deliveries to stores and the ability to offer “Fast&Free Delivery” through its website and for in-store orders placed by customers for home delivery.

As of February 2, 2008, the Company had approximately 1.9 million square feet of distribution center capacity. The Company’s new 1,145,000 square foot distribution center in Monroe Township, New Jersey became operational in August 2005 and since then has been shipping merchandise to stores throughout the country and to online customers. In fiscal 2006, the Company closed four smaller facilities located in New Jersey. The Company closed its facility located in Memphis, Tennessee in fiscal 2007.

The Company also has a 600,000 square foot distribution center in Reno, Nevada, which is used to facilitate distribution to stores and online customers in the western United States. The Company also has 138,658 square feet of distribution center capacity for facilitating Sterling Publishing third-party sales.

Management Information and Control Systems

The Company has focused a majority of its information resources on strategically positioning and implementing systems to support store operations, online technology requirements, merchandising, distribution, marketing and finance.

BookMaster, the Company’s bookstore inventory management system, integrates point-of-sale features that utilize a proprietary data-warehouse based replenishment system. BookMaster enhances communications and real-time access to the Company’s network of bookstores, distribution centers and wholesalers. In addition, the implementation of just-in-time replenishment has provided for more rapid replenishment of books to all of the Company’s bookstores, resulting in higher in-stock positions and better productivity at the bookstore level through efficiencies in receiving, cashiering and returns processing.

The Company believes that it has built a leading interactive e-commerce platform, and plans to continue to invest in technologies that will enable it to offer its customers the most convenient and user-friendly online shopping experience. Barnes & Noble.com has licensed existing commercial technology when available and has focused its internal development efforts on those proprietary systems necessary to provide the highest level of service to its customers. The overall mix of technologies and applications allows the Company to support a distributed, scalable and secure e-commerce environment.

The Company uses Intel-based server technology in a fully redundant configuration to power its website, which is hosted in two locations. At these locations, the Company maintains computers that store its web pages in electronic form and transmits them to requesting users. Such storage and transmittal is called hosting. The Company utilizes two hosting locations. One is hosted internally at the Company’s distribution center in Monroe Township, New Jersey and the other is maintained by a third-party hosting vendor. Either site has sufficient capacity to support the volume of traffic directed toward the Company’s website during peak periods. Both hosting locations are configured with excess Internet telecommunications capacity to ensure quick response time and three separate Internet service providers are used. By maintaining redundant host locations, the Company has significantly reduced its exposure to downtime and service outages. Additionally, the Company believes its technology investments are scalable.

The Company continues to implement systems to improve efficiencies in back office processing in the human resources, finance and merchandising areas. An offsite business recovery capability has been developed and implemented to help assure uninterrupted systems support.

Competition

The book business is highly competitive in every channel in which Barnes & Noble competes. The Company competes with large bookstores including Borders Group, Inc. (Borders) and Books-A-Million and smaller format bookstores such as Waldenbooks. The Company faces competition with many e-commerce businesses, notably Amazon.com. The Company also faces competition from mass merchandisers, such as Wal-Mart and Costco, some of which may have greater financial and other resources than the Company. The Company’s bookstores also compete with specialty retail stores that offer books in particular subject areas, independent store operators, variety discounters, drug stores, warehouse clubs, mail-order clubs and other retailers offering books and music. In addition, the Company’s bookstores may also face competition from the expanding market for electronic books and digital distribution of book content.

The music and movie businesses are also highly competitive and the Company faces competition from large established music retail chains, established movie retail chains, as well as specialty retail stores, e-commerce businesses, movie rental stores, discount stores, warehouse clubs and mass merchandisers. In addition, consumers receive television and mail-order offers and have access to mail-order clubs. The largest mail-order clubs are affiliated with major manufacturers of pre-recorded music and may have advantageous marketing relationships with their affiliates. In addition, the Company faces competition from the growing popularity of music downloading services.

Nominating Committee. Mr. Del Giudice is a co-founder and Senior Managing Director at Millennium Credit Markets LLC, an investment banking firm. He is Chairman of Rockland Capital Energy Investments LLC, Lead Director of the Board of Directors of Con Edison, Inc., a member of the Boards of Fusion Telecommunications Intl. and Reis, Inc., Vice Chairman of the Board of Trustees of the New York Racing Association, and a member of the Board of Advisors of Corinthian Capital Group, LLC, a private equity firm. He also serves as Chairman of the Governor’s Committee on Scholastic Achievement, an educational non-profit group.

William Dillard II has been a Director of the Company since November 1993. Mr. Dillard serves as Chair of the Corporate Governance and Nominating Committee and as a member of the Compensation Committee. Mr. Dillard has been the Chief Executive Officer of Dillard’s, Inc. (“Dillard’s”) since May 1998 and he has been a director of Dillard’s since 1968. He was appointed Chairman of Dillard’s in May 2002. Mr. Dillard is also a member of the JPMorganChase & Co. National Advisory Board, the JPMorganChase & Co. Dallas Region Advisory Board and a director of Acxiom Corp.

Patricia L. Higgins has been a Director of the Company since June 2006. Ms. Higgins serves as Chair of the Audit Committee and as a member of the Corporate Governance and Nominating Committee. Ms. Higgins was President, Chief Executive Officer and a director of Switch and Data Facilities Company, Inc., a leading provider of neutral interconnection and collocation services, from September 2000 to February 2004. Prior to that, she was Chairman and Chief Executive Officer of The Research Board from May 1999 to August 2000 and Vice President and Chief Information Officer of Alcoa Inc. from January 1997 to April 1999. Ms. Higgins is also a director of Travelers, Visteon and Internap. Ms. Higgins was a director of Barnes & Noble.com from 1999 to 2004.

Irene R. Miller has been a Director of the Company since May 1995. Ms. Miller serves on the Corporate Governance and Nominating Committee. Ms. Miller has been the Chief Executive Officer of Akim, Inc., an investment management and consulting firm, since July 1997. From September 1995 to June 1997, she was Vice Chairman of the Company as well as Chief Financial Officer of the Company, a position she held since September 1993. Ms. Miller is also a director of Coach, Inc., Inditex, S.A. and TD Bank Financial Group.

Lawrence S. Zilavy has been a Director of the Company since June 2006. Mr. Zilavy has served as a Senior Vice President of B&N College since May 2006. Mr. Zilavy was Executive Vice President, Corporate Finance and Strategic Planning for the Company from May 2003 to November 2004 and Chief Financial Officer of the Company from June 2002 through April 2003. Mr. Zilavy is a director of GameStop, The Hain Celestial Group, Inc. and the non-profit Community Resource Exchange, as well as a Trustee of St. Francis College in New York City.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Liquidity and Capital Resources

The primary sources of the Company’s cash are net cash flows from operating activities, funds available under its senior credit facility and short-term vendor financing.

The Company’s cash and cash equivalents were $16.8 million as of November 1, 2008, compared with $20.2 million as of November 3, 2007.

Merchandise inventories decreased $107.4 million, or 6.5%, to $1,558.1 million as of November 1, 2008, compared with $1,665.5 million as of November 3, 2007.

The Company’s investing activities consist principally of capital expenditures for new store construction, the maintenance of existing stores and system enhancements for the retail stores and the Company’s website. Capital expenditures totaled $158.0 million and $140.3 million during the 39 weeks ended November 1, 2008 and November 3, 2007, respectively.

The Company has an $850 million revolving credit facility dated as of June 17, 2005, as amended and restated on August 2, 2006 (Revolving Credit Facility). The Revolving Credit Facility has a maturity date of July 31, 2011 and may be increased to $1.0 billion under certain circumstances at the option of the Company. The Revolving Credit Facility has an applicable margin that is applied to loans and standby letters of credit ranging from 0.500% to 1.000% above the stated Eurodollar rate. A fee is paid on commercial letters of credit ranging from 0.2500% to 0.5000%. In addition, a commitment fee ranging from 0.100% to 0.200% is paid on the unused portion of the Revolving Credit Facility. In each case, the applicable rate is based on the Company’s consolidated fixed charge coverage ratio. Proceeds from the Revolving Credit Facility are used for general corporate purposes, including seasonal working capital needs.

The Company had $126.5 million in borrowings on November 1, 2008. Average borrowings under the Company’s Revolving Credit Facility were $61.5 million during the 39 weeks ended November 1, 2008 and peaked at $148.3 million during the same period. The ratio of debt to equity was 0.15:1.00 as of November 1, 2008, compared with 0.02:1.00 as of November 3, 2007.

Based upon the Company’s current operating levels, management believes cash and cash equivalents on hand, net cash flows from operating activities and the capacity under the Revolving Credit Facility will be sufficient to meet the Company’s normal working capital and debt service requirements for at least the next 12 months.

On September 15, 2005, the Company’s Board of Directors authorized a stock repurchase program for the purchase of up to $200.0 million of the Company’s common stock. The Company completed this $200.0 million repurchase program during the 13 weeks ended November 3, 2007. On May 15, 2007, the Company announced that its Board of Directors authorized a new stock repurchase program for the purchase of up to $400.0 million of the Company’s common stock. The maximum dollar value of common stock that may yet be purchased under the current open program is approximately $2.6 million as of November 1, 2008.

Stock repurchases under this program may be made through open market and privately negotiated transactions from time to time and in such amounts as management deems appropriate. As of November 1, 2008, the Company has repurchased 33,060,219 shares at a cost of approximately $1,047.4 million under its stock repurchase programs. The repurchased shares are held in treasury.

On May 29, 2008, the Board of Equalization of the State of California approved a global settlement in the total amount of $9.0 million, of which approximately $0.7 million was recorded and paid in 2003, in connection with a settlement regarding the collection of sales and use taxes on sales made by barnesandnoble.com llc (Barnes & Noble.com) from 1999 to 2005. Barnes & Noble.com paid the State of California $8.3 million during the 13 weeks ended November 1, 2008. See Part II, Item 1. Legal Proceedings under “ Barnesandnoble.com LLC v. Yee, et al.” of this Form 10-Q for additional information regarding this settlement.

On June 26, 2008, the Company exercised its purchase option under a lease on one of its distribution facilities located in South Brunswick, New Jersey from the New Jersey Economic Development Authority. Under the terms of the lease expiring in June 2011, the Company purchased the distribution facility and equipment for approximately $21.0 million.

The Company paid quarterly cash dividends of $0.15 per share on March 31, 2008 to stockholders of record at the close of business on March 10, 2008, paid quarterly cash dividends of $0.25 per share on June 30, 2008 to stockholders of record at the close of business on June 9, 2008, and on September 30, 2008, to stockholders of record at the close of business on September 9, 2008. On November 20, 2008, the Company announced that its Board of Directors had authorized a quarterly cash dividend of $0.25 per share for stockholders of record at the close of business on December 10, 2008, payable on December 31, 2008.

Seasonality

The Company’s business, like that of many retailers, is seasonal, with the major portion of sales and operating profit realized during the fourth fiscal quarter, which includes the holiday selling season.

Results of Operations

13 weeks ended November 1, 2008 compared with the 13 weeks ended November 3, 2007

Sales

During the 13 weeks ended November 1, 2008, the Company’s sales decreased $52.2 million, or 4.4%, to $1,123.4 million from $1,175.5 million during the 13 weeks ended November 3, 2007. This decrease was primarily attributable to a $44.2 million decrease in sales at Barnes & Noble stores and a $4.3 million decrease in sales at B. Dalton stores, slightly offset by a $1.0 million increase in sales at Barnes & Noble.com.

Barnes & Noble store sales for the 13 weeks ended November 1, 2008 decreased $44.2 million, or 4.4%, to $971.2 million from $1,015.4 million during the same period a year ago, and accounted for 86.5% of total Company sales. This decrease was primarily attributable to a 7.4% decrease in comparable store sales which decreased sales by $70.6 million and by closed stores that decreased sales by $24.9 million, partially offset by new Barnes & Noble stores that contributed to an increase in sales of $50.3 million.

B. Dalton stores sales decreased $4.3 million, or 24.3%, to $13.5 million during the 13 weeks ended November 1, 2008 from $17.8 million during the 13 weeks ended November 3, 2007. This decrease was primarily attributable to the closing of 21 B. Dalton stores over the last 12 months.

Barnes & Noble.com sales increased $1.0 million, or 1.0%, to $109.2 million during the 13 weeks ended November 1, 2008 from $108.2 million during the 13 weeks ended November 3, 2007. This increase was attributable to a 2.0% increase in comparable sales.

During the 13 weeks ended November 1, 2008, the Company opened nine Barnes & Noble stores and closed four, bringing its total number of Barnes & Noble stores to 728 with 18.7 million square feet. The Company closed two B. Dalton stores, ending the period with 71 B. Dalton stores and 0.3 million square feet. As of November 1, 2008, the Company operated 799 stores in the 50 states and the District of Columbia.

Cost of Sales and Occupancy

During the 13 weeks ended November 1, 2008, cost of sales and occupancy decreased $33.4 million, or 4.1%, to $787.1 million from $820.6 million during the 13 weeks ended November 3, 2007. As a percentage of sales, cost of sales and occupancy increased to 70.1% from 69.8% from the same period one year ago. This increase was primarily attributable to a physical inventory benefit of $10.3 million recorded during the 13 weeks ended November 3, 2007, as results were more favorable than previously estimated and accrued. Excluding the physical inventory benefit, as a percentage of sales, cost of sales and occupancy decreased to 70.1% from 70.7% from the same period one year ago. This decrease was primarily attributable to reduced promotional markdowns and increased volume through the Company’s distribution centers that more than offset the deleveraging of fixed occupancy costs on the negative comparable store sales.

Selling and Administrative Expenses

Selling and administrative expenses increased $15.8 million, or 5.2%, to $318.9 million during the 13 weeks ended November 1, 2008 from $303.1 million during the 13 weeks ended November 3, 2007. During the third quarter of the 52 weeks ending January 31, 2009 (fiscal 2008), selling and administrative expenses increased as a percentage of sales to 28.4% from 25.8% during the same period last fiscal year. Included in selling and administrative expenses for the 13 weeks ended November 1, 2008 were an $11.6 million impairment charge for property and equipment and a $3.0 million charge related to a management resignation. Excluding these charges, selling and administrative expenses increased as a percentage of sales to 27.1% from 25.8% during the same period last fiscal year. This increase was primarily due to the deleveraging of fixed expenses with the negative comparable store sales. The Company recorded an impairment charge of $5.9 million in the fourth quarter of fiscal 2007.

Depreciation and Amortization

During the third quarter of fiscal 2008, depreciation and amortization increased $3.2 million, or 7.6%, to $45.0 million from $41.9 million during the same period last fiscal year. This increase was primarily due to the depreciation on additional capital expenditures for existing store maintenance and new store openings.

Pre-opening Expenses

Pre-opening expenses decreased $2.3 million, or 41.5%, to $3.3 million during the 13 weeks ended November 1, 2008 from $5.7 million for the 13 weeks ended November 3, 2007. The decrease in pre-opening expenses was primarily the result of the timing of new store openings.

Operating Profit (Loss)

The Company’s consolidated operating profit (loss) decreased $35.3 million, to ($31.0) million during the 13 weeks ended November 1, 2008 from $4.3 million during the 13 weeks ended November 3, 2007. Included in the operating profit (loss) for the 13 weeks ended November 1, 2008 were an $11.6 million impairment charge for property and equipment and a $3.0 million charge related to a management resignation. Included in the operating profit (loss) for the 13 weeks ended November 3, 2007 was a physical inventory benefit of $10.3 million. Excluding these charges, operating profit (loss) decreased $10.4 million, to ($16.4) million during the 13 weeks ended November 1, 2008 from ($6.0) million during the 13 weeks ended November 3, 2007. This decrease in operating profit (loss) was primarily due to the negative comparable store sales.

Interest Income (Expense), Net and Amortization of Deferred Financing Fees

Net interest income (expense) and amortization of deferred financing fees decreased $2.3 million to ($1.5) million during the 13 weeks ended November 1, 2008 from $0.8 million during the 13 weeks ended November 3, 2007. The decrease was primarily due to the Company’s utilization of cash to buy back shares under its repurchase program during the first quarter of fiscal 2008.

Income Taxes

Income taxes were ($13.0) million during the 13 weeks ended November 1, 2008 compared with $2.0 million during the 13 weeks ended November 3, 2007. The Company’s effective tax rate was 39.94% and 40.00% for the third quarter of fiscal 2008 and the third quarter of the 52 weeks ended February 2, 2008 (fiscal 2007), respectively.

Minority Interest

Minority interest decreased $0.2 million, or 14.8%, to $1.1 million during the 13 weeks ended November 1, 2008 from $1.3 million during the 13 weeks ended November 3, 2007, and primarily relates to the approximate 26% outside interest in Calendar Club entities.

Net Income (Loss)

As a result of the factors discussed above, the Company reported a consolidated net loss of $18.4 million (or ($0.34) per diluted share) during the 13 weeks ended November 1, 2008, compared with a consolidated net income of $4.4 million (or $0.07 per diluted share) during the 13 weeks ended November 3, 2007.

Results of Operations

39 weeks ended November 1, 2008 compared with the 39 weeks ended November 3, 2007

Sales

During the 39 weeks ended November 1, 2008, the Company’s sales decreased $59.9 million, or 1.7%, to $3,505.3 million from $3,565.1 million during the 39 weeks ended November 3, 2007. This decrease was primarily attributable to a $51.1 million decrease in sales at Barnes & Noble stores, a $10.4 million decrease in sales at B. Dalton stores, offset by a $9.2 million increase in sales at Barnes & Noble.com.

Barnes & Noble store sales for the 39 weeks ended November 1, 2008 decreased $51.1 million, or 1.6%, to $3,086.0 million from $3,137.0 million during the same period a year ago, and accounted for 88.0% of total Company sales. This decrease was primarily attributable to a 4.6% decrease in comparable store sales which decreased sales by $134.9 million and by closed stores that decreased sales by $65.6 million, offset by new Barnes & Noble stores that contributed to an increase in sales of $143.4 million.

B. Dalton store sales decreased $10.4 million, or 18.6%, to $45.8 million during the 39 weeks ended November 1, 2008 from $56.2 million during the 39 weeks ended November 3, 2007. This decrease was primarily attributable to the closing of 21 B. Dalton stores over the last 12 months.

Barnes & Noble.com sales increased $9.2 million, or 3.1%, to $308.6 million during the 39 weeks ended November 1, 2008 from $299.4 million during the 39 weeks ended November 3, 2007. This increase was attributable to a 4.1% increase in comparable sales.

During the 39 weeks ended November 1, 2008, the Company opened 30 Barnes & Noble stores and closed 15, bringing its total number of Barnes & Noble stores to 728 with 18.7 million square feet. The Company closed 14 B. Dalton stores, ending the period with 71 B. Dalton stores with 0.3 million square feet. As of November 1, 2008, the Company operated 799 stores in the 50 states and the District of Columbia.

Cost of Sales and Occupancy

During the 39 weeks ended November 1, 2008, cost of sales and occupancy decreased $67.3 million, or 2.7%, to $2,447.1 million from $2,514.4 million during the 39 weeks ended November 3, 2007. As a percentage of sales, cost of sales and occupancy decreased to 69.8% from 70.5% from the same period one year ago. This decrease was primarily attributable to the reduced promotional markdowns and increased volume through the Company’s distribution centers that more than offset the deleveraging of fixed occupancy costs on the negative comparable store sales.

Selling and Administrative Expenses

Selling and administrative expenses increased $26.9 million, or 3.0%, to $929.2 million during the 39 weeks ended November 1, 2008 from $902.3 million during the 39 weeks ended November 3, 2007. During the 39 weeks ended November 1, 2008, selling and administrative expenses increased as a percentage of sales to 26.5% from 25.3% during the same period last year. Included in selling and administrative expenses for the 39 weeks ended November 1, 2008 were an $11.6 million impairment charge for property and equipment, an $8.3 million charge for the settlement with the State of California regarding the collection of sales and use taxes on sales made by Barnes & Noble.com from 1999 to 2005 and a $3.0 million charge related to a management resignation. Included in selling and administrative expenses for the 39 weeks ended November 3, 2007 were legal costs of $11.1 million. Excluding these charges, selling and administrative expenses increased as a percentage of sales to 25.9% from 25.0% during the same period last fiscal year. This increase was primarily due to the deleveraging of fixed expenses with the negative comparable store sales. The Company recorded an impairment charge of $5.9 million in the fourth quarter of fiscal 2007.

Depreciation and Amortization

During the 39 weeks ended November 1, 2008, depreciation and amortization increased $1.8 million, or 1.4%, to $130.6 million from $128.8 million during the same period last year. This increase was primarily due to the depreciation on additional capital expenditures for existing store maintenance and new store openings, offset by $2.6 million of accelerated depreciation in the prior fiscal year related to a distribution center closing.

CONF CALL

Joseph J. Lombardi

Good morning and welcome to Barnes & Nobles third quarter 2008 conference call. Joining us today are Steve Riggio, Mitchell Klipper and other members of the senior management team. Before we begin I would like to remind you that this call is covered by the Safe Harbor disclosure contained in our public documents and is the property of Barnes & Noble. It is not to be broadcast or used by any other party without the prior written consent of Barnes & Noble.

This morning before the market opened, we released our results for the third quarter ending November 1, 2008. Consolidated sales totaled $1 billion 123 million for the quarter, a 4.4 % decrease compared to last years 5.7 % increase.

Sales at Barnes & Noble stores were $971 million for the quarter, down 4.4 % over a year ago. Comparable store sales declined 7.4 % for the quarter, which was lower then guidance, which called for a decrease in the low single digits.

Store traffic was down throughout the quarter continuing a trend from earlier in the year. Our average ticket was slightly up this year until midway through the third quarter, when our average ticket began to decline albeit moderately.

Sales at barnesandnoble.com were $109 million for the quarter; a 2 % comparable sales increase on top of last years 14.5% increase. Gross margins declined 30 days this points this quarter however, last years third quarter gross margin included a physical inventory shortage benefit. Excluding the benefit from last year gross margins increased from 29.3 % to 29.9 % this quarter.

With a 7.4 % comparable stores sales decline our gross margins are pressured, as it is difficult to leverage fixed occupancy costs, which are included on our gross margin line. As was the case in the second quarter we continued to see margin benefits in two areas; first, greater through put and usage of our distribution center network and second, reduced markdowns as a percentage to sales.

Selling and administrative expenses include two charges recorded this quarter an $11.6 million pre-tax asset an impairment charge, and a previously announced pre tax charge of $3 million related to a management resignation.

Excluding those charges our selling and administrative expenses were essentially flat with last year at $304 million despite 19 net new store openings since then. The company has recorded an asset impairment charge during the fourth quarter in each of the last three years. This year impairment indicators warranted recognition of a charge in the third quarter. As a result, we determined that the asset carrying value in certain of our stores exceeded the anticipated future cash flows and the charge was recorded in the third quarter.

The company reported a net loss of $0.34 per share including the asset impairment charge of $0.13 per share and the management resignation charge of $0.03 per share. Excluding those charges, net loss per share was $0.18 compared to guidance for a loss per share of $0.10 to $0.15. At quarter end the company’s balance sheet and financial condition remain in excellent shape. Inventories declined $107 million or 6.5 % this quarter, compared to last year despite 19 net new store openings and the sales short fall.

The company had borrowings of $127 million at quarter end or $110 million net of cash. Our seasonal borrowing peaked last week at $200 million and we are forecasting year end cash balance of $150 to $200 million and no debt.

While we were disappointed with our sales performance, we believe that much of our comparable stores sales decline has to do with external economic forces. We are however very pleased with three accomplishments in areas of our business we can control.

First, we maintained and controlled our store expenses, particularly store payroll, while delivering outstanding customer service. Second we reduced our inventory quantities while maintaining quality and selection. And finally, we increased gross margins through relentless pursuit of improving supply chain efficiencies and maintaining our focus on promoting profitable top line sales.

Now we’d like to talk about fourth quarter and full year guidance. While it is difficult to forecast sales in any certainty in the current retail environment, the company is reducing its full year sales and earnings forecast based on the negative sales trends to date. For the fourth quarter, the company expects comparable store sales to decline 6% to 9 %. This would result in a decline in full year comparable store sales of about 5% to 6%. Fourth quarter earning per share is projected to be in a range of $1.40 to $1.70. Full year earnings per share is now expected to be in a range of $1.30 to $1.60.

In our second quarter conference call we lowered our capital expenditure guidance for 2008 down to a range of $210 to $220 million. We now expect this year's capital expenditure number to be $190 to $200 million as certain projects have been cancelled or deferred.

In addition, last quarter we noted that our store opening count for 2009 would be 20 to 25 new stores. We are now reducing that number to approximately 15 new stores which is a result of many new developments around the country being delayed or cancelled. Nine of the new stores for next year are relocations and upgrades.

In light of the current business climate and preliminary expectations for 2009, the company is currently reviewing its capital expenditures and expenses with the focus on cash flow. We currently forecast $50 to $75 million of free cash flow this year. As I noted earlier, we expect to have $150 to $200 million of cash on hand at year end with no debt. Our borrowing capacity significantly exceeds our seasonal financing needs. We have ample room in the financial covenants required by our credit facility and our facility has a term through 2011.

In addition, we have hundreds of store leases, which are up for renewal in the next few years. We generally have high quality real estate in terms of our centers and co-tenancies. Traditionally we sign 10-year leases with multiple options, which provides us with tremendous financial flexibility on renewing these leases.

Given today’s retail and economic outlook we believe that this real estate flexibility, coupled with the strength of our balance sheet overall, will enable us to manage our business as effectively as possible during these uncertain times.

At this point I’d like to turn this discussion over to our CEO, Steve Riggio.

Stephen Riggio

We are obviously seeing the same type of decline in traffic being reported by other major retailers. The book business has also been affected by lack of coverage of books both in the mainstream media and on cable, news and talk radio, which were all fully devoted to coverage of the Presidential election and then the economic crisis which hit in September.

The comparable store sales decline we’ve experienced, as Joe mentioned, has had a deleveraging affect on the business as SG&A has risen as a percent of sales. As we all know, comparable store sales declines in retail typically also result in rising levels of unsold goods and subsequent deterioration of gross margins due to markdowns.

This is not the case with Barnes & Noble. Our inventory levels are lower than last year by a good amount, and our merchandise gross margins are higher then last year. While inventory levels have decreased, we have maintained outstanding breadth of selection in our stores and online. In fact our in stock standards for what we call core titles have never been higher. We have the books the people need and that they ask for everyday.

The increase in gross margin we’ve experienced is the result of small but steady improvements in our supply chain, thus reducing our use of lower margin purchases from whole sellers, and additionally margins have increased due to mix and lower sales of bestsellers and other low margin products, especially music and by less discounting promotional discounting and less couponing.

Our Internet sales out paced retail sales for the quarter, during which time we launched some extensive improvements to our website and expanded our product range. As we head into the holiday season our stores are well stocked and well staffed. Our website and e-commerce fulfillment and customer service departments are processing orders faster then ever, and we will continue to provide world class customer service whether people choose to shop online or in our stores.

In the difficult environment, economic environment, we believe that books compared to most other consumer product represent gifts that are affordable, personable, memorable and that last a lifetime. In conclusion, we are laser-like focused on managing our working capital efficiency, which is evident in a reduction of $170 million of inventory compared to last year and lowering our capital expenditures.

The company expects to have no borrowings at year-end. We believe that maintaining a strong balance sheet remains the major priority in this negative economic cycle.

Joseph J. Lombardi

At this point we’d like to turn it over to questions.

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