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Barnes & Noble Inc. reported lower-than-expected quarterly sales, hurt by discounts as its Nook e-reader business competes with Amazon.com's Kindle franchise.

The company said it expects sales at existing bookstores to drop by low to mid-single digits in the current fiscal year as the boost it got from customers shifting over from the now defunct Borders chain ebbs.

Barnes & Noble's fourth-quarter loss was also bigger than analysts expected and its shares fell 3.7 per cent to $14.67 Tuesday on the New York Stock Exchange.

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The company has poured hundreds of millions of dollars into the development of Nook, including a glow-in-the-dark model, whose positive reviews allowed it to garner some 27 per cent of the U.S. e-books market in the 2-1/2 years since the reader was launched.

But that compares with 60 per cent for Amazon, and in January, the retailer acknowledged slower-than-expected sales of devices such as the black-and-white Nook Simple Touch.

As the black and white e-reader market matures, the battleground is shifting more to color e-readers and tablets that offer more media, and not just text.

"That's where Barnes & Noble has an uphill battle," Morningstar analyst Peter Wahlstrom said. "Amazon has a distinct lead in that area."

Barnes & Noble is counting on a deal with Microsoft Corp. and reduced development expenses for Nook to ease losses for the digital business this fiscal year.

The deal, in which Microsoft will invest $300-million and get a 17.6 per cent stake in a new subsidiary consisting of the Nook digital business and its College bookstore chain, is expected to close later this year.

Microsoft announced plans on Monday to launch its own line of tablet computers to compete with Apple Inc.'s iPad.

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Barnes & Noble also plans to have Nook devices and digital book stores in some international markets for the holiday season.

Barnes & Noble sales in the fourth-quarter ended April 28 were hurt by returns of the device from retailers during the fourth quarter, typically the slowest in sales for Barnes & Noble.

Revenue for the quarter was $1.38-billion, up slightly from a year earlier, but below the average analyst estimate of $1.48-billion, according to Thomson Reuters I/B/E/S.

The company posted a net loss of $57.7-million, or $1.08 per share, for the quarter, compared with $59.4-million, or $1.04 per share, a year ago.

Excluding one-time items, the loss was 98 cents a share, compared with the average analyst estimate of a loss of 93 cents, according to Thomson Reuters I/B/E/S.

Revenue at its Nook business, including e-books, fell 19 per cent to $164-million during the fourth quarter, as the company took returns of the Simple Touch reader.

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Same-store sales at its 700 super stores rose 4.5 per cent compared with the year-earlier quarter. But some of that increase was due to more of a boost than the company expected from Borders going out of business.

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