Barnes & Noble loss widens, weighing Borders bid

The disclosure came as the nation's largest bookseller reported a wider loss in the first quarter on a tax-related charge and lowered its sales guidance for the year.

Speculation had been mounting about a possible Barnes & Noble-Border combination since Borders announced in March that it was putting itself up for sale and that it had lined up $42.5 million in financing to help it continue operations. At that time, Barnes & Noble said it would take a look at its rival.

Borders issued a statement on Thursday saying that the company is "in the midst of the strategic alternatives process and has not engaged in substantive discussions regarding any specific transaction to date."

Booksellers are facing fierce competition from discounters like Wal-Mart Stores Inc., which has been aggressive about price-cutting.

Barnes & Noble officials declined to elaborate further regarding its review of Borders. But industry analysts say that a potential combination of Borders and Barnes & Noble would face numerous obstacles, from the challenge of pairing back a long list of overlapping stores to antitrust concerns from federal regulators.

New York-based Barnes & Noble said it lost $2.22 million, or 4 cents per share, in the quarter ended May 3. That compares with a loss of $1.67 million, or 3 cents per share, in the year-ago period.

Excluding the charge, the bookseller would have earned 5 cents per share. The charge was related to an agreement in principle with the State of California to settle its long-standing dispute regarding the collection of sales and use taxes on sales made by Barnes & Noble.com from 1999 to 2005. As a result, the company recorded a one-time pre-tax charge of approximately $8.3 million.

The company says revenues edged up to $1.16 billion in the first quarter, from $1.15 billion in the year-ago period.

Analysts surveyed by Thomson Financial expected a profit of 5 cents per share on revenues of $1.17 billion. The estimates typically exclude one-time items.