Big Booksellers Plunge on Earnings Warning

Barnes & Noble warns, and Borders drops in sympathy. What next for the bookselling names?
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Blaming the war on terrorism, bookseller

Barnes & Noble

(BKS) - Get Report

warned that its earnings will fall far short of expectations.

Shares plunged on the news, falling $10.18, or 27%, to $27.90. The company cut its guidance Thursday in its monthly sales release, blaming both terrorist warnings in recent weeks that kept shoppers from malls and news of the war that has overshadowed new book releases.

For its current fiscal year ending in January, the New York-based company now expects earnings of $1.08 to $1.12 per share, compared with expectations of $1.60, according to Thomson Financial/First Call.

"We expect to continue to benefit from the countercyclical nature of the book business, yet recognize that even our business will be somewhat affected," said Leonard Riggio, chairman and chief executive of Barnes & Noble, in a statement. "Problematic is the lack of media exposure for authors amid the din of crisis coverage."

The extent of the warning surprised Wall Street analysts who follow the company, because the book business was thought to be more resilient to the downturn in the economy than other retail categories such as apparel.

"It was a surprise," says William Armstrong, an analyst for CL King. "It just goes to show that no company or category is immune to the consumer spending slowdown." (Despite the shortfall, Armstrong, whose firm doesn't have a banking relationship with Barnes & Noble, said he would keep his strong buy rating on the stock.)

Shares in rival

Borders

(BGP)

, which had previously warned that its quarterly earnings would be lower than expected because of the terrorist attacks, were also down significantly. Shares were off lately $1.66, or 9.5%, at $15.85.

Borders, however, has even more exposure to malls than Barnes & Noble, notes Armstrong, raising the possibility of more earnings warnings as Americans remain jittery about visiting populated shopping centers.