With Barnes & Noble completing a difficult fiscal 2013 with a bad fourth quarter, publishers are continuing to wonder what is next for the nation’s largest bookstore chain and second largest source of book purchases behind Amazon. While B&N’s results for the full fiscal year were down, what seemed to worry publishers and investors the most was the fourth quarter, when sales in the trade retail and Nook segments were noticeably worse than for the full year.

In the trade stores, total sales fell 10.0% in the fourth quarter with comps down 8.8%, while Nook sales tumbled 34%, including an 8.9% decline in content sales, which still finished up 16.2% for the year. For the full year, retail sales were down 5.9% and Nook sales off 16.8%. The major fourth-quarter sales trends—declining device sales and difficult book comparisons—will continue well into fiscal 2014.

The biggest problem for B&N at the moment, of course, is Nook Media, which in the course of 15 months has gone from the savior of the company to an albatross. Created with much fanfare, with more than $600 million in financial support from Microsoft in April 2012, Nook Media once again dragged down results at B&N. While one half of Nook Media—the college stores—had a solid fiscal year, the Nook division had a terrible year, reporting an EBITDA loss of $475 million, much higher than the company expected. Even the retail trade stores were hurt by Nook as declining sales of Nook devices were a major contributor to the decline in sales at the stores. Comparable store sales in the year were down 3.6%, but excluding the sale of Nook devices, comps were essentially flat with fiscal 2012.

With executives declining to discuss the status of B&N chairman Len Riggio’s offer to buy the retail trade stores or offer a time frame for when a decision on the deal might be reached, executives did say that they are considering various ways to use the cash the retail stores are expected to generate in fiscal 2014. B&N has fenced in Nook Media’s balance sheet, CEO William Lynch noted, and in any case he expects Nook to continue to be “self financing” by cutting costs, converting existing Nook device inventory into cash, and including cash flow from Barnes & Noble College and cash payments from Microsoft. The $475 million Nook loss includes $222 million in inventory charges, and B&N will continue to sell all existing devices through the holidays, but will look for a partner to manufacture its color tablets, while continuing to develop the Simple Touch and Glowlight readers in-house. The Simple Touch and Glowlight, Lynch noted, drive the majority of content sales that come from devices. In the fourth quarter of fiscal 2013, B&N cut Nook expenses from $78 million to $52 million in part by reducing marketing costs and cutting headcount. More cuts along those lines are expected in the current year.

B&N said it will invest about $33 million in the Nook unit this year and will put more money into its retail trade stores, devoting $75 million in 2014 to cover opening as many as five new stores and to cover upgrades in its existing outlets. The company has 675 trade stores after closing 18 and opening two in fiscal 2013; it will close 15 to 20 in the current year. EBITDA increased at the trade stores despite the decline in sales because of higher sales of higher margin products and “increased vendor allowances,” something that helps explain its still ongoing fight with Simon & Schuster over terms and co-op.

While the outlook for the retail stores is far better than for Nook, that division has its own worries, with the company saying it expects comparable store sales at the stores to decline in high single digits in fiscal 2014 due to difficult comps with Fifty Shades in the first two quarters, “secular industry challenges,” and continued sales declines of devices.

Barnes & Noble Segment Results, Fiscal 2012–2013 (in millions)