I don't know about you, but for me there's nothing quite like picking up a good book, kicking back, and indulging in a great story. If this sounds like you, then you are likely one of the 78% of Americans who read at least one book in 2011. However, just because a hefty portion of Americans read doesn't mean that there are high-flying profits to be made in the book-selling industry. Despite posting a better-than-expected earnings report, Barnes & Noble (BKS) looks to be in very deep trouble, and so does its peer Books-A-Million.

Barnes & Noble beat forecasts but looks dismal
For its most recent quarter, Barnes & Noble brought in revenue of $1.73 billion. This represents an 8% decline from the $1.88 billion it brought in during the same quarter a year ago. The largest contributor to the decline was its retail segment, which saw sales decline by 7.5% from $996 million to $921 million. In all, the problem was largely attributable to a 4.9% decline (3.7% if you exclude lower NOOK sales) in comparable-store sales.

In addition, Barnes & Noble experienced a decline in its college segment, which saw sales fall 4.6% from $773 million to $737.5 million. This too was driven by a 3.6% fall in comparable-store sales. This segment benefited from an unspecified improvement in general merchandise sales, but a lower-priced product mix and fewer new and used book sales hindered the segment.

As if these segments weren't bad enough, for the quarter, Barnes & Noble saw its NOOK segment's revenue fall by 32.2% from $160.3 million to $108.7 million. Although digital content sales fell, it was the 41.3% drop in device and accessories sales that really slammed the company's results. This should serve as a sign to the Foolish investor that the NOOK is likely on its way out.

Despite the drop in revenue, the company did report earnings per share that exceeded analyst expectations. For the quarter, Barnes & Noble reported earnings per share of $0.15, far higher than -$0.07 during the same quarter a year ago and better than the -$0.03 that analysts expected. The primary driver behind the better-than-expected earnings was a decrease in the company's cost of revenue, which declined as a percentage of sales.

To make the situation worse for Barnes & Noble, two troubling pieces of information have recently surfaced which have investors scared. First, the company is currently being investigated by the SEC on two separate matters. The first matter relates to allegations by a former employee-turned-whistleblower who says that the company has been placing some of its NOOK expenses in its retail segment to make the segment more attractive to potential acquirers. The second investigation is in regards to a 2011 and 2012 earnings restatement that considerably improved the company's earnings for the past couple years. Apparently, the government is concerned that the restatements might be too extreme to hold a basis in reality.

In addition, investors have become concerned about the company's Chairman, Leonard Riggio, selling $27.6 million of stock and booking a loss of $40 million for "tax planning purposes." Though he still owns 26.3% of the company's shares, a sale of this magnitude might serve as a warning to investors that trouble is brewing.

Books-A-Million isn't terribly thrilling either
Barnes & Noble isn't the only poor performer in this arena. For the most recent quarter, Books-A-Million saw revenue decline by 3.5% from $104 million to $100.4 million. The decline was largely attributable to comparable-store sales declining by 8.5%.

On top of decreased revenue, the company saw its earnings per share fall from -$0.18 to -$0.47. While lower revenue played a role in this decline, so too did increases in the company's cost of revenue and its selling, general, and administrative expenses as a percentage of sales. Books-A-Million's cost of revenue rose from 73.6% of sales to 73.8%, while its selling, general, and administrative expenses increased from 26.6% of sales to 28.6%.

These declines in fortune have been a long time coming
Revenue has been fairly sporadic for both retailers over the past five fiscal years, but their net incomes have told a very convincing story. Books-A-Million has seen its net income fall (albeit with some volatility over the years) from $10.6 million in 2009 to $2.5 million in 2013. With the company's diverse range of investments that includes yogurt and real estate, its shareholders have been hit with only one year of net loss.

Barnes & Noble hasn't been so lucky. For four of the past five fiscal years, its bottom line has dropped, falling from $75.9 million in 2009 to -$157.8 million in 2013. Unlike Books-A-Million, which saw revenue hover within a thin range, Barnes & Noble has seen revenue increase in four of the past five fiscal years, but it has been hit with significantly increasing costs.

Foolish takeaway
As consumers move toward e-books, it's becoming more difficult for booksellers to maintain their profitability. This is good for readers who can gain access to literature more easily and at reduced costs, but bad for all the other stakeholders of companies like Barnes & Noble and Books-A-Million. Also, as we've seen with the NOOK, Barnes & Noble cannot compete against other tablet makers like Apple with its iPad product line.

Unless booksellers can find some way to stay relevant in the face of the move toward digital content, their shareholders should be prepared for more quarters of lower revenue and, very possibly, increased net losses. In the long run, this threat may serve to undermine the viability of traditional booksellers. However, if management at Barnes & Noble can find something of value to latch onto, like Books-A-Million has done with its non-core endeavors, then shareholders may see some sort of turnaround.