Bookmarking B&N for Later

Barnes & Noble's (NYSE:BKS) third-quarter financial results highlighted the idea that peddling books and music is a competitive business indeed. Its results were preliminary, since the company is still conducting a review of its stock option practices. However, the information we do have leaves some interesting questions for would-be investors.

If you consult our Fool by Numbers for the quarter, you'll see Barnes & Noble reported a loss of $2.8 million, or $0.04 per share, including $0.03 per share in stock option expense. Sales increased 3% to $1.11 billion. Same-store sales rose 2%, with B. Dalton being a trouble spot due to store closures.

Several bestsellers helped sales, including books by John Grisham and Barack Obama. Mitch Albom's book, For One More Day, was another hit -- you might recognize that title, since Starbucks (NASDAQ:SBUX) has made a high-profile move to distribute it in its cafes as well. (I was a little surprised to see that a bookseller would misspell Albom's name in its press release, but maybe that's just me.)

The major theme in Barnes & Noble's conference call was its decision to further lower prices on adult hardcover books in its membership program. "We believe that giving . some of the margin gains that we have realized back to our customers is a good long-term strategy," CEO Steve Riggio said.

Indeed. It's not lost on anyone that this is a hyper-competitive business these days. There's Borders (NYSE:BGP), as well as discount book chain Books-A-Million (NASDAQ:BAMM). And of course there's another giant in books and music -- Amazon.com (NASDAQ:AMZN), with its discounted prices and wide selection. Personally, I buy most of my books and music through Amazon or Apple's (NASDAQ:AAPL) iTunes, and I'm betting lots of people do the same -- these days, the ease with which people can obtain media online shouldn't be underestimated. And speaking of margins, Amazon's made a major bid for repeat patronage with its Amazon Prime program, a considerable act of aggression in the industry that helps persuade its customers to frequent its online store with its cut-rate shipping.

The holiday season is fast approaching (in fact, given retailers' early push this year, you could argue that it's already begun), and that's a great time for a company like Barnes & Noble; people are hitting the streets in droves looking for gifts for their families and friends.

However, Barnes & Noble's new emphasis on price-busting bears watching as it tries to drive higher growth in such a competitive space -- investors are going to want to see how well it does achieving higher sales volume and how that impacts profitability. It seems to me this is a good time to grab a book and wait awhile for Barnes & Noble.

For more, turn to the following Foolish articles:

• Check out the numbers with the third-quarter Fool by Numbers.
• Earlier this year, Barnes & Noble missed Harry Potter.
• Wall Street threw the book at the bookseller in May.

Amazon.com and Starbucks are Motley Fool Stock Advisor recommendations. To find out what other companies David and Tom Gardner have highlighted as worthy investments, click here for a 30-day free trial.

Alyce Lomax owns shares of Starbucks. The Fool has a disclosure policy.