Let's read between the lines of Barnes & Noble's (NYSE: BKS) fiscal-first-quarter earnings release.

Investors are glowing on the relative strength of the Nook and the company's digital content sales, while physical book sales slip. BN.com sales, which include Nook offerings, rose 37% compared to last year, to $198 million, showing a comparable-sales increase of 65%. Not surprisingly, bricks-and-mortar sales decreased 3%, to $1 billion, with comparable-store sales falling 1.6%. The company's college segment similarly showed declining sales and comps.

Full-year guidance was fairly rosy, with the company projecting BN.com's comparable sales jumping 60% to 70%. B&N expects retail comps to increase 2% to 3%, as it's hoping to catch sales fallout in the ballpark of $150 million to $200 million from the liquidation of Borders stores. I'm skeptical of comps rising that much since the biggest comps increase in the past five years was only 1.8%, and that was back in 2007. The company expects its consolidated Nook business across all segments to double this year to $1.8 billion.

The company's balance sheet is starting to run a little light on cash, down to $22.4 million. That $204 million from Liberty Media (Nasdaq: LCAPA) could come in handy right about now. Digital sales are the only saving grace for the company, and the company is plunging all the profit from its retail bookstores into growing BN.com. The retail segment generated $45.5 million in EBITDA, covering some of the losses from the college and BN.com areas, which lost $69.1 million combined.

The only story here that might have a happy ending for shareholders is a turnaround story. I'm glad the company is recognizing the need to grow its fledgling digital offerings in the face of declining physical sales, since ignoring that trend was the fatal mistake that led to Borders' demise.

Things are starting to shape up with Barnes & Noble's digital strategy, and the benefits from Liberty Media's investment will start to sink in soon. The real test will be how the Nook stands up against Amazon.com's (Nasdaq: AMZN) Android tablet when it's released, since it will be more of a direct competitor than the highly specialized Kindle. Investing is a holistic process, and as a whole I don't see B&N as a worthwhile investment. It has some legitimate bright spots, but it also has some glaring weaknesses.

Fool contributor Evan Niu owns shares of Amazon.com, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.