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Barnes & Noble reported on Tuesday a quarterly loss resulting from steep costs to develop its Nook e-reader and weak physical book sales.

Barnes & Noble is investing heavily in its e-readers, including the new Nookcolor, an associated bookstore and content such as children's books as it tries to retool itself for the future.

"We see a massive opportunity for Barnes & Noble in the growth of digital reading over the next five years," said CEO William Lynch. The e-reading push is necessary to offset tough competition from discounters and online retailers and capitalize on the increasing popularity of digital books, he said.

"It's clear the market for physical books is flattening and will shrink in the future as digital content scales quickly," Lynch said. "With these dynamics driving the industry, there will be fewer bookstores in this country, and we expect fewer non-book retailers selling books."

The largest U.S. traditional book seller painted a rosy picture of its electronic e-reader and e-book sales. The Nookcolor, which began shipping in recent weeks, is selling twice as fast as expected, Lynch said. He added the company has grabbed 20 percent of the electronic book market since its e-book store debuted last year.

But overall results were weaker than analysts expected. The company's loss for the quarter that ended Oct. 30 was $12.6 million, or 22 cents a share, compared with $24 million, or 43 cents a share, a year earlier. Analysts polled by Thomson Reuters expected a much smaller loss of 8 cents per share.

Revenue jumped 64 percent to nearly $1.91 billion, but that was mainly due to added revenue from the acquisition of its college bookstore unit last year. Excluding that, revenue rose just 1 percent. Revenue in stores alone fell 5 percent to $931 million.

Revenue in stores open at least a year fell 3.3 percent.

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