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Barnes & Noble (BKS) is bracing for disappointing profits this year, as the bookseller struggles to keep customers by lowering prices. Shares of the retailer tumbled 11.4% to $35.56 on Mar. 5, after the company trimmed its forecast for 2007 and plans to close an Internet distribution center.



Barnes & Noble is still expecting to announce in the coming weeks that it earned $2.20 to $2.30 per share during its fiscal year ended



Feb. 3. But now the New York company thinks it will then earn between $1.65 to $1.80 per share during its current fiscal year [ending January 2008]. Analysts had forecast EPS of $2.41 for 2007, according to press reports.



We have decided to reinvest a portion of our cash flow to reward our best customers by the recent lowering of prices to our Members, CEO Stephen Riggio explained in a press release Mar. 5.



Barnes & Noble is fighting for business in an industry that doesn t profit much on sales anyway. Tough rivals like Amazon (AMZN) and Borders (BGP) are putting on the heat to lower prices. On Oct. 24, Barnes & Noble announced that customers belonging to its Member program will get 40% off on hardcover bestsellers, 20% off other adult hardcovers, and an extra 10% off things like paperbacks, bargain books, children s books, CDs, DVDs, and caf items. When J.K. Rowling s Harry Potter & the Deathly Hallows goes on sale on July 21, Barnes & Noble expects to sell the books at a deep discount.



The basic idea is that if you hype up a book like Potter and get people to line up at your stores on the day of its release, the crowds will end up buying more in general as a result. But Barnes & Noble thinks total sales will only be between $4.6 billion and $4.7 billion in 2007, increasing around 2% to 4% over 2006. Sales at stores open more than a year will be unchanged year over year or at best slightly positive.



Instead of raising prices, Riggio is trying to bolster profits by streamlining business operations. He s going to close Barnes & Noble s Internet distribution center located in Memphis, Tenn. in 2007. Instead, all the company s Internet orders will be fulfilled from a new center in Monroe, N.J. and an existing facility in Reno, Nev.



Barnes & Noble is planing to report full-year 2006 earnings around Mar. 22. The company continues investigating its accounting of stock options, so its recently announced forecasts don t include any changes that might be related to such issues.