Results in the second quarter ended October 30 at Barnes & Noble were marked by big gains at Barnes & where comparable sales rose 59% led by sales of digital content and core products, and slower sales in the trade stores were sales fell 5% and same store sales dropped 3.3%. Overall, sales, excluding the results of the college bookstore division, increased 1%, to a total of $1.91 billion; including the $798 million in college revenue sales were up 64% (B&N bought Barnes & Noble College Booksellers last September). Net loss in the quarter was $12.6 million, down from $23.9 million in the comparable period in 2009.

At the retail stores, sales were led by the Nook, children’s products and non-book merchandise. Sales of books were softer than expected, and CEO William Lynch said the core book business remains “under pressure.” It’s clear, Lynch added, that the physical book market is flat and will shrink. Still, executives said B&N is committed to the staying in the bookstore business and Mitch Klipper said there are no plans to close more than eight to 10 stores in the year. But it is also clear that e-readers and, in B&N phrasing, “e-content,” drove gains in the second quarter and will grow sales in the holiday season. Nooks, including Nookcolor which shipped this month, are selling well not only in B&N stores but at Books-A-Million and Best Buy; Nookcolor arrives at Wal-mart this week. The success in selling $300 devices, Lynch said, has B&N thinking about selling other electronic devices. E-content sales, meanwhile, are expected to achieve an annual rate of $400 million by the end of the fiscal year in April.

Comp sales were slightly lower than expected in the second quarter at both trade stores (original forecast to decline1% to 3%) and college stores, which were originally projected to be flat but which fell 1.5%. A decline in new textbook sales offset gains in used texts and rentals. College students are adopting digital materials much slower than consumers, Lynch observed.

Executives also continued to defend B&N’s heavy investment in digital technology, which hurt earnings in the quarter and will for the full year. Lynch said early forecasts suggest that B&N’s return on investment in the digital space “maybe better” than originally believed in the next one to three years, adding that B&N is investing at the right levels to add value to shareholders. Some analysts have questioned B&N’s strategy, which has hurt its bottomline.

In the holiday quarter, comp sales at B& are projected to increase 75% led by e-content and core products, while comp sales at the retail stores will rise 5% to 7% led by sales of Nooks, children’s products and non-book merchandise.

For the first six months of fiscal 2011, revenue (including the college division) rose 54%, to $2.50 billion, while the net loss jumped to $75.1 million from $11.7 million. The higher loss wasd due in part to expenses associated with the proxy fight ($10 million in the second quarter) and digital investments.

The company also noted that the strategic review of the company, which could include the sale of B&N, was proceeding with meetings being held with strategic and financial institutions. No timetable for a decision was announced.