Total sales increased 5% in the third quarter ended January 28 at Barnes & Noble, to $2.44 billion, but continued investment in digital products dropped net income to $52.0 million from $60.6 million in the comparable period last year. EBITDA (earnings before interest, taxes, depreciation and amortization) fell 12%, to $150 million.

Sales at the retail stores rose 2% in the quarter, to $1.49 billion, with comp sales up 2.8% led by sales of “core” items (which exclude sales of devices, accessories ) which rose 4.2%; comp sales of physical books rose over 4%. Sales in the stores were led by double digit gains in its children and toys & games segments. Total sales of devices were impact by lower prices. EBITDA rose in the segment to $206.9 million from $177.6 million and B&N said it expects EBITDA for the full year to be up. CEO William Lynch said in a conference call that the retail stores continue to be an “excellent” business for B&N and that increasingly B&N outlets are the only places to shop for a wide range of content. B&N’s Mitch Klipper said “95 out of 100” stores with leases up for renewal are being renewed at lower rents. "Landlords won’t let us go,” Klipper said. Store traffic was up over the holidays due to the closing of Borders and from customers who bought a Nook at another store going to B&N to get the device set up, Klipper said. B&N closed 12 stores in the quarter, but doesn't expect to shut many more this year. sales increased 32% over the prior year, to $420 million. Comp sales increased 42%. B&N said the increase was driven by continued growth of Nook devices and digital content sales, offset by a decline in online physical product sales. Investments in such areas as staffing, advertising and creation of Nook boutiques in stores led to a higher EBITDA loss, which rose to $93.7 million in the most recent period from $50.5 million a year ago. Lynch said in that most of the increased spending was around “customer acquisition” that should lead to purchase of more content in future quarters. While saying that B&N will continue to invest in its digital business (with the rollout of a new Nook Tablet 8GB version for $199), Lynch noted that the build out of boutiques was largely completed.

The consolidated Nook business across all of the company’s segments, including sales of digital content, device hardware and related accessories, increased 38% during the third quarter to $542 million, on a comparable sales basis. Nook unit sales increased 64% during the third quarter as compared to the same period last year. Digital content sales increased 85% on a comparable basis. Content sales to include digital books, digital newsstand, and the apps business.

Barnes & Noble College sales declined 3% to $525 million, due to a shift from selling new and used textbooks to lower priced textbook rentals. Comparable store sales were flat as compared to a year ago. College comparable store sales reflect the retail selling price of a new or used textbook when rented, rather than solely the rental fee received and amortized over the rental period.

B&N reiterated its previous guidance announced for the full year with sales expected to be between $7.0 billion and $7.2 billion. Comparable sales at Barnes & Noble stores are expected to increase 1%, Barnes & Noble College sales are expected to be flat, and sales are expected to increase 40% to 50% at The consolidated Nook business is expected to generate approximately $1.5 billion in comparable sales this fiscal year.

The company expects full year EBITDA to be in a range of $150 to $180 million and full year losses per share to be in a range of $1.40 to $1.10. For the first nine months of fiscal 2012, total sales were up 2.2% and its net loss fell to $11.1 million from $14.5 million. The company said it expects to decide by the end of the fiscal year how it will report its digital business; it has been evaluating different ways to highlight the growth of its Nook business.