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NEW YORK CITY-Barnes & Noble on Thursday reported second-quarter net earnings of $12.3 million on sales of $1.2 billion. Despite a 5% year-over-year decline in sales, CEO Steve Riggio says in a release that “strong expense management and improved gross margins” helped the book retailer post earnings per share at the high end of guidance.

“While the decline in retail traffic continues to be the principal impediment to our top line, we do offer our customers the ability to shop with us online, where sales were slightly above last year,” Riggio says in the release. “We remain focused on working capital management, which resulted in solid free cash flow and no borrowings on our credit facility for the second quarter.”

Sales overall were off 5% year-over-year for the quarter ended August 1, with store sales dipping 5% and comparable store sales decreasing 6.9% for Q2, the company said Thursday. Online sales rose 2% year-over-year to $102 million.

In a conference call Thursday, CFO Joe Lombardi cited a dearth of strong bestsellers on the order of Randy Pausch’s The Last Lecture compared to Q2 2008. Nonetheless, he said B&N’s financials were “in excellent shape” at the end of the quarter, and noted that stores were controlling inventory “very well” given the sales climate.

Lombardi said 87 store leases were expiring next year, and the company has all of them either renewed or under negotiation at “very favorable” rents. Similarly, 124 leases will be up for renewal in 2011, and Lombardi expected being able to secure similarly advantageous terms. “The landlords are very anxious to make sure we stay in these centers.”

During the third quarter of this year, B&N expects comp sales at Barnes & Noble stores to decline 1% to 3% and continues to expect its full-year comps to decline 3% to 5%. B&N operates 724 Barnes & Noble and 50 B. Dalton locations, closing four stores and opening one in Q2.

Also in Q3, B&N’s $596-million acquisition of Barnes & Noble College Booksellers is expected to close. Originally announced on August 10, the acquisition gives B&N an operation that runs about 35% of the college bookstores in the US. It’s currently owned by B&N chairman Leonard Riggio.

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