GAME INDUSTRY GROWTH EXPECTED
August 17, 2000

In its second quarter fiscal results, Barnes & Noble, which is now the largest game retailer thanks to its acquisition of Funco earlier this year, posted slow gaming sales. However, the company expects things to begin improving when PS2 is released later this year and remains optimistic for the future.

Video Game & Entertainment (Babbage's Etc./Funco) sales for the quarter were $127.3 million, slightly higher than forecast. Gross margin was lower than expected due to higher-than-anticipated hardware sales, and lower-than-anticipated accessories sales. As a result, this segment netted a loss of ($0.12) per share, compared to a planned loss of ($0.05) per share.

However, the company expects full year Babbage's/Funco sales to remain on plan, with sales somewhat weaker in the third quarter and stronger in the fourth quarter due to the "delayed" launch of Playstation II...

The outlook for the fourth quarter, and especially for fiscal 2001, remains exceptionally optimistic due to the unprecedented introduction of four exciting new platforms (X-Box, Nintendo Dolphin, Playstation II... Gameboy [Advance]) into the market. We expect to see a significant growth rate in this segment in 2001.