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UPDATE 2-Barnes & Noble posts profit, may yet split up company

Feb 26 (Reuters) - Barnes & Noble Inc reported a profit for the holiday quarter after it scaled back its money-losing Nook digital business and its core bookselling business stabilized.

Michael Huseby, who became chief executive officer in January, also said on Wednesday that Barnes & Noble was "still studying" the possibility of separating its businesses, which include superstores, college bookstores and Nook.

Shares of the company, the largest U.S. bookstore chain, were up 2.9 percent at $18.24 in midday trading.

The quarterly results and a much higher level of cash after the quarter will make the company more valuable in case it decides to break itself up or sell itself, said Maxim Group analyst John Tinker.

"They're in a way stronger position than they were before," Tinker said. "They've got a handle on the business now."

The company said two years ago that it might spin off Nook Media, which also includes its college business, but appeared to drop that plan last year.

Barnes & Noble's profit came despite a 10.3 percent decline in overall revenue. That drop was largely the result of its decision last year to stop producing Nook tablets until it found a partner, after losing hundreds of millions of dollars over the years trying to compete with the likes of Amazon.com Inc , Apple Inc and Google Inc.

The Nook business had been draining the company's resources. After Barnes & Noble stopped making new devices and cut staff, it had $490 million in cash at the end of the third quarter ended Jan. 25, up from $276 million a year earlier.

Barnes & Noble has repeatedly said it is not abandoning its Nook business, whose sales fell 50.4 percent in the quarter from a year earlier.

The company plans to introduce a new Nook color device sometime after April, saying it is in talks with several hardware companies that it did not identify.

Microsoft Corp owns 17.6 percent of Nook Media, while Pearson PLC has 5 percent.

Barnes & Noble's overall revenue fell $2 billion in the quarter. Sales at stores open at least 15 months dipped 0.5 percent, excluding Nook products such as e-readers, as book sales stabilized.

The company posted a net profit of $63.2 million, or 86 cents a share, compared with a year-earlier loss of $3.7 million, or 14 cents a share.

Barnes & Noble's profit got a lift from its college bookstores, where a 63 percent rise in its higher-margin textbook rental business more than offset a drop in revenue. That division accounts for one-quarter of company sales.

Company executives said they planned to expand the number of textbooks available for rent and later this year would offer applications that allow students organize and annotate textbooks.

Huseby said Barnes & Noble's partnership with Pearson had helped developed those applications.

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