This year’s holiday report was notably subdued compared to last year’s, which touted “record Nook sales” (though even then, the Nook Simple Touch e-reader’s sales were so poor that the company adjusted its 2012 guidance downward) and large increases in digital content, retail and store sales.

The Nook segment — which includes devices, digital content and accessories — had revenues of $311 million, down 12.6 percent from last year* and a far cry from the $1.5 billion in comparable sales that CEO William Lynch had expected last year. While digital content sales — ebooks, newsstand, and apps — increased by 13.1 percent (compared to an increase of 113 percent last year), the decline was driven by lower device sales, which Barnes & Noble didn’t break out. However, the company noted that Nook sales declined “due to lower unit volume and average selling prices.” Barnes & Noble launched the Nook in the U.K. this fall, but the company didn’t mention sales performance there.

“Nook device sales got off to a good start over the Black Friday period, but then fell short of expectations for the balance of holiday,” CEO William Lynch said in a statement. “We are examining the root cause of the December shortfall in sales, and will adjust our strategies accordingly going forward.”

Retail sales — consisting of physical stores and BN.com — had revenues of $1.2 billion, down 10.9 percent from last year. Barnes & Noble didn’t break out physical stores versus BN.com, but said the “decrease was attributable to an 8.2 percent decline in comparable store sales, store closures and lower online sales.” (In the 2011 holiday season, BN.com sales were up 43 percent over 2010.) “Core comparable store sales” — which exclude Nook products — fell by 3.1 percent “due to lower bookstore traffic.”

*In the 2011 holiday season, Nook revenues were $448 million, suggesting a steeper drop to $311 million, but a spokesman said the $448 million “included the actual selling price for ebooks sold under the agency model rather than solely the commission received. We ceased reporting on this metric in FY13. This year’s $311 million is solely on the commission received, as are comparisons to last year.”

In a conference call following the earnings report released this morning, B&N CEO William Lynch said that the Nook’s market share has increased to 26 or 27 percent, up a bit from the 25 percent that the company reported in February. (Amazon’s Kindle is believed to hold 60 to 65 percent of the market.) Overall, Lynch said, Nook-related business grew to over $250 million in the fiscal year ending April 30-close to 300 percent growth over the same period last year.

“We now sell three times as many digital books as all formats of physical books combined on BN.com,” Lynch reported. (Amazon (NSDQ: AMZN) is also selling more e-books than print books, but neither company has released actual sales numbers.) He also said that “PubIt!, our self-publishing digital platform, is the fastest growing part of our digital catalog in units and volume sales. We had our first PubIt! title reach #1 sales rank on our Nook Bookstore recently.”

Overall sales at BN.com increased by 65 percent, to $858 million, for the fiscal year.

But digital sales couldn’t make up for the fact that in-store sales were down, about 3 percent for the quarter. The company attributed that to the liquidation of over 200 Borders stores during the period; it lost walk-in business when Borders slashed prices. B&N’s total fourth-quarter loss was $59 million, higher than had been projected. Standard & Poor analyst Michael Souers told Bloomberg that the company had to increase its spending on marketing and product development to stay competitive with the Amazon Kindle. He called the Nook B&N’s “only driver of long-term growth.”

Because Barnes & Noble’s board is in the process of reviewing Liberty Media’s bid, the company said it wouldn’t issue sales or earning guidance on its outlook for 2012.

The iBooks app from Apple doesn’t come built in but it has been the most popular e-reading app consistently since launch and more often than not, the most downloaded free app overall. (It’s being beat out tonight by WebMD.) The Kindle app is at #12 tonight. On the iPhone, Kindle ranks #1, B&N #2 and Kobo is about 12 slots below.

The new app includes access to BN’s LendMe option to share books with friends via the eReader software on any platform and the Nook. New users get 10 samples of current best sells and three free classics. The B&N app may be the most adjustable of the majors with 10 font sizes, eight fonts and a color wheel to build your own color themes. How does it measure up? I’ll let you know after I spend some time with it.

But B&N says that’s all about to change now, at least in some stores. Hoping to get a retail boost from Valentine’s Day, the chain plans to stock most stores with Nooks by mid-week — even promising to update an in-store locator chart daily starting Wednesday. The popular themes in response to the news? Too little, too late or Nook meets Godzilla aka iPad and inevitably loses. Both are short-sighted.

Barnes & Noble stumbled with software and distribution but the Nook is still a potentially appealing device, especially to those more interested in a dedicated e-reader than a multi-purpose tablet. Fanboys, fangirls and early adopters may not flinch at the iPad’s price range but $259 leaves wallet room for a Kate Spade cover and a lot of books. In-store sales should also help when it comes to competing with the Kindle, which can only be ordered online. Amazon plays matchmaker for people who want to try a Kindle; B&N has working hands-on displays in every store. If people can try, buy and start reading the same day — or get instant gift gratification — Nook should have an edge, at least for the next few months.

– Software update: As for the software knocks, B&N says users should see improvements with new release Nook v1.2. Devices are being updated automatically over the air this week or users can download it themselves. Among the promised changes: Better in-store access to free WiFi, easier to find which books can be shared, and, a personal favorite that covers a multitude of sins, “overall system improvements and battery optimization.”

– Keeping connected: About that enhanced WiFi access. B&N wants owners to see the Nook as an in-store device, encouraging users to bring their devices into stores for access to exclusive content or offers through the store’s free WiFi. That push begins in earnest now with a free short story, a cupcake recipe, a 10 percent discount on CDs if the user shows the clerk the Nook, and more.

B&N pushed the Nook to market to take advantage of the holidays and e-reader hype, delivering devices with software that frustrated reviewers and making shipping promises that it now can’t entirely keep. The company has delivered an unknown number of Nooks but despite numerous slips in the shipping schedule — units ordered now won’t be delivered until February — and other timing shifts, held back on this admission to the last minute. A B&N spokeswoman told the WSJ that the company will fill the majority of orders promised for delivery by Dec. 24 will make it.

Sales were higher than expected. B&N has said that for weeks. And it looked like the company was being realistic by pushing the delivery dates back for pre-orders. It’s not the first company to run into production issues after hitting the market; Amazon (NSDQ: AMZN) went through similar patches at Kindle’s launch and with the intro of new models. But B&N oversold — and now it’s under delivering. That may well cost it in credibility. That’s why B&N went for such a high amount: a free e-book is an apology; $100 is an admission of how much is at stake.

And still the company continues to push the limits with the following headline on BN.com: “The hottest holiday gift is sold out. Order nook today to be first in line for the new year.” Chinese New Year maybe. That’s Feb. 14.

B&N already was dealing with such limited availability of the device that it wasn’t planning to even sell the Nook to go in most of them this year, as we reported last month. Instead, would-be buyers were encouraged to order directly online or to go into a store to order one for home delivery. The bricks & mortar retail channel that should be B&N’s top advantage over online-only Amazon (NSDQ: AMZN) Stores has been relying on signage and some pamphlets. That didn’t stop the unit from selling out for now but it’s hard to tell how many sales are being lost because of that strategy. (Then again, B&N isn’t saying how many Nooks have been sold, either.) A B&N spokeswoman told the WSJ the chain is still working to deliver all the Nov. 20 pre-orders for the holidays; others aren’t being promised before early January.