As was widely expected, Barnes & Noble posted disappointing financial results in a third-quarter earnings report on Thursday. Sales in the company’s three biggest divisions—retail stores, college stores, and Nook Media—were down. In January, CEO William Lynch warned results would be disappointing, especially in the company’s Nook division, its big bet on the future, with sales of Nook devices during the critical holiday shopping period coming as a particular disappointment.

According to this New York Times dispatch summarizing the earnings report, sales in the Nook division were down “by 26 percent, to $316 million for the quarter, compared with $426 million in the year-earlier period, while losses more than doubled, to $190 million, from $83 million.” The only bright spot for Nook was a slight increase in media sales, which were up 6.8 percent.

The company noted it can sustain such losses because of two recent investments in Nook: $300 million from Microsoft and $90 million from Pearson. According to CEO Lynch, the investments mean that “Nook Media has been financing itself since October of 2012.”

But there’s another reason why Wall Street isn’t in total panic (the company’s share price was actually up by 7.5 percent): the company’s retail books division remains solidly profitable. Indeed, despite store closures and lower revenue for the division, earnings were actually up, according to the Times,  increasing “7.3 percent, to $212 million, ‘resulting from a higher sales mix of higher margin core products and expense management.'” Margins in the retail division increased to 33.2% from 30.9%.

The increased margins come from selling more non-book items—like games, toys, and gifts—and cutting costs. And as noted by PaidContent, the company is working hard to emphasize the ongoing profitably of its retail stores. On an earnings call on Thursday, B&N’s retail CEO Mitchell Klipper was trotted out to emphasize that “Ninety-five percent of our stores are profitable and we have no plans to close any of those…let’s make no mistake about it, folks.”

And it’s true: especially by comparison to the unprofitable Nook division, B&N’s retail outlets are healthy. Indeed, one story being told about B&N—that its retail outlets are an albatross on what could become a highly profitable digital company—turns out to be true only in the inverse, since it’s the Nook division that’s currently dragging down Barnes & Noble’s legacy business.

It’s surely one reason why Len Riggio, the company’s chairman, is interested in buying the company’s retail stores and taking them private. But it’s not just Riggio that sees value in the stores. According to this DealBook report, “a person close to the company suggested that Barnes & Noble would be hard pressed to accept anything short of $1 billion,” which, if true, means that the B&N board stills sees lots of value in being a brick-and-mortar retailer.

For now, however, B&N executives are doing their best to telegraph a vision of a digital company working to find a market: according to Lynch, the company has “taken significant actions to begin to right size our cost structure in the Nook segment, while also taking a large markdown on Nook devices in order to enhance our ability to achieve our estimated sales plans in subsequent quarters.”

But it may well be too late for Nook: the division is doing battle with Apple and Amazon on multiple fronts, and it looks like even Microsoft’s cash might not be able to save it.