Barnes & Noble Inc shares hit their lowest level in more than a year even as its chief executive said on Tuesday that the bookseller could dominate a quarter of the growing e-books market within a few years and generate billions of dollars in new sales.

Its shares fell as much as 17.2 percent in their first trading session after the company reported a larger quarterly loss on Monday as physical book sales languished and the company spent money on developing its Nook e-reader and online bookstore.

Shares were down $2.28 to $14.13 on the New York Stock Exchange, and hit a low of $13.58. Last August, the company's stock hit a one-year high of $28.76.

William Lynch, speaking at Barnes & Noble's investor day in New York, said the company has a 20 percent share of the electronic books market and that its share could lead to sales between $3 billion and $5 billion by 2013.

Last week, Barnes & Noble shares also tumbled when a price war over e-readers erupted with Amazon.com Inc , which makes the Kindle, in response to competition from Apple Inc's iPad, a tablet that can function as an e-reader.

Barnes & Noble, the largest U.S. bookstore chain by sales, on Monday forecast only modest sales growth in its stores next year and said that sales at its stores open at least 15 months fell 3.1 percent in the fourth quarter.

It has invested heavily in its Nook device and bookstore, betting that grabbing a share of the growing e-book market would reverse its long sales declines. Executives said the success of the Nook is central to its ability to sell e-books.

Our goal is to place a Barnes & Noble bookstore in every reader's pocket, Chairman Len Riggio told investors in opening remarks.

The company forecast that sales at its namesake stores would be flat or up as much as 3 percent in its next fiscal year.

It said that online sales, which include sales of e-books through its Nook electronic reader, would jump 75 percent to $1 billion next year on the strength of a full year's worth of sales of the device. In fiscal 2010, overall sales were $5.8 billion.

Lynch also announced a deal with Hewlett-Packard Co to have Barnes & Noble's e-reader software preloaded on its laptops.

Barnes & Noble shareholders include activist investor Ronald Burkle, who has clashed with the founding Riggio family, which controls the company, over corporate governance.

Last month, Burkle's Yucaipa American Management sued Barnes & Noble and its director over a poison pill that would prevent the company from being sold in a hostile takeover.

Burkle owns 19.6 percent of Barnes & Noble, but the shareholder rights plan is triggered once a single investor's stake rises above 20 percent.

Barnes & Noble operates 720 names stores in the United States and 637 college bookstores.

(Reporting by Phil Wahba. Editing by Maureen Bavdek and Robert MacMillan)

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