Advanced Marketing Services, a distributor of books...

Advanced Marketing Services, a distributor of books and videocassettes to membership warehouse chains, Monday reported a slim profit and a sharp drop in sales for its third quarter ended Dec. 29.

The San Diego-based company blamed the reduced sales--$68.5 million for the quarter versus $95.6 million for the same quarter a year ago--on the company’s decision to get out of its money-losing videocassette supply business.

The company’s small profit of $461,000, down from net income of $2.3 million for the third last year was affected by the company’s expectation that it will lose $3.9 million on some of its non-returnable book inventory. It set aside a reserve for that amount--a charge on third quarter earnings--to cover the anticipated losses.

That the company reported such a small profit over the Christmas quarter, traditionally the busiest and most profitable for retailers, is a negative sign for the company, said Irving Katz, an independent San Diego stock analyst.

The company, which supplies books and tapes to 400 of the 430 membership warehouse locations in the U.S., has been hit hard over the past year by lower than expected sales of videocassettes, including movies such as “Batman” and “E.T.,” said chief financial officer Jon S. Fish.

Advanced Marketing Services was forced to take back many of the unsold tapes from the warehouses at big losses. Those returns, coupled with low margins and stiff competition, have persuaded the company to substantially reduce its involvement in the video tape business.

For the nine months ended Dec. 29, sales were $144.3 million, down from $171.5 million in the prior year. The reduction was attributed largely to sales of video products for the nine months having dropped by $35.4 million from the same period in 1990.

For the year to date, the company reported a loss of $94,000, contrasted with a profit of $3.1 million over the same three quarters last year. Advanced Marketing Services stock closed at $1.81 a share, up $.06 cents in over-the-counter trading Monday.