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Barnes & Noble Education Reports First Quarter Fiscal Year 2023 Financial Results

Consolidated GAAP Net Loss of $52.7 million

Retail Segment Gross Comparable Store Sales Increased 15.0%

General Merchandise Gross Comparable Store Sales Increased 34.0%

First Day® Complete Adopted by 111 Campus Stores for the Fall 2022 Term, Representing Undergraduate Student Enrollment of Over 545,000, up 85% from 295,000 in the Prior Year

BASKING RIDGE, N.J., August 31, 2022--(BUSINESS WIRE)--Barnes & Noble Education, Inc. (NYSE: BNED), a leading solutions provider for the education industry, today reported sales and earnings for the first quarter ended on July 30, 2022. Barnes & Noble Education is a highly seasonal business, and the first quarter is historically a period of low sales activity for the Company.

Financial results for the first quarter 2023:

  • Consolidated first quarter GAAP sales of $263.9 million increased 9.6%, as compared to the prior year period.

  • Consolidated first quarter GAAP gross profit of $63.5 million increased 5.8%, as compared to the prior year period.

  • Consolidated first quarter GAAP net loss of $(52.7) million, compared to a net loss of $(43.6) million in the prior year period.

  • Consolidated first quarter non-GAAP Adjusted Earnings of $(50.8) million, compared to $(40.0) million in the prior year period.

  • Consolidated first quarter non-GAAP Adjusted EBITDA of $(33.4) million, compared to $(24.5) million in the prior year period.

Operational highlights for the first quarter 2023:

  • 111 campus stores have adopted BNC’s First Day® Complete courseware delivery program for the 2022 Fall Term, representing approximately 545,000* in total undergraduate student enrollment, a growth rate of 85% over Fall 2021 based on undergraduate student enrollment.

  • Retail segment gross comparable store sales for the quarter increased by 15.0% on top of a 49.8% increase a year ago. Please see a more detailed definition in the Results table and Retail segment discussion below.

  • General merchandise gross comparable store sales increased 34.0%.

  • DSS revenue grew 10.6% to $9.2 million.

*As reported by National Center for Education Statistics (NCES)

"As we begin the 2022 – 2023 academic year, we are excited to welcome students back to campus for a more traditional in-person learning experience with a greater number of on-campus activities and events," said Michael P. Huseby, Chief Executive Officer, BNED. "Our first quarter began with a solid start and consolidated results were in line with our expectations, benefitting from a strong graduation season, as many schools returned to in-person ceremonies, and robust general merchandise sales. We expanded staffing at stores in response to the greater on-campus activity and to prepare for what we expect to be a strong Fall Rush period. We are currently in the thick of our peak Fall Rush season and are excited to provide many more students with our First Day Complete inclusive access offering that’s designed to improve student outcomes through access, convenience and affordability. One hundred eleven (111) of our campus stores have implemented First Day Complete for the Fall term, representing undergraduate enrollment of approximately 545,000 students, representing an 85% growth rate over Fall 2021 based on undergraduate student enrollment. Additionally, we expect our general merchandise business to continue to grow, benefitting from our partnership with Fanatics and Lids and increased on campus traffic, including an increase in the number of activities and events as schools approach a more traditional learning experience."

First Quarter Results for 2023

Results for the 13 weeks of fiscal 2023 and fiscal 2022 are as follows:

$ in millions

Selected Data (unaudited)

13 Weeks

Q1 2023

13 Weeks

Q1 2022

Total Sales

$263.9

$240.8

Net Loss

$(52.7)

$(43.6)

Non-GAAP(1)

Adjusted EBITDA

$(33.4)

$(24.5)

Adjusted Earnings

$(50.8)

$(40.0)

Additional Information:

Retail Gross Comparable Store Sales Variances (2)

$33.5

$73.6

(1) These non-GAAP financial measures have been reconciled in the attached schedules to the most directly comparable GAAP measure as required under SEC rules regarding the use of non-GAAP financial measures.
(2) Retail Gross Comparable Store Sales includes sales from physical and virtual stores that have been open for an entire fiscal year period and does not include sales from closed stores for all periods presented. In-store and online logo and emblematic general merchandise sales fulfilled by FLC and Fanatics, respectively, and are recognized on a net commission revenue basis, as compared to the recognition of online logo and emblematic sales on a gross basis in the prior year period. For Retail Gross Comparable Store Sales purposes, sales for logo and emblematic general merchandise fulfilled by FLC, Fanatics and digital agency sales are included on a gross basis.

The Company has three reportable segments: Retail, Wholesale and Digital Student Solutions ("DSS"). Unallocated shared-service costs, which include various corporate level expenses and other governance functions, continue to be presented as Corporate Services. All material intercompany accounts and transactions have been eliminated in consolidation.

Retail Segment Results

Retail sales increased by $26.0 million, or 12.4%, as compared to the prior year period. Retail Gross Comparable Store Sales (non-GAAP) increased 15.0% for the quarter, with comparable textbook sales increasing 1.5%, on top of a 21.9% increase a year ago. Retail Gross Comparable Store Sales for general merchandise increased 34.0%, on top of a 119.4% increase a year ago. The growth in general merchandise sales was led by a strong graduation season and a rebound in café and convenience food product sales, which benefited from greater on-campus traffic.

The Retail non-GAAP Adjusted EBITDA loss for the quarter was $(25.0) million, as compared to a non-GAAP Adjusted EBITDA loss of $(19.6) million in the prior year period. The non-GAAP Adjusted EBITDA loss increased on higher selling and administrative expenses, primarily related to the expanded staffing at stores in response to greater on-campus activity during the quarter and in preparation for the upcoming peak fall term, including support for the growth in First Day programs.

Wholesale Segment Results

Wholesale first quarter sales of $37.1 million decreased $7.4 million, or 16.6%, as compared to the prior year period. The decrease is primarily due to used textbooks supply constraints resulting from the lack of on campus textbook buyback opportunities over the last two years and lower customer demand, partially offset by lower returns and allowances.

Wholesale non-GAAP Adjusted EBITDA for the quarter declined to $2.8 million, as compared to $6.4 million in the prior year, declining on the lower sales.

DSS Segment Results

DSS first quarter sales of $9.2 million increased $0.9 million, or 10.6%, as compared to the prior year period.

DSS non-GAAP Adjusted EBITDA was $0.9 million for the quarter, as compared to $1.7 million in the prior year period.

Outlook

For fiscal year 2023, the Company expects consolidated non-GAAP Adjusted EBITDA to be between $30 million to $40 million. The Company expects significant improvement in its Retail business being driven by new First Day Complete implementations, growth within its general merchandise business and new business wins. The challenges within its wholesale business, including constrained used book inventory and higher inflationary pressures on wages and freight, are expected to persist. DSS non-GAAP Adjusted EBITDA is expected to be near fiscal year 2022 levels as revenue growth is offset by investments in product enhancements.

Conference Call

A conference call with Barnes & Noble Education, Inc. senior management will be webcast at 8:30 a.m. Eastern Time on Wednesday, August 31, 2022 and can be accessed at the Barnes & Noble Education corporate website at investor.bned.com or www.bned.com.

Barnes & Noble Education expects to report fiscal year 2023 second quarter results in December 2022.

ABOUT BARNES & NOBLE EDUCATION, INC.

Barnes & Noble Education, Inc. (NYSE: BNED) is a leading solutions provider for the education industry, driving affordability, access and achievement at hundreds of academic institutions nationwide and ensuring millions of students are equipped for success in the classroom and beyond. Through its family of brands, BNED offers campus retail services and academic solutions, a digital direct-to-student learning ecosystem, wholesale capabilities and more. BNED is a company serving all who work to elevate their lives through education, supporting students, faculty and institutions as they make tomorrow a better, more inclusive and smarter world. For more information, visit www.bned.com.

Forward-Looking Statements

This press release contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and information relating to us and our business that are based on the beliefs of our management as well as assumptions made by and information currently available to our management. When used in this communication, the words "anticipate," "believe," "estimate," "expect," "intend," "plan," "will," "forecasts," "projections," and similar expressions, as they relate to us or our management, identify forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make, including any statements made in regards to our response to the COVID-19 pandemic. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this press release may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Such statements reflect our current views with respect to future events, the outcome of which is subject to certain risks, including, among others: risks associated with public health crises, epidemics, and pandemics, such as the COVID-19 pandemic, including the duration, spread, severity, and any recurrences thereof, and the impact such public health crises have on the overall demand for BNED products and services, our operations, the operations of our suppliers and other business partners, and the effectiveness of our response to these risks; general competitive conditions, including actions our competitors and content providers may take to grow their businesses; a decline in college enrollment or decreased funding available for students; decisions by colleges and universities to outsource their physical and/or online bookstore operations or change the operation of their bookstores; implementation of our digital strategy may not result in the expected growth in our digital sales and/or profitability; risk that digital sales growth does not exceed the rate of investment spend; the performance of our online, digital and other initiatives, integration of and deployment of, additional products and services including new digital channels, and enhancements to higher education digital products, and the inability to achieve the expected cost savings; the risk of price reduction or change in format of course materials by publishers, which could negatively impact revenues and margin; the general economic environment and consumer spending patterns; decreased consumer demand for our products, low growth or declining sales; the strategic objectives, successful integration, anticipated synergies, and/or other expected potential benefits of various acquisitions may not be fully realized or may take longer than expected; the integration of the operations of various acquisitions into our own may also increase the risk of our internal controls being found ineffective; changes to purchase or rental terms, payment terms, return policies, the discount or margin on products or other terms with our suppliers; our ability to successfully implement our strategic initiatives including our ability to identify, compete for and execute upon additional acquisitions and strategic investments; risks associated with operation or performance of MBS Textbook Exchange, LLC’s point-of-sales systems that are sold to college bookstore customers; technological changes; risks associated with counterfeit and piracy of digital and print materials; our international operations could result in additional risks; our ability to attract and retain employees; risks associated with data privacy, information security and intellectual property; trends and challenges to our business and in the locations in which we have stores; non-renewal of managed bookstore, physical and/or online store contracts and higher-than-anticipated store closings; disruptions to our information technology systems, infrastructure and data due to computer malware, viruses, hacking and phishing attacks, resulting in harm to our business and results of operations; disruption of or interference with third party web service providers and our own proprietary technology; work stoppages or increases in labor costs; possible increases in shipping rates or interruptions in shipping service; product shortages, including decreases in the used textbook inventory supply associated with the implementation of publishers’ digital offerings and direct to student textbook consignment rental programs, as well as the risks associated with the impacts that public health crises may have on the ability of our suppliers to manufacture or source products, particularly from outside of the United States; changes in domestic and international laws or regulations, including U.S. tax reform, changes in tax rates, laws and regulations, as well as related guidance; enactment of laws or changes in enforcement practices which may restrict or prohibit our use of texts, emails, interest based online advertising, recurring billing or similar marketing and sales activities; the amount of our indebtedness and ability to comply with covenants applicable to any future debt financing; our ability to satisfy future capital and liquidity requirements; our ability to access the credit and capital markets at the times and in the amounts needed and on acceptable terms; adverse results from litigation, governmental investigations, tax-related proceedings, or audits; changes in accounting standards; and the other risks and uncertainties detailed in the section titled "Risk Factors" in Part I - Item 1A in our Annual Report on Form 10-K for the year ended April 30, 2022. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described as anticipated, believed, estimated, expected, intended or planned. Subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements in this paragraph. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this press release.

EXPLANATORY NOTE

We have three reportable segments: Retail, Wholesale and DSS as follows:

  • The Retail Segment operates 1,406 college, university, and K-12 school bookstores, comprised of 793 physical bookstores and 613 virtual bookstores. Our bookstores typically operate under agreements with the college, university, or K-12 schools to be the official bookstore and the exclusive seller of course materials and supplies, including physical and digital products. The majority of the physical campus bookstores have school-branded e-commerce websites which we operate and which offer students access to affordable course materials and affinity products, including emblematic apparel and gifts. The Retail Segment also offers inclusive access programs, in which course materials, including e-content, are offered at a reduced price through a course materials fee, and delivered to students on or before the first day of class. Additionally, the Retail Segment offers a suite of digital content and services to colleges and universities, including a variety of open educational resource-based courseware.

  • The Wholesale Segment is comprised of our wholesale textbook business and is one of the largest textbook wholesalers in the country. The Wholesale Segment centrally sources, sells, and distributes new and used textbooks to approximately 3,100 physical bookstores (including our Retail Segment's 793 physical bookstores) and sources and distributes new and used textbooks to our 613 virtual bookstores. Additionally, the Wholesale Segment sells hardware and a software suite of applications that provides inventory management and point-of-sale solutions to approximately 350 college bookstores.

  • The Digital Student Solutions ("DSS") Segment includes products and services to assist students to study more effectively and improve academic performance. The DSS Segment is comprised of the operations of Student Brands, LLC, a leading direct-to-student subscription-based writing services business, and bartleby®, an institutional and direct-to-student subscription-based offering providing textbook solutions, expert questions and answers, writing and tutoring.

Corporate Services represents unallocated shared-service costs which include corporate level expenses and other governance functions, including executive functions, such as accounting, legal, treasury, information technology, and human resources.

All material intercompany accounts and transactions have been eliminated in consolidation.

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

13 weeks ended

July 30,
2022

July 31,
2021

Sales:

Product sales and other

$

252,946

$

227,770

Rental income

10,912

13,024

Total sales

263,858

240,794

Cost of sales (exclusive of depreciation and amortization expense):

Product and other cost of sales (a)

194,105

174,161

Rental cost of sales

6,265

6,604

Total cost of sales

200,370

180,765

Gross profit

63,488

60,029

Selling and administrative expenses

98,486

86,235

Depreciation and amortization expense

12,533

12,624

Restructuring and other charges (a)

375

1,905

Operating loss

(47,906

)

(40,735

)

Interest expense, net

3,868

2,494

Loss before income taxes

(51,774

)

(43,229

)

Income tax expense

933

399

Net loss

$

(52,707

)

$

(43,628

)

Loss per common share:

Basic

$

(1.01

)

$

(0.85

)

Diluted

$

(1.01

)

$

(0.85

)

Weighted average common shares outstanding:

Basic

52,172

51,474

Diluted

52,172

51,474

(a) For additional information, see the Notes in the Non-GAAP disclosure information of this Press Release.

13 weeks ended

July 30,
2022

July 31,
2021

Percentage of sales:

Sales:

Product sales and other

95.9

%

94.6

%

Rental income

4.1

%

5.4

%

Total sales

100.0

%

100.0

%

Cost of sales (exclusive of depreciation and amortization expense):

Product and other cost of sales (a)

76.7

%

76.5

%

Rental cost of sales (a)

57.4

%

50.7

%

Total cost of sales

75.9

%

75.1

%

Gross profit

24.1

%

24.9

%

Selling and administrative expenses

37.3

%

35.8

%

Depreciation and amortization expense

4.7

%

5.2

%

Restructuring and other charges

0.1

%

0.8

%

Operating loss

(18.0

) %

(16.9

) %

Interest expense, net

1.5

%

1.0

%

Loss before income taxes

(19.5

) %

(17.9

) %

Income tax expense

0.4

%

0.2

%

Net loss

(19.9

) %

(18.1

) %

(a) Represents the percentage these costs bear to the related sales, instead of total sales.

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)

July 30,
2022

July 31,
2021

ASSETS

Current assets:

Cash and cash equivalents

$

9,147

$

7,649

Receivables, net

119,603

118,254

Merchandise inventories, net

463,555

472,461

Textbook rental inventories

8,501

6,657

Prepaid expenses and other current assets

60,181

64,724

Total current assets

660,987

669,745

Property and equipment, net

94,638

91,080

Operating lease right-of-use assets

318,070

289,102

Intangible assets, net

124,569

146,035

Goodwill

4,700

4,700

Deferred tax assets, net

15,943

Other noncurrent assets

22,405

27,405

Total assets

$

1,225,369

$

1,244,010

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

324,613

$

331,055

Accrued liabilities

94,217

92,061

Current operating lease liabilities

149,587

135,937

Short-term borrowings

40,000

50,000

Total current liabilities

608,417

609,053

Long-term deferred taxes, net

1,430

Long-term operating lease liabilities

197,407

179,540

Other long-term liabilities

20,969

52,427

Long-term borrowings

220,300

153,700

Total liabilities

1,048,523

994,720

Commitments and contingencies

Stockholders' equity:

Preferred stock, $0.01 par value; authorized, 5,000 shares; issued and outstanding, none

Common stock, $0.01 par value; authorized, 200,000 shares; issued, 54,774 and 53,665 shares, respectively; outstanding, 52,348 and 51,587 shares, respectively

547

536

Additional paid-in-capital

742,624

735,376

Accumulated deficit

(544,201

)

(466,265

)

Treasury stock, at cost

(22,124

)

(20,357

)

Total stockholders' equity

176,846

249,290

Total liabilities and stockholders' equity

$

1,225,369

$

1,244,010

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flow (Unaudited)

(In thousands, except per share data)

13 weeks ended

July 30, 2022

July 31, 2021

Cash flows from operating activities:

Net loss

$

(52,707

)

$

(43,628

)

Adjustments to reconcile net loss to net cash flows from operating activities:

Depreciation and amortization expense

12,533

12,624

Content amortization expense

1,577

1,275

Amortization of deferred financing costs

555

362

Merchandise inventory loss (a)

434

Stock-based compensation expense

1,791

1,122

Changes in other long-term assets and liabilities, net

992

1,972

Changes in operating lease right-of-use assets and liabilities

(1,230

)

(10,464

)

Changes in other operating assets and liabilities, net

7,491

18,999

Net cash flow used in operating activities

(28,998

)

(17,304

)

Cash flows from investing activities:

Purchases of property and equipment

(9,726

)

(11,370

)

Net change in other noncurrent assets

192

Net cash flow used in investing activities

(9,726

)

(11,178

)

Cash flows from financing activities:

Proceeds from borrowings

147,200

71,720

Repayments of borrowings

(112,600

)

(45,620

)

Payment of deferred financing costs

(559

)

Purchase of treasury shares

(612

)

(1,215

)

Net cash flows provided by financing activities

33,429

24,885

Net decrease in cash, cash equivalents and restricted cash

(5,295

)

(3,597

)

Cash, cash equivalents and restricted cash at beginning of period

21,934

16,814

Cash, cash equivalents and restricted cash at end of period

$

16,639

$

13,217

Changes in other operating assets and liabilities, net:

Receivables, net

$

17,436

$

2,818

Merchandise inventories

(169,701

)

(191,783

)

Textbook rental inventories

21,111

22,035

Prepaid expenses and other current assets

(1,969

)

(6,012

)

Accounts payable and accrued liabilities

140,614

191,941

Changes in other operating assets and liabilities, net

$

7,491

$

18,999

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Segment Information (In thousands, except percentages) (Unaudited)

Segment Information (a)

13 weeks ended

July 30, 2022

July 31, 2021

Sales:

Retail (b)

$

236,507

$

210,469

Wholesale

37,083

44,484

DSS

9,184

8,303

Eliminations

(18,916

)

(22,462

)

Total Sales

$

263,858

$

240,794

Gross Profit

Retail (c)

$

54,019

$

48,743

Wholesale

6,899

10,405

DSS (d)

9,034

8,139

Eliminations

(4,887

)

(5,549

)

Total Gross Profit

$

65,065

$

61,738

Selling and Administrative Expenses

Retail

$

79,004

$

68,365

Wholesale

4,131

3,991

DSS

8,145

6,447

Corporate Services

7,214

7,444

Eliminations

(8

)

(12

)

Total Selling and Administrative Expenses

$

98,486

$

86,235

Segment Adjusted EBITDA (Non-GAAP) (e)

Retail

$

(24,985

)

$

(19,622

)

Wholesale

2,768

6,414

...