Le Lézard
Classified in: Business, Covid-19 virus
Subjects: EARNINGS, Conference Call, Webcast

Barnes & Noble Education Reports Second Quarter Fiscal Year 2022 Financial Results


Barnes & Noble Education, Inc. (NYSE:BNED), a leading solutions provider for the education industry, today reported sales and earnings for the second quarter of fiscal year 2022, which ended on October 30, 2021.

Barnes & Noble Education is a highly seasonal business and the second quarter includes the Fall rush period, which is historically the largest sales period for the Company. While the Company's fiscal 2022 second quarter results benefitted from many students returning to in-person classes and greater attendance at campus events and sporting activities as compared to the prior year period when much of this activity was curtailed, as anticipated, the Company's performance continues to be affected by the ongoing COVID-19 environment, including overall enrollment declines, many community colleges continuing to offer virtual classes, in conjunction with broader macro issues including labor challenges, inflationary pressures and supply chain issues.

Financial highlights for the second quarter 2022:

Operational highlights for the second quarter 2022:

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

"We were thrilled to welcome students back to campus for the 2021-2022 academic year and our second quarter results benefitted from their return to on-campus, in-person learning and the significantly increased resumption of on-campus events and sporting activities," said Michael P. Huseby, Chief Executive Officer and Chairman, BNED. "Despite overall enrollment declines and many community colleges continuing to offer virtual classes, on a gross comparable sales basis, our textbook business was essentially flat and, despite the global supply chain issues, our general merchandise business grew 78%, as many of our campus partners returned to a more traditional Fall rush experience. Our results also benefited from the significantly increased adoption of our First Day offerings, which provide improved student outcomes through equitable access, enhanced convenience and improved course material affordability. Our DSS business also continued to exhibit strong subscriber growth as students looked for solutions to provide additional help with their studies. While the environment we are operating in remains challenging, we continue to execute on our strategic initiatives that are centered on profitable growth."

Second Quarter 2022 and Year to Date Results
Results for the 13 and 26 weeks of fiscal 2022 and fiscal 2021 are as follows:

$ in millions

Selected Data (unaudited)

 

13 Weeks

 

13 Weeks

 

26 Weeks

 

26 Weeks

Q2 2022

Q2 2021

Fiscal 2022

Fiscal 2021

Total Sales

$627.0

 

$595.5

 

$867.8

 

$799.5

Net Income (Loss)

$22.5

 

$7.5

 

$(21.8)

 

$(39.1)

 

Non-GAAP(1)

 

Adjusted EBITDA

$39.0

 

$24.5

 

$14.5

 

$(13.5)

Adjusted Earnings

$25.0

 

$11.1

 

$(15.1)

 

$(30.6)

Retail Gross Comparable Store Sales Variances (2)

$73.5

 

$(205.1)

 

$147.6

 

$(311.3)

(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. As per our merchandising agreement with Fanatics Lids College, Inc. ("FLC") and Fanatics, in-store and online logo and emblematic general merchandise sales fulfilled by FLC and Fanatics, respectively, are recognized on a net commission revenue basis, as compared to the recognition of logo and emblematic sales on a gross basis in the prior year period. For Retail Gross Comparable Store Sales (non-GAAP) 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 $32.4 million, or 5.6%, as compared to the prior year period. Gross comparable store sales (non-GAAP) increased 13.2% for the quarter. Comparable textbook sales remained essentially flat, as compared to a 19% decline a year ago, as enrollment declines were mitigated by the growth of the company's First Day offerings. BNC's First Day Complete and First Day by course offerings total revenue grew 80% to $96.0 million during the quarter. Comparable general merchandise sales increased 78.3%, as compared to a 52.0% decline a year ago, benefitting greatly from the return to an on campus learning experience and the resumption of many activities and events.

As a reminder, per our merchandising agreement with Fanatics Lids College, Inc. ("FLC") and Fanatics, on a consolidated GAAP sales basis, in-store and online logo and emblematic general merchandise sales fulfilled by FLC and Fanatics, respectively, are recognized on a net commission revenue basis, as compared to the recognition of logo and emblematic sales on a gross basis in the prior year period. For comparable sales purposes, sales for logo and emblematic general merchandise fulfilled by FLC and Fanatics are included on a gross basis.

Retail non-GAAP Adjusted EBITDA for the quarter improved by $21.1 million to $39.4 million, as compared to non-GAAP Adjusted EBITDA of $18.3 million in the prior year period. Non-GAAP Adjusted EBITDA benefited from improved sales and margin, partially offset by higher selling and administrative expenses, which increased as a result of the store re-openings, and higher incentive plan compensation expense.

Wholesale Segment Results

Wholesale second quarter sales of $21.7 million decreased $14.7 million, or 40.5%, as compared to the prior year period. The decrease is primarily due to COVID-19 related supply constraints of used textbooks resulting from the lack of on campus textbook buyback opportunities during the prior fiscal year and lower customer demand, partially offset by lower returns and allowances.

Wholesale non-GAAP Adjusted EBITDA for the quarter declined to $1.2 million, as compared to non-GAAP Adjusted EBITDA of $6.6 million in the prior year, declining on the lower sales.

DSS Segment Results

DSS second quarter sales of $8.3 million increased $2.3 million, or 39.2%, as compared to the prior year period. Bartleby generated 120,000 gross subscribers during the quarter, representing 33% year-over-year growth.

DSS non-GAAP Adjusted EBITDA was $0.8 million for the quarter, as compared to $0.7 million in the prior year period, as the increased sales were offset by higher product development investments and higher incentive plan compensation expense.

Other

Selling and administrative expenses for Corporate Services, which includes unallocated shared-service costs, such as various corporate level expenses and other governance functions, were $6.8 million for the quarter, compared to $5.5 million in the prior period, primarily due to higher incentive plan compensation expense.

Intercompany gross margin eliminations of $4.2 million for the quarter were reflected in non-GAAP Adjusted EBITDA, compared to eliminations of $4.4 million impacting non-GAAP Adjusted EBITDA in the prior year period.

Outlook
While it is difficult to predict the ongoing effects of the COVID virus, based on its current views, the Company expects to generate positive non-GAAP Adjusted EBITDA in fiscal year 2022, as most schools return to a traditional on-campus environment for learning, events and sporting activities. The Company expects non-GAAP adjusted EBITDA to approach annual pre-COVID levels in fiscal year 2023, based on an expectation that campuses will be able to resume on campus learning, events and sporting activities with substantially less-restrictive COVID-related policies and operating protocols next year, and that there are fewer negative impacts from the broader supply chain issues.

Conference Call
A conference call with Barnes & Noble Education, Inc. senior management will be webcast at 8:30 a.m. Eastern Time on Tuesday, November 30, 2021 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 2022 third quarter results in early March 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 COVID-19 and the governmental responses to it, including its impacts across our businesses on demand and operations, as well as on the operations of our suppliers and other business partners, and the effectiveness of our actions taken in 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 May 1, 2021. 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:

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

26 weeks ended

 

October 30,
2021

October 31,
2020

October 30,
2021

October 31,
2020

Sales:

 

 

 

 

Product sales and other

$

577,329

 

$

551,832

 

$

805,099

 

$

745,042

 

Rental income

49,648

 

43,653

 

62,672

 

54,457

 

Total sales

626,977

 

595,485

 

867,771

 

799,499

 

Cost of sales:

 

 

 

 

Product and other cost of sales (a)

453,070

 

452,475

 

627,231

 

618,240

 

Rental cost of sales

28,348

 

27,725

 

34,952

 

35,112

 

Total cost of sales

481,418

 

480,200

 

662,183

 

653,352

 

Gross profit

145,559

 

115,285

 

205,588

 

146,147

 

Selling and administrative expenses

107,902

 

91,972

 

194,137

 

162,015

 

Depreciation and amortization expense

11,952

 

13,193

 

24,576

 

27,256

 

Restructuring and other charges (a)

1,116

 

3,387

 

3,739

 

9,058

 

Operating income (loss)

24,589

 

6,733

 

(16,864

)

(52,182

)

Interest expense, net

2,264

 

912

 

4,758

 

3,565

 

Income (loss) before income taxes

22,325

 

5,821

 

(21,622

)

(55,747

)

Income tax (benefit) expense

(203

)

(1,694

)

196

 

(16,610

)

Net income (loss)

$

22,528

 

$

7,515

 

$

(21,818

)

$

(39,137

)

 

 

 

 

 

Income (loss) per common share:

 

 

 

 

Basic

$

0.43

 

$

0.15

 

$

(0.42

)

$

(0.81

)

Diluted

$

0.41

 

$

0.15

 

$

(0.42

)

$

(0.81

)

Weighted average common shares outstanding:

 

 

 

 

Basic

51,666

 

48,804

 

51,570

 

48,608

 

Diluted

54,568

 

49,428

 

51,570

 

48,608

 

 

 

 

 

 

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

 

 

 

 

 

 

13 weeks ended

 

26 weeks ended

 

October 30,
2021

 

October 31,
2020

 

October 30,
2021

 

October 31,
2020

Percentage of sales:

 

 

 

 

 

 

 

Sales:

 

 

 

 

 

 

 

Product sales and other

92.1

%

 

92.7

%

 

92.8

%

 

93.2

%

Rental income

7.9

%

 

7.3

%

 

7.2

%

 

6.8

%

Total sales

100.0

%

 

100.0

%

 

100.0

%

 

100.0

%

Cost of sales:

 

 

 

 

 

 

 

Product and other cost of sales (a)

78.5

%

 

82.0

%

 

77.9

%

 

83.0

%

Rental cost of sales (a)

57.1

%

 

63.5

%

 

55.8

%

 

64.5

%

Total cost of sales

76.8

%

 

80.6

%

 

76.3

%

 

81.7

%

Gross profit

23.2

%

 

19.4

%

 

23.7

%

 

18.3

%

Selling and administrative expenses

17.2

%

 

15.4

%

 

22.4

%

 

20.3

%

Depreciation and amortization expense

1.9

%

 

2.2

%

 

2.8

%

 

3.4

%

Restructuring and other charges

0.2

%

 

0.6

%

 

0.4

%

 

1.1

%

Operating income (loss)

3.9

%

 

1.2

%

 

(1.9

)%

 

(6.5

)%

Interest expense, net

0.4

%

 

0.2

%

 

0.5

%

 

0.4

%

Income (loss) before income taxes

3.5

%

 

1.0

%

 

(2.4

)%

 

(6.9

)%

Income tax (benefit) expense

?

%

 

(0.3

)%

 

?

%

 

(2.1

)%

Net income (loss)

3.5

%

 

1.3

%

 

(2.4

)%

 

(4.8

)%

 

 

 

 

 

 

 

 

(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)

 

October 30,
2021

October 31,
2020

ASSETS

 

 

Current assets:

 

 

Cash and cash equivalents

$

10,996

 

$

7,353

 

Receivables, net

218,053

 

167,493

 

Merchandise inventories, net

370,529

 

457,677

 

Textbook rental inventories

50,642

 

50,736

 

Prepaid expenses and other current assets

68,965

 

23,762

 

Total current assets

719,185

 

707,021

 

Property and equipment, net

91,875

 

93,130

 

Operating lease right-of-use assets

252,650

 

286,038

 

Intangible assets, net

141,847

 

166,140

 

Goodwill

4,700

 

4,700

 

Deferred tax assets, net

23,248

 

8,231

 

Other noncurrent assets

26,010

 

31,734

 

Total assets

$

1,259,515

 

$

1,296,994

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

Current liabilities:

 

 

Accounts payable

$

333,099

 

$

314,042

 

Accrued liabilities

122,734

 

134,181

 

Current operating lease liabilities

118,434

 

121,518

 

Total current liabilities

574,267

 

569,741

 

Long-term operating lease liabilities

171,341

 

198,990

 

Other long-term liabilities

51,113

 

48,329

 

Long-term borrowings

183,300

 

99,500

 

Total liabilities

980,021

 

916,560

 

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, 54,162 and 53,316 shares, respectively; outstanding, 51,976 and 49,064 shares, respectively

541

 

533

 

Additional paid-in-capital

736,886

 

735,647

 

Accumulated deficit

(436,432

)

(321,964

)

Treasury stock, at cost

(21,501

)

(33,782

)

Total stockholders' equity

279,494

 

380,434

 

Total liabilities and stockholders' equity

$

1,259,515

 

$

1,296,994

 

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flow (Unaudited)

(In thousands, except per share data)

 

 

26 weeks ended

 

 

October 30, 2021

 

October 31, 2020

Cash flows from operating activities:

 

 

 

 

Net loss

 

$

(21,818

)

 

$

(39,137

)

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

 

 

 

 

Depreciation and amortization expense

 

24,576

 

 

27,256

 

Content amortization expense

 

2,586

 

 

2,386

 

Amortization of deferred financing costs

 

725

 

 

541

 

Merchandise inventory loss (a)

 

434

 

 

?

 

Deferred taxes

 

?

 

 

(426

)

Stock-based compensation expense

 

2,600

 

 

2,701

 

Changes in other long-term assets and liabilities, net

 

1,462

 

 

5,016

 

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

 

286

 

 

6,597

 

Changes in other operating assets and liabilities, net

 

13,291

 

 

86,452

 

Net cash flow provided by operating activities

 

24,142

 

 

91,386

 

Cash flows from investing activities:

 

 

 

 

Purchases of property and equipment

 

(21,264

)

 

(16,197

)

Net change in other noncurrent assets

 

460

 

 

3

 

Net cash flow used in investing activities

 

(20,804

)

 

(16,194

)

Cash flows from financing activities:

 

 

 

 

Proceeds from borrowings under Credit Agreement

 

259,720

 

 

330,800

 

Repayments of borrowings under Credit Agreement

 

(254,020

)

 

(406,000

)

Purchase of treasury shares

 

(2,359

)

 

(881

)

Proceeds from the exercise of stock options, net

 

37

 

 

?

 

Net cash flows provided by (used in) financing activities

 

3,378

 

 

(76,081

)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

6,716

 

 

(889

)

Cash, cash equivalents and restricted cash at beginning of period

 

16,814

 

 

9,008

 

Cash, cash equivalents and restricted cash at end of period

 

$

23,530

 

 

$

8,119

 

Changes in other operating assets and liabilities, net:

 

 

 

 

Receivables, net

 

$

(96,981

)

 

$

(76,642

)

Merchandise inventories

 

(89,851

)

 

(28,738

)

Textbook rental inventories

 

(21,950

)

 

(10,026

)

Prepaid expenses and other current assets

 

(3,288

)

 

(7,585

)

Accounts payable and accrued liabilities

 

225,361

 

 

209,443

 

Changes in other operating assets and liabilities, net

 

$

13,291

 

 

$

86,452

 

 

 

 

 

 

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

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Sales Information

(Unaudited)

Total Sales

The components of the sales variances for the 13 and 26 week periods are as follows:

 

Dollars in millions

 

13 weeks ended

 

26 weeks ended

 

 

October 30, 2021

 

October 31, 2020

 

October 30, 2021

 

October 31, 2020

Retail Sales

 

 

 

 

 

 

 

 

New stores (a) (b)

 

$

26.3

 

 

$

27.6

 

 

$

36.6

 

 

$

35.4

 

Closed stores (a)

 

(7.9

)

 

(16.4

)

 

(12.5

)

 

(21.9

)

Comparable stores (b)

 

14.0

 

 

(196.5

)

 

58.6

 

 

(302.7

)

Textbook rental deferral

 

3.2

 

 

16.4

 

 

3.4

 

 

10.1

 

Service revenue (c)

 

(2.1

)

 

1.0

 

 

0.1

 

 

(3.7

)

Other (d)

 

(1.1

)

 

2.7

 

 

(2.1

)

 

1.7

 

Retail Sales subtotal:

 

$

32.4

 

 

$

(165.2

)

 

$

84.1

 

 

$

(281.1

)

Wholesale Sales:

 

$

(14.7

)

 

$

(3.8

)

 

$

(50.5

)

 

$

4.2

 

DSS Sales

 

$

2.3

 

 

$

0.7

 

 

$

4.8

 

 

$

1.2

 

Eliminations (e)

 

$

11.5

 

 

$

(8.4

)

 

$

29.9

 

 

$

(16.7

)

Total sales variance

 

$

31.5

 

 

$

(176.7

)

 

$

68.3

 

 

$

(292.4

)

(a)

The following is a store count summary for physical stores and virtual stores:

13 weeks ended

26 weeks ended

 

October 30, 2021

October 31, 2020

October 30, 2021

October 31, 2020

Number of Stores:

Physical
Stores

Virtual
Stores

Physical
Stores

Virtual
Stores

Physical
Stores

Virtual
Stores

Physical
Stores

Virtual
Stores

Number of stores at beginning of period

784

645

772

670

769

648

772

647

Stores opened

11

12

5

11

41

35

29

51

Stores closed

1

6

9

10

16

32

33

27

Number of stores at end of period

794

651

768

671

794

651

768

671

(b)

In December 2020, we entered into merchandising partnership with Fanatics Retail Group Fulfillment, LLC, Inc. ("Fanatics") and Fanatics Lids College, Inc. ("FLC") (collectively referred to herein as the "FLC Partnership"). Effective April 2021, as contemplated by the FLC Partnership's merchandising agreement, logo and emblematic general merchandise sales were fulfilled by FLC. During the first quarter of Fiscal 2022, as contemplated by the FLC Partnership's e-commerce agreement, we began to transition certain of our e-commerce sites to Fanatics e-commerce sites for logo and emblematic products. As the logo and emblematic general merchandise sales are fulfilled by FLC and Fanatics, we recognize commission revenue earned for these sales on a net basis in our condensed consolidated financial statements, as compared to the recognition of logo and emblematic sales on a gross basis in the prior year period. For Retail Gross Comparable Store Sales (non-GAAP) details, see below.

(c)

Service revenue includes brand partnerships, shipping and handling, and revenue from other programs.

(d)

Other includes inventory liquidation sales to third parties, marketplace sales and certain accounting adjusting items related to return reserves, and other deferred items.

(e)

Eliminates Wholesale sales and service fees to Retail and Retail commissions earned from Wholesale.

Retail Gross Comparable Store Sales (non-GAAP)

Comparable store sales (non-GAAP) variances by category for the 13 and 26 week periods are as follows:

Dollars in millions

13 weeks ended

26 weeks ended

 

October 30, 2021

October 31, 2020

October 30, 2021

October 31, 2020

Textbooks (Course Materials)

$

(0.5

)

(0.1

)%

$

(101.6

)

(19.0

)%

$

22.9

4.1

%

$

(112.5

)

(17.5

)%

General Merchandise

72.7

 

78.3

%

(97.2

)

(52.0

)%

121.5

 

90.6

%

(184.8

)

(58.6

)%

Trade Books

1.3

 

33.8

%

(6.3

)

(62.3

)%

3.2

 

60.7

%

(14.0

)

(73.2

)%

Total Retail Gross Comparable Store Sales (non-GAAP)

$

73.5

 

13.2

%

$

(205.1

)

(28.1

)%

$

147.6

 

21.0

%

$

(311.3

)

(31.8

)%

To supplement the Total Sales table presented above in accordance with generally accepted accounting principles ("GAAP"), the Company uses the non-GAAP financial measure of Retail Gross Comparable Store Sales. Retail Gross Comparable Store Sales (non-GAAP) 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. As contemplated by the FLC Partnership's merchandising agreement and the e-commerce agreement, we began to transition the fulfillment of logo and emblematic merchandise sales to FLC and Fanatics. As the logo and emblematic general merchandise sales are fulfilled by FLC and Fanatics, we recognize commission revenue earned for these sales on a net basis in our condensed consolidated financial statements, as compared to the recognition of logo and emblematic general merchandise sales on a gross basis in the prior year period. For Retail Gross Comparable Store Sales (non-GAAP), sales for logo and emblematic general merchandise fulfilled by FLC, Fanatics and digital agency sales are included on a gross basis. We believe the current Retail Gross Comparable Store Sales (non-GAAP) calculation method reflects the manner in which management views comparable sales, as well as the seasonal nature of our business.

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Consolidated Non-GAAP Information

(In thousands)

(Unaudited)

 
Adjusted Earnings (non-GAAP)

13 weeks ended

 

26 weeks ended

 

October 30,
2021

 

October 31,
2020

 

October 30,
2021

 

October 31,
2020

Net income (loss)

$

22,528

 

 

$

7,515

 

 

$

(21,818

)

 

$

(39,137

)

Reconciling items, after-tax (below)

2,427

 

 

3,560

 

 

6,759

 

 

8,496

 

Adjusted Earnings (non-GAAP)

$

24,955

 

 

$

11,075

 

 

$

(15,059

)

 

$

(30,641

)

 

 

 

 

 

 

 

 

Reconciling items, pre-tax

 

 

 

 

 

 

 

Merchandise inventory loss (a)

$

?

 

 

$

?

 

 

$

434

 

 

$

?

 

Content amortization (non-cash) (b)

1,311

 

 

1,222

 

 

2,586

 

 

2,386

 

Restructuring and other charges (c)

1,116

 

 

3,387

 

 

3,739

 

 

9,058

 

Reconciling items, pre-tax

2,427

 

 

4,609

 

 

6,759

 

 

11,444

 

Less: Pro forma income tax impact (d)

?

 

 

1,049

 

 

?

 

 

2,948

 

Reconciling items, after-tax

$

2,427

 

 

$

3,560

 

 

$

6,759

 

 

$

8,496

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA (non-GAAP)

13 weeks ended

 

26 weeks ended

 

October 30,
2021

 

October 31,
2020

 

October 30,
2021

 

October 31,
2020

Net income (loss)

$

22,528

 

 

$

7,515

 

 

$

(21,818

)

 

$

(39,137

)

Add:

 

 

 

 

 

 

 

Depreciation and amortization expense

11,952

 

 

13,193

 

 

24,576

 

 

27,256

 

Interest expense, net

2,264

 

 

912

 

 

4,758

 

 

3,565

 

Income tax (benefit) expense

(203

)

 

(1,694

)

 

196

 

 

(16,610

)

Merchandise inventory loss (a)

?

 

 

?

 

 

434

 

 

 

Content amortization (non-cash) (b)

1,311

 

 

1,222

 

 

2,586

 

 

2,386

 

Restructuring and other charges (c)

1,116

 

 

3,387

 

 

3,739

 

 

9,058

 

Adjusted EBITDA (non-GAAP)

$

38,968

 

 

$

24,535

 

 

$

14,471

 

 

$

(13,482

)

(a)

As contemplated by the FLC Partnership's merchandising agreement, we sold our logo and emblematic general merchandise inventory to FLC and received proceeds of $41,773, and recognized a merchandise inventory loss on the sale of $10,262 in cost of goods sold during the 52 weeks ended May 1, 2021 for the Retail Segment. The final inventory sale price was determined during the first quarter of Fiscal 2022, at which time, we received additional proceeds of $1,906, and recognized a merchandise inventory loss on the sale of $434 in cost of goods sold for the Retail Segment.

(b)

Represents amortization of content development costs (non-cash) recorded in cost of goods sold in the consolidated financial statements.

(c)

During the 26 weeks ended October 30, 2021 and October 31, 2020, we recognized restructuring and other charges totaling $3,739 and $9,058, respectively, comprised primarily of severance and other employee termination and benefit costs associated with the elimination of various positions as part of cost reduction objectives, and professional service costs for restructuring, process improvements, shareholder activist activities, and costs related to development and integration associated with the FLC Partnership.

(d)

Represents the income tax effects of the non-GAAP items.

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Consolidated Non-GAAP Information

(In thousands)

(Unaudited)

 
Free Cash Flow (non-GAAP)

13 weeks ended

 

26 weeks ended

 

October 30,
2021

 

October 31,
2020

 

October 30,
2021

 

October 31,
2020

Adjusted EBITDA (non-GAAP)

$

38,968

 

 

$

24,535

 

 

$

14,471

 

 

$

(13,482

)

Less:

 

 

 

 

 

 

 

Capital expenditures (a)

9,894

 

 

9,142

 

 

21,264

 

 

 

16,197

 

Cash interest paid

1,980

 

 

1,240

 

 

3,662

 

 

 

3,200

 

Cash taxes (refund) paid

(8,032

)

 

85

 

 

(7,778

)

 

 

6,022

 

Free Cash Flow (non-GAAP)

$

35,126

 

 

$

14,068

 

 

$

(2,677

)

 

 

$

(38,901

)

(a)

Purchases of property and equipment are also referred to as capital expenditures. Our investing activities consist principally of capital expenditures for contractual capital investments associated with renewing existing contracts, new store construction, digital initiatives and enhancements to internal systems and our website. The following table provides the components of total purchases of property and equipment:

Capital Expenditures

 

13 weeks ended

 

26 weeks ended

 

 

October 30,
2021

 

October 31,
2020

 

October 30,
2021

 

October 31,
2020

Physical store capital expenditures

 

$

3,587

 

 

$

2,825

 

 

$

7,480

 

 

$

5,962

 

Product and system development

 

3,856

 

 

2,901

 

 

7,480

 

 

5,226

 

Content development costs

 

1,865

 

 

1,752

 

 

4,712

 

 

2,828

 

Other

 

586

 

 

1,664

 

 

1,592

 

 

2,181

 

Total Capital Expenditures

 

$

9,894

 

 

$

9,142

 

 

$

21,264

 

 

$

16,197

 

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Segment Information

(In thousands, except percentages) (Unaudited)

 
Segment Information (a)

13 weeks ended

 

26 weeks ended

 

October 30,
2021

 

October 31,
2020

 

October 30,
2021

 

October 31,
2020

Sales

 

 

 

 

 

 

 

Retail (b)

$

608,952

 

 

$

576,514

 

 

$

819,421

 

 

$

735,290

 

Wholesale

21,669

 

 

36,387

 

 

66,153

 

 

116,681

 

DSS

8,279

 

 

5,947

 

 

16,582

 

 

11,819

 

Eliminations

(11,923

)

 

(23,363

)

 

(34,385

)

 

(64,291

)

Total

$

626,977

 

 

$

595,485

 

 

$

867,771

 

 

$

799,499

 

 

 

 

 

 

 

 

 

Gross profit

 

 

 

 

 

 

 

Retail (c)

$

128,930

 

 

$

95,704

 

 

$

177,673

 

 

$

112,049

 

Wholesale

5,620

 

 

10,714

 

 

16,025

 

 

27,471

 

DSS (c)

8,112

 

 

5,692

 

 

16,251

 

 

11,392

 

Eliminations

4,208

 

 

4,397

 

 

(1,341

)

 

(2,379

)

Total

$

146,870

 

 

$

116,507

 

 

$

208,608

 

 

$

148,533

 

 

 

 

 

 

 

 

 

Selling and administrative expenses

 

 

 

 

 

 

 

Retail

$

89,486

 

 

$

77,380

 

 

$

157,851

 

 

$

134,365

 

Wholesale

4,387

 

 

4,146

 

 

8,378

 

 

7,937

 

DSS

7,305

 

 

5,003

 

 

13,752

 

 

9,039

 

Corporate Services

6,809

 

 

5,501

 

 

14,253

 

 

10,745

 

Eliminations

(85

)

 

(58

)

 

(97

)

 

(71

)

Total

$

107,902

 

 

$

91,972

 

 

$

194,137

 

 

$

162,015

 

 

 

 

 

 

 

 

 

Adjusted EBITDA (non-GAAP) (d)

 

 

 

 

 

 

 

Retail

$

39,444

 

 

$

18,324

 

 

$

19,822

 

 

$

(22,316

)

Wholesale

1,233

 

 

6,568

 

 

7,647

 

 

19,534

 

DSS

807

 

 

689

 

 

2,499

 

 

2,353

 

Corporate Services

(6,809

)

 

(5,501

)

 

(14,253

)

 

(10,745

)

Eliminations

4,293

 

 

4,455

 

 

(1,244

)

 

(2,308

)

Total

$

38,968

 

 

$

24,535

 

 

$

14,471

 

 

$

(13,482

)

(a)

See Explanatory Note in this Press Release for Segment descriptions.

(b)

For additional information, see the Note (b) in the Sales Information disclosure of this Press Release.

(c)

For the 13 and 26 weeks ended October 30, 2021, the Retail Segment gross margin excludes $105 and $271, respectively, of amortization expense (non-cash) related to content development costs. Additionally, for the 26 weeks ended October 30, 2021, gross margin excludes a merchandise inventory loss of $434 in the Retail Segment related to the sale of our logo and emblematic general merchandise inventory below cost to FLC. For additional information, see Note (a) in the Non-GAAP disclosure information of this Press Release. For the 13 and 26 weeks ended October 31, 2020, the Retail Segment gross margin excludes $192 and $402, respectively, of amortization expense (non-cash) related to content development costs.

 

For the 13 and 26 weeks ended October 30, 2021, the DSS Segment gross margin excludes $1,206 and $2,315, respectively, of amortization expense (non-cash) related to content development costs. For the 13 and 26 weeks ended October 31, 2020, the DSS Segment gross margin excludes $1,030 and $1,984, respectively, of amortization expense (non-cash) related to content development costs.

(d)

For additional information, see "Use of Non-GAAP Financial Information" in the Non-GAAP disclosure information of this Press Release.

Percentage of Segment Sales

13 weeks ended

 

26 weeks ended

 

October 30, 2021

 

October 31, 2020

 

October 30, 2021

 

October 31, 2020

Gross margin

 

 

 

 

 

 

 

Retail

21.2%

 

16.6%

 

21.7%

 

15.2%

Wholesale

25.9%

 

29.4%

 

24.2%

 

23.5%

DSS

98.0%

 

95.7%

 

98.0%

 

96.4%

Elimination

(35.3)%

 

(18.8)%

 

3.9%

 

3.7%

Total gross margin

23.4%

 

19.6%

 

24.0%

 

18.6%

Selling and administrative expenses

 

 

 

 

 

 

 

Retail

14.7%

 

13.4%

 

19.3%

 

18.3%

Wholesale

20.2%

 

11.4%

 

12.7%

 

6.8%

DSS

88.2%

 

84.1%

 

82.9%

 

76.5%

Corporate Services

N/A

 

N/A

 

N/A

 

N/A

Elimination

N/A

 

N/A

 

N/A

 

N/A

Total selling and administrative expenses

17.2%

 

15.4%

 

22.4%

 

20.3%

Use of Non-GAAP Financial Information - Adjusted Earnings, Adjusted EBITDA and Free Cash Flow

To supplement the Company's consolidated financial statements presented in accordance with generally accepted accounting principles ("GAAP"), in the Press Release attached hereto as Exhibit 99.1, the Company uses the non-GAAP financial measures of Adjusted Earnings (defined as net income adjusted for certain reconciling items), Adjusted EBITDA (defined by the Company as earnings before interest, taxes, depreciation and amortization, as adjusted for additional items subtracted from or added to net income) and Free Cash Flow (defined by the Company as Adjusted EBITDA less capital expenditures, cash interest and cash taxes).

These non-GAAP financial measures are not intended as substitutes for and should not be considered superior to measures of financial performance prepared in accordance with GAAP. In addition, the Company's use of these non-GAAP financial measures may be different from similarly named measures used by other companies, limiting their usefulness for comparison purposes.

The Company's management reviews these non-GAAP financial measures as internal measures to evaluate the Company's performance and manage the Company's operations. The Company's management believes that these measures are useful performance measures which are used by the Company to facilitate a comparison of on-going operating performance on a consistent basis from period-to-period. The Company's management believes that these non-GAAP financial measures provide for a more complete understanding of factors and trends affecting the Company's business than measures under GAAP can provide alone, as it excludes certain items that do not reflect the ordinary earnings of its operations. The Company's Board of Directors and management also use Adjusted EBITDA as one of the primary methods for planning and forecasting overall expected performance, for evaluating on a quarterly and annual basis actual results against such expectations, and as a measure for performance incentive plans. The Company's management believes that the inclusion of Adjusted EBITDA and Adjusted Earnings results provides investors useful and important information regarding the Company's operating results. The Company believes that Free Cash Flow provides useful additional information concerning cash flow available to meet future debt service obligations and working capital requirements and assists investors in their understanding of the Company's operating profitability and liquidity as the Company manages to the business to maximize margin and cashflow.

The non-GAAP measures included in the Press Release attached hereto as Exhibit 99.1 has been reconciled to the comparable GAAP measures as required under Securities and Exchange Commission (the "SEC") rules regarding the use of non-GAAP financial measures. All of the items included in the reconciliations below are either (i) non-cash items or (ii) items that management does not consider in assessing the Company's on-going operating performance. The Company urges investors to carefully review the GAAP financial information included as part of the Company's Form 10-K dated May 1, 2021 filed with the SEC on June 30, 2021, which includes consolidated financial statements for each of the three years for the period ended May 1, 2021, May 2, 2020 and April 27, 2019 (Fiscal 2021, Fiscal 2020, and Fiscal 2019, respectively) and the Company's Quarterly Report on Form 10-Q for the period ended July 31, 2021 filed with the SEC on September 2, 2021.


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