BASKING RIDGE, New Jersey
,
August 4, 2023
(press release)
–
Amends and Extends Maturity Date of its Credit Facility to Enhance Financial and Operating Flexibility Fiscal Year 2023 Consolidated Revenue Increased 3.2% to $1,543 Million Fiscal Year 2023 Retail Gross Comparable Store Sales Increased 3.2% Fiscal Year 2023 General Merchandise Gross Comparable Store Sales Increased 8.6% First Day® Complete Revenue Increased 88% to $198 Million in Fiscal Year 2023 157 Campus Stores Have Committed to Utilize BNC’s First Day Complete for the Fall 2023; Total Enrollment of Nearly 800,000* Barnes & Noble Education, Inc. (NYSE: BNED) , a leading solutions provider for the education industry, today reported sales and earnings for the fourth quarter and fiscal year 2023, which ended on April 29, 2023. During the fourth quarter of fiscal year 2023, the assets related to the Company’s Digital Student Solutions ("DSS") segment met the criteria for classification as Assets Held for Sale and Discontinued Operations. Results reported in this press release reflect results from Continuing Operations. On May 31, 2023, BNED completed the sale of its DSS segment for cash proceeds of $20 million, net of certain transaction fees, severance costs, escrow, and other considerations. During the first quarter of fiscal year 2024, the Company expects to record a Gain on Sale of Business in the range of $2.5 million to $4.5 million. Fourth Quarter 2023 financial and operational highlights: Fiscal Year 2023 financial and operational highlights: *As reported by National Center for Education Statistics (NCES) “Fiscal 2023 proved to be a challenging year for BNED, as we continued to experience macro and market headwinds, particularly in our a la carte course material business. During the year we took significant and decisive actions to accelerate our strategy to unlock the value of BNED. We significantly reduced, and continue to reduce, our cost structure and streamlined our organization while taking steps to accelerate the adoption of our more predictable and profitable First Day® Complete equitable access model. We also divested our DSS segment to simplify our business and sharpen our focus on the large opportunities in our retail business,” said Michael P. Huseby, Chief Executive Officer, BNED. “We believe we are entering fiscal 2024 with a strong foundation and a substantial opportunity to further impact the higher education landscape. Our First Day® Complete equitable access model is gaining momentum. We are on track to achieve the previously announced $30 million to $35 million of cost reduction initiatives and we are executing on additional cost reduction opportunities that will impact Fiscal 2024. As a result, we expect to achieve sustainable, profitable growth in fiscal 2024 and beyond. Additionally, the amendment and extension of our credit facility and term loan earlier this week enhances our liquidity position and provides us with greater operational flexibility to execute on our key strategic initiatives to achieve BNED’s full potential.” Fourth Quarter 2023 and Year to Date Results During the fourth quarter of fiscal year 2023, assets related to the Company’s DSS Segment met the criteria for classification as Assets Held for Sale and Discontinued Operations and is no longer a reportable segment. The Company has two reportable segments: Retail and Wholesale. Additionally, 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 Fourth quarter Retail sales of $235.4 million decreased by $10.2 million or 4.1%, as compared to the prior year period due to decreases in a la carte course material and supply product sales. Total Retail Gross Comparable Store Sales increased by $2.1 million, or 0.9%, for the quarter. Course Material Comparable Store Sales increased by $0.9 million, or 1.0%, due to increased revenue from the Company’s BNC First Day models, offset by declines in the Company’s a la carte course material business. Gross Comparable Store Sales for general merchandise increased by $1.2 million, or 0.9%, due to increased revenue from logo and emblematic products, offset by a decline in supply products, particularly computing and other electronic devices. Fiscal year 2023 Retail sales of $1,491.7 increased by $52.1 million, or 3.6%, as compared to the prior year period due to increases in the Company’s BNC First Day models and general merchandise sales. Total Retail Gross Comparable Store Sales increased by $48.0 million, or 3.2%, for the fiscal year. Fiscal year 2023 Course Material Comparable Store Sales increased by $4.1 million, or 0.4%, due to increased revenue from the Company’s BNC First Day models, offset by declines in the Company’s a la carte course material business. Gross Comparable Store Sales for general merchandise increased by $43.9 million, or 8.6%, due to growth in logo products and café and convenience offset by declines in supply products and dorm furnishings. Fourth quarter Retail non-GAAP Adjusted EBITDA was $(10.0) million, as compared to $4.2 million in the prior year period. Retail Non-GAAP Adjusted EBITDA declined due to lower fourth quarter revenue and lower fourth quarter gross profits, which included a shift in the mix of buying patterns from physical textbooks to lower-margin digital course materials within the Company’s a la carte course material model. Fourth quarter Retail selling and administrative expenses decreased by $3.8 million, or 5.2%, as compared to the prior year period due to the Company’s initiatives to drive efficiencies, simplify organizational structure, and reduce non-essential costs, and lower incentive compensation expense. Fiscal year 2023 Retail non-GAAP Adjusted EBITDA increased by $2.0 million to $10.6 million, primarily due to increased sales. Wholesale Segment Results (Before Intercompany Eliminations) Wholesale fourth quarter sales of $9.2 million increased by $0.2 million, as compared to the prior year period. The fourth quarter is the lowest sales period for the Wholesale Segment as they primarily receive inventory returns and buybacks in preparation for the upcoming Fall term. Fiscal year 2023 Wholesale sales of $106.4 million decreased by $5.9 million, or 5.2%, over the prior year period. The decrease is primarily due to lower gross sales impacted by supply constraints resulting from the lack of textbook purchasing opportunities and a decrease in customer demand resulting from a shift in buying patterns from physical textbooks to digital products. In the third and fourth quarter of fiscal year 2023, an easing of supply constraints relative to the prior year periods resulted in more textbook purchasing opportunities, which enabled the Company to fill increasing demand at its Retail Segment bookstores. Wholesale non-GAAP Adjusted EBITDA for the quarter of $(4.2) million increased $3.8 million, as compared to $(8.0) million in the prior year. Wholesale non-GAAP Adjusted EBITDA for fiscal year 2023 was $3.2 million, as compared to $3.8 million in the prior year period. The decrease was primarily due to lower sales and margin offset by a decrease in sales and administrative costs. Balance Sheet and Cash Flow As of April 29, 2023, the Company’s cash and cash equivalents was $14.2 million and total outstanding debt was $184.2 million, as compared to cash and cash equivalents of $8.8 million and total outstanding debt of $225.7 million in the prior year period. On July 28, 2023, the Company announced that it has entered into an agreement with its financial stakeholders and strategic partners on the terms of a refinancing that would immediately strengthen the Company’s liquidity and overall financial positions by extending the maturity of its debt facilities, amending certain credit facility covenants and modifying certain other agreements. With this agreement, the Company is well-positioned to continue supporting academic institutions and customers nationwide through the upcoming Fall Rush and the 2023 and 2024 academic years. Fiscal Year 2024 Outlook For fiscal year 2024, the Company expects consolidated non-GAAP Adjusted EBITDA from Continuing Operations to be approximately $40 million. The year-over-year increase in non-GAAP Adjusted EBITDA from Continuing Operations will be driven by growth in the Company’s Retail Segment and the impact of cost reductions executed in fiscal year 2023, and other cost reductions executed in, or planned for execution in, fiscal year 2024. Conference Call A conference call with Barnes & Noble Education, Inc. senior management will be webcast at 8:30 a.m. Eastern Time on Friday, August 4, 2023 and can be accessed at the Barnes & Noble Education corporate website at investor.bned.com or www.bned.com. Barnes & Noble Education, Inc. expects to report fiscal year 2024 first quarter earnings in early September. 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, 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. 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: the amount of our indebtedness and ability to comply with covenants applicable to current and /or 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; our ability to maintain adequate liquidity levels to support ongoing inventory purchases and related vendor payments in a timely manner; our ability to attract and retain employees; the pace of equitable access adoption in the marketplace is slower than anticipated and our ability to successfully convert the majority of our institutions to our BNC First Day® equitable and inclusive access course material models or successfully compete with third parties that provide similar equitable and inclusive access solutions; the strategic objectives, successful integration, anticipated synergies, and/or other expected potential benefits of various strategic and restructuring initiatives, may not be fully realized or may take longer than expected; dependency on strategic partnerships, such as with VitalSource Technologies, Inc. and the Fanatics Retail Group Fulfillment, LLC, Inc. (“Fanatics”) and Fanatics Lids College, Inc. D/B/A "Lids" (“Lids”) (collectively referred to herein as the “F/L Partnership”), and the potential for adverse operational and financial changes to these partnerships, may adversely impact our business; non-renewal of managed bookstore, physical and/or online store contracts and higher-than-anticipated store closings; decisions by colleges and universities to outsource their physical and/or online bookstore operations or change the operation of their bookstores; general competitive conditions, including actions our competitors and content providers may take to grow their businesses; the risk of changes in price or in formats of course materials by publishers, which could negatively impact revenues and margin; changes to purchase or rental terms, payment terms, return policies, the discount or margin on products or other terms with our suppliers; 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; work stoppages or increases in labor costs; possible increases in shipping rates or interruptions in shipping services; a decline in college enrollment or decreased funding available for students; decreased consumer demand for our products, low growth or declining sales; the general economic environment and consumer spending patterns; trends and challenges to our business and in the locations in which we have stores; 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; risks associated with data privacy, information security and intellectual property; disruptions to our information technology systems, infrastructure, data, supplier systems, and customer ordering and payment systems 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; risks associated with the impact that public health crises, epidemics, and pandemics, such as the COVID-19 pandemic, 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; lingering 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, or similar marketing and sales activities; 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 Form 10-K for the year-ended April 29, 2023. 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 During the fourth quarter of fiscal 2023, assets related to our Digital Student Solutions ("DSS") Segment met the criteria for classification as Assets Held for Sale and Discontinued Operations and is no longer a reportable segment. Certain assets and liabilities associated with the DSS Segment are presented in our consolidated balance sheets as "Assets Held for Sale" and "Liabilities Held for Sale". The results of operations related to the DSS Segment are included in the consolidated statements of operations as "Loss from discontinued operations, net of tax." The cash flows of the DSS Segment are also presented separately in our consolidated statements of cash flows. On May 31, 2023, subsequent to the end of fiscal 2023, we completed the sale of these assets related to our DSS Segment for cash proceeds of $20 million, net of certain transaction fees, severance costs, escrow, and other considerations. During the first quarter of fiscal 2024, we expect to record a Gain on Sale of Business in the range of $2.5 million to $4.5 million. Net cash proceeds from the sale was used for debt repayment and provided additional funds for working capital needs under our Credit Facility. We have two reportable segments: Retail and Wholesale 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 Consolidated Statements of Operations (Unaudited) (In thousands, except per share data) 13 weeks ended 52 weeks ended April 29, 2023 April 30, 2022 April 29, 2023 April 30, 2022 Sales: Product sales and other $ 201,849 $ 205,580 $ 1,406,655 $ 1,362,380 Rental income 39,998 45,597 136,553 133,354 Total sales 241,847 251,177 1,543,208 1,495,734 Cost of sales (exclusive of depreciation and amortization expense): Product and other cost of sales 161,694 155,463 1,119,482 1,076,243 Rental cost of sales 21,871 23,563 74,287 76,659 Total cost of sales 183,565 179,026 1,193,769 1,152,902 Gross profit 58,282 72,151 349,439 342,832 Selling and administrative expenses 76,475 79,898 357,611 353,968 Depreciation and amortization expense 10,899 10,996 42,163 42,124 Impairment loss (non-cash) (a) — — 6,008 6,411 Restructuring and other charges (a) 5,341 (2,123 ) 10,103 944 Operating loss (34,433 ) (16,620 ) (66,446 ) (60,615 ) Interest expense, net 7,011 2,287 22,683 10,096 Loss from continuing operations before income taxes (41,444 ) (18,907 ) (89,129 ) (70,711 ) Income tax expense (benefit) 408 (9,608 ) 1,011 (9,152 ) Loss from continuing operations (41,852 ) (9,299 ) (90,140 ) (61,559 ) Loss from discontinued operations, net of tax of $101, $142, $398, and $497, respectively (4,398 ) (1,657 ) (11,722 ) (7,298 ) Net loss $ (46,250 ) $ (10,956 ) $ (101,862 ) $ (68,857 ) Loss per common share: Basic and Diluted Continuing operations $ (0.80 ) $ (0.18 ) $ (1.72 ) $ (1.19 ) Discontinued operations $ (0.08 ) $ (0.03 ) $ (0.22 ) $ (0.14 ) Total Basic and Diluted Earnings per share $ (0.88 ) $ (0.21 ) $ (1.94 ) $ (1.33 ) Weighted average common shares outstanding - Basic and Diluted: 52,604 52,046 52,454 51,797 (a) For additional information, see the Notes in the Non-GAAP disclosure information of this Press Release. 13 weeks ended 52 weeks ended April 29, 2023 April 30, 2022 April 29, 2023 April 30, 2022 Percentage of sales: Sales: Product sales and other 83.5 % 81.8 % 91.2 % 91.1 % Rental income 16.5 % 18.2 % 8.8 % 8.9 % Total sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales (exclusive of depreciation and amortization expense): Product and other cost of sales (a) 80.1 % 75.6 % 79.6 % 79.0 % Rental cost of sales (a) 54.7 % 51.7 % 54.4 % 57.5 % Total cost of sales 75.9 % 71.3 % 77.4 % 77.1 % Gross profit 24.1 % 28.7 % 22.6 % 22.9 % Selling and administrative expenses 31.6 % 31.8 % 23.2 % 23.7 % Depreciation and amortization 4.5 % 4.4 % 2.7 % 2.8 % Impairment loss (non-cash) — % — % 0.4 % 0.4 % Restructuring and other charges 2.2 % (0.8 )% 0.7 % 0.1 % Operating loss (14.2 )% (6.6 )% (4.3 )% (4.1 )% Interest expense, net 2.9 % 0.9 % 1.5 % 0.7 % Loss from continuing operations before income taxes (17.1 )% (7.5 )% (5.8 )% (4.7 )% Income tax expense (benefit) 0.2 % (3.8 )% 0.1 % (0.6 )% Loss from continuing operations (17.3 )% (3.7 )% (5.8 )% (4.1 )% (a) Represents the percentage these costs bear to the related sales, instead of total sales. BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) (In thousands, except per share data) April 29, 2023 April 30, 2022 ASSETS Current assets: Cash and cash equivalents $ 14,219 $ 8,795 Receivables, net 92,512 136,001 Merchandise inventories, net 322,979 293,854 Textbook rental inventories 30,349 29,612 Prepaid expenses and other current assets 49,512 59,899 Assets held for sale, current 27,430 3,544 Total current assets 537,001 531,705 Property and equipment, net 68,153 73,584 Operating lease right-of-use assets 246,972 286,584 Intangible assets, net 110,632 126,993 Deferred tax assets, net 132 — Other noncurrent assets 17,889 24,547 Assets held for sale, noncurrent — 28,140 Total assets $ 980,779 $ 1,071,553 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 267,923 $ 182,617 Accrued liabilities 85,759 88,540 Current operating lease liabilities 99,980 97,143 Short-term borrowings — 40,000 Liabilities held for sale 8,423 7,102 Total current liabilities 462,085 415,402 Long-term deferred taxes, net 1,970 1,430 Long-term operating lease liabilities 184,754 219,594 Other long-term liabilities 19,068 21,053 Long-term borrowings 182,151 185,700 Total liabilities 850,028 843,179 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, 55,140 and 54,234 shares, respectively; outstanding, 52,604 and 52,046 shares, respectively 551 542 Additional paid-in-capital 745,932 740,838 Accumulated deficit (593,356 ) (491,494 ) Treasury stock, at cost (22,376 ) (21,512 ) Total stockholders' equity 130,751 228,374 Total liabilities and stockholders' equity $ 980,779 $ 1,071,553 BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flow (Unaudited) (In thousands, except per share data) 52 weeks ended April 29, 2023 April 30, 2022 Cash flows from operating activities: Net loss $ (101,862 ) $ (68,857 ) Less: Loss from discontinued operations, net of tax (11,722 ) (7,298 ) Loss from continuing operations (90,140 ) (61,559 ) Adjustments to reconcile net loss from continuing operations to net cash flows from operating activities from continuing operations: Depreciation and amortization expense 42,163 42,124 Content amortization expense 26 386 Amortization of deferred financing costs 3,129 1,472 Impairment loss (non-cash) (a) 6,008 6,411 Merchandise inventory loss (a) — 434 Deferred taxes 409 (17,838 ) Stock-based compensation expense 4,715 5,726 Changes in operating lease right-of-use assets and liabilities 5,912 (8,475 ) Changes in other long-term assets and liabilities and other, net 2,711 (3,291 ) Changes in other operating assets and liabilities, net: Receivables, net 43,489 (15,532 ) Merchandise inventories (29,125 ) (13,176 ) Textbook rental inventories (737 ) (920 ) Prepaid expenses and other current assets 19,610 2,100 Accounts payable and accrued liabilities 82,343 45,943 Changes in other operating assets and liabilities, net 115,580 18,415 Net cash flows provided by (used in) operating activities from continuing operations 90,513 (16,195 ) Net cash flows provided by operating activities from discontinued operations 1,157 17,356 Net cash flows provided by operating activities $ 91,670 $ 1,161 Cash flows from investing activities: Purchases of property and equipment $ (25,092 ) $ (33,607 ) Changes in other noncurrent assets and other 591 872 Net cash flows used in investing activities from continuing operations (24,501 ) (32,735 ) Net cash flows used in investing activities from discontinued operations (6,542 ) (9,926 ) Net cash flows used in investing activities $ (31,043 ) $ (42,661 ) Cash flows from financing activities: Proceeds from borrowings $ 590,303 $ 632,220 Repayments of borrowings (631,849 ) (584,120 ) Payment of deferred financing costs (7,265 ) (265 ) Purchase of treasury shares (864 ) (2,370 ) Proceeds from the exercise of stock options, net — 256 Net cash flows (used in) provided by financing activities from continuing operations (49,675 ) 45,721 Net cash flows provided by financing activities from discontinued operations — — Net cash flows (used in) provided by financing activities $ (49,675 ) $ 45,721 Net increase in cash, cash equivalents, and restricted cash $ 10,952 $ 4,221 Cash, cash equivalents, and restricted cash at beginning of period 21,036 16,815 Cash, cash equivalents, and restricted cash at end of period 31,988 21,036 Less: Cash and cash equivalents of discontinued operations at end of period (1,057 ) (696 ) Cash, cash equivalents, and restricted cash of continuing operations at end of period $ 30,931 $ 20,340 Supplemental cash flow information: Cash paid during the period for: Interest paid $ 19,024 $ 8,166 Income taxes paid (net of refunds) $ (15,216 ) $ (8,007 ) (a) For additional information, see the Notes in the Non-GAAP disclosure information of this Press Release. BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES Segment Information - Continuing Operations (Unaudited) (In thousands, except percentages) Segment Information (a) - Continuing Operations 13 weeks ended 52 weeks ended April 29, 2023 April 30, 2022 April 29, 2023 April 30, 2022 Sales Retail (b) $ 235,350 $ 245,503 $ 1,491,726 $ 1,439,664 Wholesale 9,205 9,054 106,366 112,246 Eliminations (2,708 ) (3,380 ) (54,884 ) (56,176 ) Total Sales $ 241,847 $ 251,177 $ 1,543,208 $ 1,495,734 Gross Profit Retail (c) $ 58,923 $ 76,890 $ 331,370 $ 323,803 Wholesale (747 ) (4,347 ) 18,275 19,782 Eliminations 106 (356 ) (180 ) 67 Total Gross Profit $ 58,282 $ 72,187 $ 349,465 $ 343,652 Selling and Administrative Expenses Retail $ 68,887 $ 72,647 $ 320,730 $ 315,124 Wholesale 3,475 3,681 15,036 16,000 Corporate Services 4,139 3,595 22,000 23,002 Eliminations (26 ) (25 ) (155 ) (158 ) Total Selling and Administrative Expenses $ 76,475 $ 79,898 $ 357,611 $ 353,968 Segment Adjusted EBITDA (Non-GAAP) (d) Retail $ (9,964 ) $ 4,243 $ 10,640 $ 8,679 Wholesale (4,222 ) (8,028 ) 3,239 3,782 Corporate Services (4,139 ) (3,595 ) (22,000 ) (23,002 ) Eliminations 132 (331 ) (25 ) 225 Total Segment Adjusted EBITDA (Non-GAAP) $ (18,193 ) $ (7,711 ) $ (8,146 ) $ (10,316 ) Percentage of Segment Sales Gross Profit Retail (c) 25.0 % 31.3 % 22.2 % 22.5 % Wholesale (8.1 )% (48.0 )% 17.2 % 17.6 % Total Gross Profit 24.1 % 28.7 % 22.6 % 23.0 % Selling and Administrative Expenses Retail 29.3 % 29.6 % 21.5 % 21.9 % Wholesale 37.8 % 40.7 % 14.1 % 14.3 % Total Selling and Administrative Expenses 31.6 % 31.8 % 23.2 % 23.7 % See Explanatory Note in this Press Release for Segment descriptions. (b) In December 2020, we entered into merchandising partnership with Fanatics Retail Group Fulfillment, LLC, Inc. (“Fanatics”) and Fanatics Lids College, Inc. D/B/A "Lids" (“Lids”) (collectively referred to herein as the “F/L Partnership”). Effective in April 2021, as contemplated by the F/L Partnership's merchandising agreement and e-commerce agreement, we began to transition the fulfillment of our logo general merchandise sales to Lids and Fanatics. The transition to Lids for campus stores was effective in April 2021, and the e-commerce websites transitioned to Fanatics throughout fiscal 2022. As the logo general merchandise sales are fulfilled by Lids and Fanatics, we recognize commission revenue earned for these sales on a net basis in our consolidated financial statements, as compared to the recognition of logo general merchandise sales on a gross basis in the periods prior to the transition. For Retail Gross Comparable Store Sales details, see the Sales Information disclosure of this Press Release. (c) For the 13 and 52 weeks ended April 29, 2023, the Retail Segment gross margin excludes $0 and $26 respectively, of amortization expense (non-cash) related to content development costs. For the 13 and 52 weeks ended April 30, 2022, the Retail Segment gross margin excludes $36 and $386 respectively, of amortization expense (non-cash) related to content development costs. Additionally, for the 52 weeks ended April 30, 2022, gross margin excludes a merchandise inventory loss of $434 in the Retail Segment related to the sale of our logo general merchandise inventory below cost to Lids. (d) For additional information, including a reconciliation to the most comparable financial measures presented in accordance with GAAP, see "Non-GAAP Information" and "Use of Non-GAAP Financial Information" in the Non-GAAP disclosure information of this Press Release. BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES Segment Information - Discontinued Operations (Unaudited) (In thousands, except percentages) During the fourth quarter of fiscal 2023, assets related to our Digital Student Solutions ("DSS") Segment met the criteria for classification as Assets Held for Sale and Discontinued Operations and is no longer a reportable segment. Certain assets and liabilities associated with the DSS Segment are presented in our consolidated balance sheets as "Assets Held for Sale" and "Liabilities Held for Sale". The results of operations related to the DSS Segment are included in the consolidated statements of operations as "Loss from discontinued operations, net of tax." The cash flows of the DSS Segment are also presented separately in our consolidated statements of cash flows. On May 31, 2023, subsequent to the end of fiscal 2023, we completed the sale of these assets related to our DSS Segment for cash proceeds of $20 million, net of certain transaction fees, severance costs, escrow, and other considerations. During the first quarter of fiscal 2024, we expect to record a Gain on Sale of Business in the range of $2.5 million to $4.5 million. Net cash proceeds from the sale were used for debt repayment and to provide additional funds for working capital needs under our Credit Facility. The following table summarizes the operating results of the discontinued operations for the periods indicated: Segment Information- Discontinued Operations 13 weeks ended 52 weeks ended April 29, 2023 April 30, 2022 April 29, 2023 April 30, 2022 Total sales $ 8,694 $ 9,654 $ 35,353 $ 35,666 Cost of sales (a) 1,873 1,594 7,156 5,738 Gross profit (a) 6,821 8,060 28,197 29,928 Selling and administrative expenses 10,228 7,945 34,137 29,472 Depreciation and amortization 509 1,630 3,155 7,257 Restructuring costs (b) — — 1,848 — Transaction costs (c) 381 — 381 — Operating loss (4,297 ) (1,515 ) (11,324 ) (6,801 ) Income tax expense 101 142 398 497 Loss from discontinued operations $ (4,398 ) $ (1,657 ) $ (11,722 ) $ (7,298 ) 13 weeks ended 52 weeks ended Adjusted EBITDA (non-GAAP) - Discontinued Operations April 29, 2023 April 30, 2022 April 29, 2023 April 30, 2022 Loss from discontinued operations $ (4,398 ) $ (1,657 ) $ (11,722 ) $ (7,298 ) Add: Depreciation and amortization expense 509 1,630 3,155 7,257 Income tax expense (benefit) 101 142 398 497 Content amortization (non-cash) 1,739 1,434 6,594 5,068 Restructuring and other charges — — 1,848 — Transaction costs 381 — 381 — Adjusted EBITDA (Non-GAAP) - Total $ (1,668 ) $ 1,549 $ 654 $ 5,524 BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES Sales Information (Unaudited) Total Sales - Continuing Operations The components of the sales variances for the 13 and 52 week periods are as follows: Dollars in millions 13 weeks ended 52 weeks ended Retail Sales April 29, 2023 April 29, 2023 New stores (a) $ 4.7 $ 78.3 Closed stores (a) (5.4 ) (46.4 ) Comparable stores (b) (3.6 ) 25.7 Textbook rental deferral (5.6 ) 0.9 Service revenue (c) (0.4 ) (3.8 ) Other (d) 0.1 (2.6 ) Retail Sales subtotal: $ (10.2 ) $ 52.1 Wholesale Sales $ 0.2 $ (5.9 ) Eliminations (e) $ 0.7 $ 1.3 Total sales variance $ (9.3 ) $ 47.5 (a) The following is a store count summary for physical stores and virtual stores: 13 weeks ended 52 weeks ended April 29, 2023 April 30, 2022 April 29, 2023 April 30, 2022 Number of Stores: Physical Virtual Total Physical Virtual Total Physical Virtual Total Physical Virtual Total Beginning of period 785 603 1,388 799 642 1,441 805 622 1,427 769 648 1,417 Stores opened 2 2 4 10 — 10 36 30 66 57 35 92 Stores closed 13 13 26 4 20 24 67 60 127 21 61 82 End of period 774 592 1,366 805 622 1,427 774 592 1,366 805 622 1,427 In December 2020, we entered into merchandising partnership with Fanatics Retail Group Fulfillment, LLC, Inc. (“Fanatics”) and Fanatics Lids College, Inc. D/B/A "Lids" (“Lids”) (collectively referred to herein as the “F/L Partnership”). Effective in April 2021, as contemplated by the F/L Partnership's merchandising agreement and e-commerce agreement, we began to transition the fulfillment of our logo general merchandise sales to Lids and Fanatics. The transition to Lids for campus stores was effective in April 2021, and the e-commerce websites transitioned to Fanatics throughout fiscal 2022. As the logo general merchandise sales are fulfilled by Lids and Fanatics, we recognize commission revenue earned for these sales on a net basis in our consolidated financial statements, as compared to the recognition of logo general merchandise sales on a gross basis in the periods prior to the transition. For Retail Gross Comparable Store Sales 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 Retail Gross Comparable Store Sales variances by category are as follows: Dollars in millions 13 weeks ended 52 weeks ended April 29, 2023 April 30, 2022 April 29, 2023 April 30, 2022 Textbooks (Course Materials) $ 0.9 1.0 % $ 3.5 4.0 % $ 4.1 0.4 % $ 21.2 2.3 % General Merchandise 1.2 0.9 % 51.8 63.3 % 43.9 8.6 % 219.5 75.6 % Total Retail Gross Comparable Store Sales $ 2.1 0.9 % $ 55.3 32.6 % $ 48.0 3.2 % $ 240.7 19.6 % To supplement the Total Sales table presented above, the Company uses Retail Gross Comparable Store Sales as a key performance indicator. 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 permanently closed stores for all periods presented. For Retail Gross Comparable Store Sales, sales for logo general merchandise fulfilled by Lids, Fanatics and digital agency sales are included on a gross basis for consistent year-over-year comparison. Effective in April 2021, as contemplated by the F/L Partnership's merchandising agreement and e-commerce agreement, we began to transition the fulfillment of our logo general merchandise sales to Lids and Fanatics. The transition to Lids for campus stores was effective in April 2021, and the e-commerce websites transitioned to Fanatics throughout fiscal 2022. As the logo general merchandise sales are fulfilled by Lids and Fanatics, we recognize commission revenue earned for these sales on a net basis in our consolidated financial statements, as compared to the recognition of logo general merchandise sales on a gross basis in the periods prior to the transition. We believe the current Retail Gross Comparable Store Sales calculation method reflects management’s view that such comparable store sales are an important measure of the growth in sales when evaluating how established stores have performed over time. We present this metric as additional useful information about the Company’s operational and financial performance and to allow greater transparency with respect to important metrics used by management for operating and financial decision-making. Retail Gross Comparable Store Sales are also referred to as "same-store" sales by others within the retail industry and the method of calculating comparable store sales varies across the retail industry. As a result, our calculation of comparable store sales is not necessarily comparable to similarly titled measures reported by other companies and is intended only as supplemental information and is not a substitute for net sales presented in accordance with GAAP. BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES Non-GAAP Information (a) (Unaudited) (In thousands) Consolidated Adjusted Earnings (non-GAAP) (a) - Continuing Operations 13 weeks ended 52 weeks ended April 29, 2023 April 30, 2022 April 29, 2023 April 30, 2022 Net loss from continuing operations $ (41,852 ) $ (9,299 ) $ (90,140 ) $ (61,559 ) Reconciling items, after-tax (below) 5,341 (2,087 ) 16,137 8,175 Adjusted Earnings (Non-GAAP) $ (36,511 ) $ (11,386 ) $ (74,003 ) $ (53,384 ) Reconciling items, pre-tax Impairment loss (non-cash) (b) $ — $ — $ 6,008 $ 6,411 Merchandise inventory loss (c) — — — 434 Content amortization (non-cash) (d) — 36 26 386 Restructuring and other charges (e) 5,341 (2,123 ) 10,103 944 Reconciling items, pre-tax 5,341 (2,087 ) 16,137 8,175 Less: Pro forma income tax impact (f) — — — — Reconciling items, after-tax $ 5,341 $ (2,087 ) $ 16,137 $ 8,175 Consolidated Adjusted EBITDA (non-GAAP) (a) 13 weeks ended 52 weeks ended April 29, 2023 April 30, 2022 April 29, 2023 April 30, 2022 Net loss from continuing operations $ (41,852 ) $ (9,299 ) $ (90,140 ) $ (61,559 ) Add: Depreciation and amortization expense 10,899 10,996 42,163 42,124 Interest expense, net 7,011 2,287 22,683 10,096 Income tax expense (benefit) 408 (9,608 ) 1,011 (9,152 ) Impairment loss (non-cash) (b) — — 6,008 6,411 Merchandise inventory loss (c) — — — 434 Content amortization (non-cash) (d) — 36 26 386 Restructuring and other charges (e) 5,341 (2,123 ) 10,103 944 Adjusted EBITDA (Non-GAAP) - Continuing Operations $ (18,193 ) $ (7,711 ) $ (8,146 ) $ (10,316 ) Adjusted EBITDA (Non-GAAP) - Discontinued Operations (g) $ (1,668 ) $ 1,549 $ 654 $ 5,524 Adjusted EBITDA (Non-GAAP) - Total $ (19,861 ) $ (6,162 ) $ (7,492 ) $ (4,792 ) Adjusted EBITDA by Segment (non-GAAP) (a) - Continuing Operations The following is Adjusted EBITDA by Segment for Continuing Operations for the 13 and 52 week periods: 13 weeks ended April 29, 2023 Retail Wholesale Corporate Eliminations Total Net (loss) income from continuing operations $ (21,066 ) $ (5,504 ) $ (15,414 ) $ 132 $ (41,852 ) Add: Depreciation and amortization expense 9,590 1,297 12 — 10,899 Interest expense, net — — 7,011 — 7,011 Income tax expense — — 408 — 408 Restructuring and other charges (e) 1,512 (15 ) 3,844 — 5,341 Adjusted EBITDA (non-GAAP) $ (9,964 ) $ (4,222 ) $ (4,139 ) $ 132 $ (18,193 ) 13 weeks ended April 30, 2022 Retail Wholesale Corporate Eliminations Total Net (loss) income from continuing operations $ (5,418 ) $ (7,255 ) $ 3,705 $ (331 ) $ (9,299 ) Add: Depreciation and amortization expense 9,620 1,358 18 — 10,996 Interest expense, net — — 2,287 — 2,287 Income tax benefit — — (9,608 ) — (9,608 ) Content amortization (non-cash) (d) 36 — — — 36 Restructuring and other charges (e) 5 (2,131 ) 3 — (2,123 ) Adjusted EBITDA (non-GAAP) $ 4,243 $ (8,028 ) $ (3,595 ) $ (331 ) $ (7,711 ) 52 weeks ended April 29, 2023 Retail Wholesale Corporate Eliminations Total Net loss from continuing operations $ (35,095 ) $ (3,050 ) $ (51,970 ) $ (25 ) $ (90,140 ) Add: Depreciation and amortization expense 36,737 5,373 53 — 42,163 Interest expense, net — — 22,683 — 22,683 Income tax expense — — 1,011 — 1,011 Impairment loss (non-cash) (b) 6,008 — — — 6,008 Content amortization (non-cash) (d) 26 — — — 26 Restructuring and other charges (e) 2,964 916 6,223 — 10,103 Adjusted EBITDA (non-GAAP) $ 10,640 $ 3,239 $ (22,000 ) $ (25 ) $ (8,146 ) 52 weeks ended April 30, 2022 Retail Wholesale Corporate Eliminations Total Net (loss) income from continuing operations $ (37,305 ) $ 495 $ (24,974 ) $ 225 $ (61,559 ) Add: Depreciation and amortization expense 36,635 5,418 71 — 42,124 Interest expense, net — — 10,096 — 10,096 Income tax benefit — — (9,152 ) — (9,152 ) Impairment loss (non-cash) (b) 6,411 — — — 6,411 Merchandise inventory loss (c) 434 — — — 434 Content amortization (non-cash) (d) 386 — — — 386 Restructuring and other charges (e) 2,118 (2,131 ) 957 — 944 Adjusted EBITDA (non-GAAP) $ 8,679 $ 3,782 $ (23,002 ) $ 225 $ (10,316 ) For additional information, see "Use of Non-GAAP Financial Information" in the Non-GAAP disclosure information of this Press Release. (b) During the 52 weeks ended April 29, 2023, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $6,008 (both pre-tax and after-tax) comprised of $708, $1,697, $3,599 and $4 of property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets, respectively. During the 52 weeks ended April 30, 2022, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $6,411 (both pre-tax and after-tax) comprised of $739, $1,793, $3,668 and $211 of property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets, respectively. (c) As contemplated by the F/L Partnership's merchandising agreement, we sold our logo general merchandise inventory to Lids 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. (d) Represents amortization of content development costs (non-cash) recorded in cost of goods sold in the consolidated financial statements. (e) During the 52 weeks ended April 29, 2023 and April 30, 2022, we recognized restructuring and other charges totaling $10,103 and $944, 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, professional service costs for restructuring, process improvements, costs related to development and integration associated with the F/L Partnership, and an actuarial gains related to a frozen retirement benefit plan (non-cash). (f) There is no pro forma income effect of the non-GAAP items. (g) For additional information, see "Segment Information - Discontinued Operations" of this Press Release. (h) Interest expense is reflected in Corporate Services as it is primarily related to our Credit Agreement which funds our operating and financing needs across the organization. Income taxes are reflected in Corporate Services as we record our income tax provision on a consolidated basis. Free Cash Flow (non-GAAP) (a) - Continuing Operations 13 weeks ended 52 weeks ended April 29, 2023 April 30, 2022 April 29, 2023 April 30, 2022 Net cash flows provided by (used in) operating activities from continuing operations $ 111,762 $ (18,255 ) $ 90,513 $ (16,195 ) Less: Capital expenditures (b) 3,391 7,413 25,092 33,607 Cash interest paid 5,618 2,184 19,024 8,166 Cash taxes refund (63 ) (264 ) (16,005 ) (8,088 ) Free Cash Flow (non-GAAP) $ 102,816 $ (27,588 ) $ 62,402 $ (49,880 ) For additional information, see "Use of Non-GAAP Financial Information" in the Non-GAAP disclosure information of this Press Release. (b) 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, 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 52 weeks ended - Continuing Operations April 29, 2023 April 30, 2022 April 29, 2023 April 30, 2022 Physical store capital expenditures $ 820 $ 3,645 $ 13,068 $ 16,206 Product and system development 2,163 3,439 10,030 14,867 Other 408 329 1,994 2,534 Total Capital Expenditures $ 3,391 $ 7,413 $ 25,092 $ 33,607 Use of Non-GAAP Financial Information - Adjusted Earnings, Adjusted EBITDA, Adjusted EBITDA by Segment, 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 financial measures of Adjusted Earnings, Adjusted EBITDA, Adjusted EBITDA by Segment and Free Cash Flow, which are non-GAAP financial measures under Securities and Exchange Commission (the "SEC") regulations. We define Adjusted Earnings as net income (loss) from continuing operations adjusted for certain reconciling items that are subtracted from or added to net income (loss) from continuing operations. We define Adjusted EBITDA as net income (loss) from continuing operations plus (1) depreciation and amortization; (2) interest expense and (3) income taxes, (4) as adjusted for items that are subtracted from or added to net income (loss) from continuing operations. We define Free Cash Flow as Cash Flows from Operating Activities from continuing operations less capital expenditures, cash interest and cash taxes. The non-GAAP measures included in the Press Release have been reconciled to the most comparable financial measures presented in accordance with GAAP, attached hereto as Exhibit 99.1, as follows: the reconciliation of Adjusted Earnings to net income (loss) from continuing operations; the reconciliation of consolidated Adjusted EBITDA to consolidated net income (loss) from continuing operations; and the reconciliation of Adjusted EBITDA by Segment to net income (loss) from continuing operations by segment. All of the items included in the reconciliations are either (i) non-cash items or (ii) items that management does not consider in assessing our on-going operating performance. 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. We review these non-GAAP financial measures as internal measures to evaluate our performance at a consolidated level and at a segment level and manage our operations. We believe that these measures are useful performance measures which are used by us to facilitate a comparison of our on-going operating performance on a consistent basis from period-to-period. We believe that these non-GAAP financial measures provide for a more complete understanding of factors and trends affecting our business than measures under GAAP can provide alone, as they exclude certain items that management believes do not reflect the ordinary performance of our operations in a particular period. Our Board of Directors and management also use Adjusted EBITDA and Adjusted EBITDA by Segment, at a consolidated level and at a segment level, as one of the primary methods for planning and forecasting expected performance, for evaluating on a quarterly and annual basis actual results against such expectations, and as a measure for performance incentive plans. Management also uses Adjusted EBITDA by Segment to determine segment capital allocations. We believe that the inclusion of Adjusted Earnings, Adjusted EBITDA, and Adjusted EBITDA by Segment results provides investors useful and important information regarding our operating results, in a manner that is consistent with management’s evaluation of business performance. We believe 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 our operating profitability and liquidity as we manage the business to maximize margin and cash flow. The Company urges investors to carefully review the GAAP financial information included as part of the Company’s Form 10-K dated April 29, 2023 filed with the SEC on July 31, 2023, which includes consolidated financial statements for each of the three years for the period ended April 29, 2023, April 30, 2022, and May 1, 2021 (Fiscal 2023, Fiscal 2022, and Fiscal 2021, respectively) and the Company's Quarterly Reports on Form 10-Q for the period ended July 30, 2022 filed with the SEC on August 31, 2022, the Company's Quarterly Report on Form 10-Q for the period ended October 29, 2022 filed with the SEC on December 6, 2022, and the Company's Quarterly Report on Form 10-Q for the period ended January 28, 2023 filed with the SEC on March 9, 2023. Investor Contact:
(a)
(b)
Services (h)
Services (h)
Services (h)
Services (h)
(a)
(a)
Hunter Blankenbaker
Vice President,
Corporate Communications and Investor Relations
908-991-2776
hblankenbaker@bned.com
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