Barnes & Noble Education, Inc. (NYSE: BNED), a
leading provider of educational products and services solutions for
higher education and K-12, today reported sales and earnings for
the second quarter for fiscal year 2019, which ended on October 27,
2018.
The Company has three reportable segments: Barnes & Noble
College Booksellers, LLC (“BNC”), MBS Textbook Exchange, LLC
(“MBS”), and Digital Student Solutions (“DSS”). All material
intercompany accounts and transactions have been eliminated in
consolidation.
Financial highlights for the second quarter 2019:
- Consolidated second quarter sales of
$814.8 million decreased 8.1%, as compared to the prior year
period; year to date consolidated sales of $1,152.3 million
decreased 7.3% as compared to the prior year period.
- Consolidated second quarter GAAP net
income increased to $59.7 million, as compared to $48.4 million in
the prior year period; year to date GAAP net income increased to
$21.1 million, as compared to $13.6 million in the prior year
period.
- Consolidated second quarter non-GAAP
Adjusted Earnings increased to $60.1 million, as compared to $49.9
million in the prior year period; year to date non-GAAP Adjusted
Earnings increased to $21.5 million, as compared to $20.1 million
in the prior year period.
- Consolidated second quarter non-GAAP
Adjusted EBITDA decreased to $95.4 million, as compared to $102.4
million in the prior year period; year to date non-GAAP Adjusted
EBITDA decreased to $62.9 million, as compared to $70.0 million in
the prior year period.
Operational highlights for the second quarter 2019:
- Increased sales of BNC First Day™
inclusive access by over 80%. The First Day platform, which is live
on approximately 100 campuses, drives down the cost of course
materials for students and secures a higher sell through rate for
the Company.
- Launched flagship student study
subscription service, Bartleby Textbook Solutions, which features
step-by-step textbook solutions across numerous subject areas. The
product launch marks the Company’s first internally developed
digital solution in its DSS segment, and is another important step
in its ongoing digital transformation. The Company expects to have
approximately one million textbook solutions available for the
spring semester, as well as expert Q&A capabilities, providing
further critical services for students to achieve better success
throughout their academic journey.
- Completed acquisition of
PaperRater.com, a leading website that offers students a suite of
writing services that includes a plagiarism checker, writing
revision tools and an AI-based auto-grading scoring system to help
students improve multiple facets of their writing. Along with the
acquisition of Student Brands in August 2017, PaperRater bolsters
the Company’s competitive position in student writing services and
expands its content library.
- StudyMode writing product rolled out
across the majority of BNC and MBS e-commerce sites, allowing
students to add a StudyMode subscription to their cart at point of
purchase. StudyMode and Bartleby Textbook Solutions will also be
integrated into point-of-sale and in-store systems for the spring
semester.
“During the first half of fiscal 2019, BNED accomplished
significant milestones in its continued development of the digital
services and offerings the industry is demanding. While we are
pleased with the improvement in consolidated net income, our focus
is on investing in digital growth platforms and offerings for the
future while also taking steps to preserve current levels of
profitability and cash flow,” said Michael P. Huseby, Chairman
& Chief Executive Officer, Barnes & Noble Education. “At
BNC, sales were impacted by lower comparable stores sales and the
impact of previously announced store closings. At MBS, wholesale
sales were impacted by lower publisher rental penetration than
anticipated, as well as lower net sales of traditional wholesale
textbooks. We are taking steps to improve our sales execution and
more aggressively manage expense and capital spending during this
transformation to digital platforms and offerings. BNED’s financial
position remains strong and we continue to realize our vision of
becoming a premier provider of both physical and digital
educational services.”
Second Quarter 2019 and Year to Date
Results
Results for the 13 and 26 weeks of fiscal
2019 and fiscal 2018 are as follows:
$ in millions
13 and 26 Weeks Selected Data (unaudited)
13 Weeks
13 Weeks
26 Weeks
26 Weeks
Q2 2019 Q2 2018
2019
2018
Total Sales
$814.8
$886.9
$1,152.3
$1,242.6
Net Income
$59.7
$48.4
$21.1
$13.6
Non-GAAP(1)
Adjusted EBITDA
$95.4
$102.4
$62.9
$70.0
Adjusted Earnings
$60.1
$49.9
$21.5
$20.1
(1) These non-GAAP financial measures have been reconciled in
the attached schedules to the most directly comparable GAAP
measures as required under SEC rules regarding the use of non-GAAP
financial measures.
Consolidated Results
Consolidated second quarter sales of $814.8
million decreased $72.1 million, or 8.1%, as compared to the prior
year period. The sales decrease was primarily attributable to
declines at BNC and MBS partially offset by an increase at DSS.
The Company’s non-GAAP Adjusted EBITDA
decreased $7.0 million for the quarter, as compared to the prior
year period. The decrease is primarily attributable to lower sales
at BNC and MBS, as well as investments made in DSS, partially
offset by the benefit of intercompany eliminations recognized in
the second fiscal quarter. This elimination, as expected, was
recognized in the second quarter as BNC sold through or returned
the inventory which was purchased from MBS in the first fiscal
quarter.
BNC Results
BNC sales decreased by $54.4 million, or
7.2%, as compared to the prior year period. Comparable store sales
at BNC decreased 5.6% for the quarter representing approximately
$41.6 million in revenue, primarily due to lower textbook sales.
Sales from net new stores (new stores less closed stores) declined
by $15.2 million compared to an increase of $21.1 million in the
prior year.
BNC non-GAAP Adjusted EBITDA for the quarter
declined by $4.0 million to $68.5 million, as compared to $72.5
million in the prior year period. The gross margin impact of lower
sales was partially offset by higher margins and lower selling and
administrative expenses resulting in BNC’s decrease in Adjusted
EBITDA.
MBS Results
MBS total sales of $119.0 million for the
quarter decreased by $15.9 million, or 11.8%, as compared to $134.9
million in the prior year period.
MBS Wholesale net sales of $37.9 million for
the quarter decreased by $9.6 million, or 20.2%, as compared to
$47.5 million during the prior year period. MBS Wholesale net sales
were impacted by lower publisher rental penetration than
anticipated, as well as lower net sales of traditional wholesale
textbooks. MBS Direct sales of $81.1 million for the quarter
decreased by $6.3 million, or 7.2%, as compared to $87.4 million in
the prior year period, due to lower sales from Higher Ed accounts
and net new stores.
MBS non-GAAP Adjusted EBITDA for the quarter
was $18.6 million for the quarter, as compared to $20.9 million in
the prior year period. This decrease was primarily driven by the
impact of lower sales, partially offset by higher margins and lower
selling and administrative expenses.
DSS Results
DSS sales of $4.9 million for the quarter
increased by $0.4 million, or 10.0% as compared to $4.5 million
during the prior year period. The increase reflects the operating
results of Student Brands, which generates sales through
subscriptions to its digital properties.
DSS non-GAAP Adjusted EBITDA was $1.4 million
for the quarter, as compared to $2.2 million in the prior year
period. The decrease is the result of investments in the
development of the Company’s new study subscription product
offering, Bartleby Textbook Solutions, partially offset by the
increase of Student Brands Adjusted EBITDA.
Other
Expenses for Corporate Services, which
includes unallocated shared-service costs, such as various
corporate level expenses and other governance functions, were $6.0
million for the quarter as compared to $4.7 million in the prior
period.
Intercompany gross margin eliminations of
$13.0 million reflected in Adjusted EBITDA, compared to $11.7
million in the prior year period, is higher due to an increase in
intercompany sales from MBS to BNC during the first fiscal quarter
and recognized in the second fiscal quarter as BNC either sold or
returned the inventory purchased from MBS.
Outlook
For fiscal year 2019, the Company expects consolidated sales to
be in the range of $2.2 billion to $2.3 billion before intercompany
eliminations, and consolidated Adjusted EBITDA to be in a range of
$110 million to $125 million. The current outlook is expected to be
at the low end of those ranges. Capital expenditures are expected
to be approximately $50 million, $10 million lower than the
Company’s previously disclosed outlook, increasing over fiscal year
2018 primarily due to the Company’s investments in digital content
required to develop and offer new DSS products.
Conference Call
A conference call with Barnes & Noble Education, Inc. senior
management will be webcast at 10:00 a.m. Eastern Time on Tuesday,
December 4, 2018 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 2019 third
quarter results on or about March 6, 2019.
ABOUT BARNES & NOBLE EDUCATION, INC.
Barnes & Noble Education, Inc. (NYSE: BNED) is a
leading provider of higher education and K-12 educational products
and solutions. Through its Barnes & Noble College and MBS
Textbook Exchange segments, Barnes & Noble Education operates
1,450 physical and virtual bookstores across the U.S., serving more
than 6 million students and faculty. Through its Digital Student
Solutions segment, the Company offers direct-to-student products
and services that help students study more effectively and improve
academic performance, enabling them to gain the valuable skills
necessary to succeed after college. The Company also operates one
of the largest textbook wholesale distribution channels in the
United States. For more information please visit www.bned.com.
BNED companies include: Barnes & Noble College Booksellers,
LLC, MBS Textbook Exchange, LLC, BNED LoudCloud, LLC, Student
Brands, LLC, Promoversity, LLC and PaperRater, LLC. General
information on Barnes & Noble Education may be obtained by
visiting the Company's corporate website: 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: 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, including MBS
Textbook Exchange, LLC and Student Brands, LLC, may not be fully
realized or may take longer than expected; the integration of the
operations of various acquisitions, including MBS Textbook
Exchange, LLC and Student Brands, LLC, 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 risks associated with merchandise sourced
indirectly from outside 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 which may restrict or prohibit our use
of emails or similar marketing activities; the amount of our
indebtedness and ability to comply with covenants applicable to any
future debt financing; our ability to satisfy future capital and
liquidity requirements; our ability to access the credit and
capital markets at the times and in the amounts needed and on
acceptable terms; adverse results from litigation, governmental
investigations, tax-related proceedings, or audits; changes in
accounting standards; and the other risks and uncertainties
detailed in the section titled “Risk Factors” in Part I - Item 1A
in our Annual Report on Form 10-K for the year ended April 28,
2018. 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
The condensed consolidated financial statements for the 13 and
26 weeks ended October 27, 2018 include the financial results of
Student Brands, LLC (in the DSS segment) for the entire period and
the condensed consolidated financial statements for the 13 and 26
weeks ended October 28, 2017 include the financial results of
Student Brands, LLC from the acquisition date on August 3, 2017
(the second quarter of fiscal year 2018).
We have three reportable segments: BNC, MBS and DSS as
follows:
- The BNC Segment is comprised of the
operations of Barnes & Noble College Booksellers, LLC ("BNC")
which operates 773 physical campus bookstores, the majority of
which also have school-branded e-commerce sites operated by BNC and
which offer students access to affordable course materials and
affinity products, including emblematic apparel and gifts. BNC also
offers its First Day™ inclusive access program, in which course
materials, including e-content, are offered at a reduced price
through a course materials fee, and delivered to students digitally
on or before the first day of class. Additionally, the BNC segment
offers a suite of digital content, software, and services to
colleges and universities through our LoudCloud platform, such as
predictive analytics, a variety of open educational resources
courseware, and a competency-based learning platform.
- The MBS Segment is comprised of MBS
Textbook Exchange, LLC's ("MBS") two highly integrated businesses:
MBS Direct which operates 677 virtual bookstores for college and
university campuses, and K-12 schools, and MBS Wholesale which is
one of the largest textbook wholesalers in the country. MBS
Wholesale's business centrally sources and sells new and used
textbooks to more than 3,500 physical college bookstores, including
BNC’s 773 campus bookstores. MBS Wholesale sells hardware and a
software suite of applications that provides inventory management
and point-of-sale solutions to over 400 college bookstores.
- The Digital Student Solutions ("DSS")
Segment includes direct-to-student products and services to assist
students to study more effectively and improve academic
performance. The DSS segment is comprised of the operations of
Student Brands, a leading direct-to-student subscription-based
writing services business, and Bartleby Textbook Solutions. The DSS
segment also includes tutoring and test prep services offered
through our partnership with The Princeton Review.
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.
Our condensed consolidated financial statements reflect the
following reclassifications for consistency with the current year
presentation:
- Cost of Sales expenses primarily
related to facility costs and insurance for the Corporate Services
category have been reclassified to Selling and Administrative
Expenses in the condensed consolidated statements of
operations.
- For our digital rental products, we
have reclassified Rental Income to Product Sales and Other, and
have reclassified Rental Cost of Sales to Product and Other Cost of
Sales in the condensed consolidated statements of operations, with
no impact to Gross Margin. Digital rental revenue and digital
rental cost of sales are recognized at the time of delivery and are
not deferred over the rental period.
Prior periods presented reflect the reclassifications noted
above.
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 27,2018
October 28,2017 October 27,2018 October 28,2017 Sales:
Product sales and other $ 756,173 $ 820,071 $ 1,074,018 $ 1,155,040
Rental income 58,593 66,790 78,232 87,532
Total sales 814,766 886,861 1,152,250
1,242,572 Cost of sales: (a) Product and other cost of sales
568,971 630,176 827,723 907,854 Rental cost of sales 35,035
39,985 47,157 52,818 Total cost of sales 604,006
670,161 874,880 960,672 Gross profit 210,760
216,700 277,370 281,900 Selling and
administrative expenses 115,323 115,290 214,467 215,187
Depreciation and amortization expense 16,421 16,704 32,959 31,721
Restructuring and other charges (a) — 193 — 5,429 Transaction costs
(a) 537 1,257 537 1,846 Operating income
78,479 83,256 29,407 27,717 Interest expense, net 1,836
1,836 5,358 4,874 Income before income taxes 76,643
81,420 24,049 22,843 Income tax expense 16,946 33,025
2,974 9,231 Net income $ 59,697 $ 48,395 $
21,075 $ 13,612 Earnings per common share: Basic $
1.26 $ 1.04 $ 0.45 $ 0.29 Diluted $ 1.25 $ 1.03 $ 0.44 $ 0.29
Weighted average common shares outstanding: Basic 47,184 46,705
47,050 46,611 Diluted 47,824 47,006 47,689 47,144 (a) For
additional information, see Note (a) - (c) in the Non-GAAP
disclosure information of this Press Release. 13 weeks ended
26 weeks ended October 27,2018 October 28,2017
October 27,2018 October 28,2017
Percentage of sales:
Sales: Product sales and other 92.8 % 92.5 % 93.2 % 93.0 % Rental
income 7.2 % 7.5 % 6.8 % 7.0 % Total sales 100.0 % 100.0 % 100.0 %
100.0 % Cost of sales: Product and other cost of sales (a) 75.2 %
76.8 % 77.1 % 78.6 % Rental cost of sales (a) 59.8 % 59.9 % 60.3 %
60.3 % Total cost of sales 74.1 % 75.6 % 75.9 % 77.3 % Gross profit
25.9 % 24.4 % 24.1 % 22.7 % Selling and administrative expenses
14.2 % 13.0 % 18.6 % 17.3 % Depreciation and amortization expense
2.0 % 1.9 % 2.9 % 2.6 % Restructuring and other charges — % — % — %
0.4 % Transaction costs 0.1 % 0.1 % — % 0.1 % Operating income 9.6
% 9.4 % 2.6 % 2.3 % Interest expense, net 0.2 % 0.2 % 0.5 % 0.4 %
Income before income taxes 9.4 % 9.2 % 2.1 % 1.9 % Income tax
expense 2.1 % 3.7 % 0.3 % 0.7 % Net income 7.3 % 5.5 % 1.8 % 1.2 %
(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 27,2018 October 28,2017 ASSETS Current
assets: Cash and cash equivalents $ 20,048 $ 17,494 Receivables,
net 138,048 153,646 Merchandise inventories, net 505,943 506,728
Textbook rental inventories 70,599 78,062 Prepaid expenses and
other current assets 16,554 22,198 Total current
assets 751,192 778,128 Property and equipment, net
112,029 115,734 Intangible assets, net 213,886 229,498 Goodwill
53,982 362,412 Other noncurrent assets 41,632 41,469
Total assets $ 1,172,721 $ 1,527,241 LIABILITIES AND
STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $
443,319 $ 458,833 Accrued liabilities 170,037 184,283
Total current liabilities 613,356 643,116 Long-term
deferred taxes, net 7,906 16,187 Other long-term liabilities 59,419
96,294 Long-term borrowings — 41,800 Total
liabilities 680,681 797,397 Commitments and
contingencies — — Stockholders' equity:
Preferred stock, $0.01 par value;
authorized, 5,000 shares; issued andoutstanding, none
— —
Common stock, $0.01 par value; authorized,
200,000 shares; issued, 51,026and 50,028 shares, respectively;
outstanding, 47,561 and 46,914 shares,respectively
511 500 Additional paid-in-capital 722,286 713,018 (Accumulated
deficit) Retained earnings (199,128 ) 45,975 Treasury stock, at
cost (31,629 ) (29,649 ) Total stockholders' equity 492,040
729,844 Total liabilities and stockholders' equity $
1,172,721 $ 1,527,241
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 27, 2018 October 28, 2017 October 27, 2018
October 28, 2017 BNC Sales New stores (a) $ 18.4 $ 26.3 $ 25.1 $
41.7 Closed stores (a) (33.6 ) (5.2 ) (40.4 ) (7.5 ) Comparable
stores (b) (41.6 ) (33.8 ) (46.5 ) (38.6 ) Textbook rental deferral
3.8 2.3 3.6 3.6 Service revenue (c) (0.1 ) — 0.3 1.9 Other (d) (1.3
) (2.9 ) (1.3 ) (3.7 ) BNC sales subtotal: $ (54.4 ) $ (13.3 ) $
(59.2 ) $ (2.6 ) MBS Sales (e) Wholesale $ (9.6 ) $ 47.5 $ (13.7 )
$ 140.0 Direct (6.3 ) 87.4 (11.7 ) 134.7 MBS sales
subtotal: $ (15.9 ) $ 134.9 $ (25.4 ) $ 274.7 DSS Sales (f) $ 0.4
4.5 $ 6.1 4.5 Eliminations (g) $ (2.2 ) (9.9 ) $ (11.8 ) (43.9 )
Total sales variance: $ (72.1 ) $ 116.2 $ (90.3 ) $ 232.7
(a) The following is a store count summary
for BNC physical stores and MBS virtual stores:
13 weeks ended 26 weeks ended October 27, 2018
October 28, 2017 October 27, 2018 October 28, 2017 Number of
Stores:
BNCStores
MBSDirectStores
BNCStores
MBSDirectStores
BNCStores
MBSDirectStores
BNCStores
MBSDirectStores
Number of stores at beginning of period 753 684 781 709 768 676 769
712 Stores opened 21 9 — 8 34 26 24 13 Stores closed 1 16 4 12 29
25 16 20 Number of stores at end of period 773 677 777 705 773 677
777 705 (b) For Comparable Store Sales details, see below.
(c) Service revenue includes Promoversity, brand partnerships,
shipping and handling, LoudCloud digital content, software, and
services, and revenue from other programs. (d) Other includes
inventory liquidation sales to third parties, and certain
accounting adjusting items related to return reserves, agency sales
and other deferred items. (e) The variance for the MBS segment for
the 13 and 26 weeks ended October 28, 2017 represents the sales
activity for MBS Textbook Exchange, LLC ("MBS") which we acquired
on February 27, 2017 (the fourth quarter of Fiscal 2017). (f) DSS
segment revenue includes Student Brands, LLC subscription-based
writing services business. The condensed consolidated financial
statements for the 13 and 26 weeks ended October 27, 2018 include
the financial results of Student Brands, LLC for the entire period
and the condensed consolidated financial statements for the 13 and
26 weeks ended October 28, 2017 include the financial results of
Student Brands, LLC from the date of acquisition on August 3, 2017.
(g) Eliminates MBS sales to BNC and BNC commissions earned from
MBS.
Comparable Store Sales - Barnes & Noble College
Comparable store sales variances by
category for the 13 and 26 week periods are as follows:
13 weeks ended 26 weeks ended October 27, 2018
October 28, 2017 October 27, 2018 October 28, 2017 Textbooks
(Course Materials) $ (44.2 ) (8.1)% $ (28.8 ) (5.0 )%
$ (48.7 ) (7.6)% $ (36.5 ) (5.5)% General Merchandise
3.2 1.8% (3.4 ) (1.9 )% 4.4 1.5% 0.2 0.1% Trade Books (0.6 ) (4.7)%
(1.6 ) (11.2 )% (2.2 ) (8.8)% (2.3 ) (8.5)% Total Comparable Store
Sales $ (41.6 ) (5.6)% $ (33.8 ) (4.4 )% $ (46.5 ) (4.8)% $ (38.6 )
(3.9)%
Comparable store sales includes sales from stores that have been
open for an entire fiscal year period, does not include sales from
closed stores for all periods presented, and digital agency sales
are included on a gross basis. We believe the current comparable
store sales calculation method reflects the manner in which
management views comparable sales, as well as the seasonal nature
of our business. Prior year comparable store sales exclude store
inventory sales to MBS, which are reflected as intercompany
inventory transfers since the acquisition.
BARNES & NOBLE EDUCATION, INC.
AND SUBSIDIARIES
Consolidated Non-GAAP
Information
(In thousands)
(Unaudited)
Adjusted Earnings 13 weeks ended 26 weeks
ended
October 27,2018
October 28,2017
October 27,2018
October 28,2017
Net income $ 59,697 $ 48,395 $ 21,075 $ 13,612 Reconciling items,
after-tax (below) 398 1,519 398 6,525 Adjusted
Earnings (Non-GAAP) $ 60,095 $ 49,914 $ 21,473
$ 20,137 Reconciling items, pre-tax Inventory valuation
amortization (MBS) (non-cash) (a) $ — $ 1,025 $ — $ 3,273
Restructuring and other charges (b) — 193 — 5,429 Transaction costs
(c) 537 1,257 537 1,846 Reconciling items,
pre-tax 537 2,475 537 10,548 Less: Pro forma income tax impact (d)
139 956 139 4,023 Reconciling items, after-tax
$ 398 $ 1,519 $ 398 $ 6,525
Adjusted EBITDA 13 weeks ended 26 weeks ended
October 27,2018
October 28,2017
October 27,2018
October 28,2017
Net income $ 59,697 $ 48,395 $ 21,075 $ 13,612 Add: Depreciation
and amortization expense 16,421 16,704 32,959 31,721 Interest
expense, net 1,836 1,836 5,358 4,874 Income tax expense 16,946
33,025 2,974 9,231 Inventory valuation amortization (MBS)
(non-cash) (a) — 1,025 — 3,273 Restructuring and other charges (b)
— 193 — 5,429 Transaction costs (c) 537 1,257 537
1,846 Adjusted EBITDA (Non-GAAP) $ 95,437 $ 102,435
$ 62,903 $ 69,986
(a)
For the 13 weeks and 26 weeks ended
October 28, 2017, gross margin includes $1.0 million and $3.3
million, respectively, of incremental cost of sales related to
amortization of the MBS inventory fair value adjustment of $3.7
million recorded as of the acquisition date, February 27, 2017. The
non-cash fair value inventory adjustment for MBS was recognized
over six months from the date of acquisition and was allocated
based on monthly sales.
(b)
On July 19, 2017, Mr. Max J. Roberts
resigned as Chief Executive Officer of the Company and Mr. Michael
P. Huseby was appointed to the position of Chief Executive Officer
and Chairman of the Board, both effective as of September 19, 2017.
During the 26 weeks ended October 28, 2017, we recognized
restructuring and other charges of approximately $5.4 million,
which is comprised of the severance and transition payments. For
additional information, see Form 8-K dated July 19, 2017, filed
with the SEC on July 20, 2017.
(c)
Transaction costs are costs incurred for
business development and acquisitions.
(d)
Represents the income tax effects of the
non-GAAP items.
BARNES & NOBLE EDUCATION, INC.
AND SUBSIDIARIES
Segment Information
(In thousands, except
percentages)
(Unaudited)
Segment Information (a) 13 weeks ended
26 weeks ended
October 27, 2018
October 28, 2017 October 27, 2018 October 28, 2017
Sales BNC $ 702,870 $ 757,301 $ 948,045 $ 1,007,278 MBS 118,954
134,851 249,278 274,652 DSS 4,934 4,486 10,611 4,486 Elimination
(11,992 ) (9,777 ) (55,684 ) (43,844 ) Total $ 814,766 $
886,861 $ 1,152,250 $ 1,242,572 Gross profit
BNC $ 162,083 $ 167,523 $ 211,398 $ 216,747 MBS (b) 30,893 34,200
57,644 64,037 DSS 4,789 4,344 10,343 4,344 Elimination 12,995
11,658 (2,015 ) 45 Total $ 210,760 $
217,725 $ 277,370 $ 285,173 Selling and
administrative expenses BNC $ 93,625 $ 95,041 $ 172,640 $ 176,222
MBS 12,334 13,329 24,193 25,405 DSS 3,387 2,176 6,166 2,399
Corporate Services 6,016 4,744 11,509 11,161 Elimination (39 ) —
(41 ) — Total $ 115,323 $ 115,290 $
214,467 $ 215,187 Adjusted EBITDA (Non-GAAP) (c) BNC
$ 68,458 $ 72,482 $ 38,758 $ 40,525 MBS (b) 18,559 20,871 33,451
38,632 DSS 1,402 2,168 4,177 1,945 Corporate Services (6,016 )
(4,744 ) (11,509 ) (11,161 ) Elimination 13,034 11,658
(1,974 ) 45 Total $ 95,437 $ 102,435 $
62,903 $ 69,986
(a)
See Explanatory Note in this Press Release
for Segment descriptions and consolidation information.
(b)
For the 13 weeks and 26 weeks ended
October 28, 2017, gross margin includes $1.0 million and $3.3
million, respectively, of incremental cost of sales related to
amortization of the MBS inventory fair value adjustment of $3.7
million recorded as of the acquisition date, February 27, 2017. The
non-cash fair value inventory adjustment for MBS was recognized
over six months from the date of acquisition and was allocated
based on monthly sales.
(c)
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 27, 2018 October 28, 2017 October 27,
2018 October 28, 2017 Gross margin BNC 23.1% 22.1% 22.3%
21.5% MBS 26.0% 25.4% 23.1% 23.3% DSS 97.1% 96.8% 97.5% 96.8%
Elimination (108.4)% (119.2)% 3.6% (0.1)% Total gross margin 25.9%
24.6% 24.1% 23.0% Selling and administrative expenses BNC 13.3%
12.5% 18.2% 17.5% MBS 10.4% 9.9% 9.7% 9.2% DSS 68.6% 48.5% 58.1%
53.5% Corporate Services N/A N/A N/A N/A Elimination N/A N/A N/A
N/A Total selling and administrative expenses 14.2% 13.0% 18.6%
17.3%
Use of Non-GAAP Financial Information - Adjusted Earnings and
Adjusted EBITDA
To supplement the Company’s condensed 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) and 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).
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 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 April 28, 2018
filed with the SEC on June 20, 2018, which includes consolidated
financial statements for each of the three years for the period
ended April 28, 2018 (Fiscal 2018, Fiscal 2017, and Fiscal 2016)
and the Company's Quarterly Report on Form 10-Q for the period
ended July 28, 2018 filed with the SEC on August 22, 2018.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181204005215/en/
Media Contact:Carolyn J.
BrownSenior Vice PresidentCorporate Communications and Public
AffairsBarnes & Noble Education, Inc.(908)
991-2967cbrown@bned.com
Investor Contact:Thomas D.
DonohueSenior Vice PresidentTreasurer and Investor RelationsBarnes
& Noble Education, Inc.(908) 991-2966tdonohue@bned.com
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