New Bartleby Digital Study Product Successfully
Launches in Stores
Amends and Extends $500 Million Credit Facility
for Five Years
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 third quarter for fiscal year 2019, which ended on January 26,
2019.
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 third quarter 2019 and fiscal
year to date 2019:
- Consolidated sales of $550.3 million
decreased 8.8%, as compared to the prior year period; year to date
consolidated sales of $1,702.6 million decreased 7.8% as compared
to the prior year period.
- Consolidated third quarter GAAP net
income of $0.8 million, as compared to net loss of $283.2 million
in the prior year period; year to date GAAP net income of $21.8
million, as compared to net loss of $269.6 million in the prior
year period. The fiscal 2018 third quarter and year to date net
loss included a non-cash goodwill impairment charge of $313.1
million in the BNC segment.
- Consolidated third quarter non-GAAP
Adjusted Earnings of $3.1 million, as compared to $19.6 million in
the prior year period; year to date non-GAAP Adjusted Earnings of
$24.6 million, as compared to $39.8 million in the prior year
period.
- Consolidated third quarter non-GAAP
Adjusted EBITDA of $22.0 million, as compared to $34.6 million in
the prior year period; year to date non-GAAP Adjusted EBITDA of
$84.9 million, as compared to $104.5 million in the prior year
period.
Operational highlights for the third quarter 2019:
- Demonstrated positive leverage of
managed store footprint during initial in-store promotional offers
of Bartleby, the Company’s digital study product. Bartleby gained
more than 50,000 subscribers during the Spring Rush sales period,
including the month of February. The Company continues to adjust
pricing models and content offerings ahead of the next rush period,
and anticipates scaling of this digital offering with meaningful
financial impacts over the next 12-18 months.
- Developed and implemented Q&A
within Bartleby to provide the best value proposition for students
to achieve better success.
- Surpassed one million textbook
solutions available through Bartleby. The Company continues to
aggressively and strategically expand its catalogue.
- Continued to grow the Company’s First
Day™ inclusive access program, with BNC revenue from First Day
increasing 133.2% year over year.
- Launched next-generation First Day
solution for MBS Direct virtual bookstore clients after completing
successful pilot programs. First Day will be available to all MBS
Direct clients for the Fall Rush.
- Expanded relationships with Oxford
University Press, Wiley and Macmillan Learning through agreements
that will make the publishers’ digital content available through
inclusive access programs on BNED campuses nationwide.
“In this environment of rapid change, we continued to make
significant progress this quarter in strengthening our digital
capabilities. The Spring Rush period allowed for our first in-store
sales push of Bartleby, and our entire organization is energized by
the positive reaction we received from students,” said Michael P.
Huseby, Chairman and Chief Executive Officer, BNED. “We are taking
steps in each of our segments to ensure we are serving the needs of
the education market both today and in the future. The acceleration
from physical textbooks to digital offerings contributed to
somewhat higher than expected declines in revenue and EBITDA at BNC
and MBS. Nonetheless, we are confident in our ability to manage
these businesses for margin and cash flow while we invest in and
begin to scale high value digital growth platforms and offerings.
As we introduce new products and services to meet the changing
needs of our customers, we will also continue to optimize our cost
structure. We continue to make strides in developing, enhancing and
delivering digital products and packages that provide substantial
benefits for our campus partners and the students we serve. We
expect such digital offerings to scale and contribute to expanded
margins and cash flow to drive BNED’s value.”
Third Quarter 2019 and Year to Date Results
Results for the 13 and 39 weeks of fiscal 2019 and fiscal 2018
are as follows:
$ in millions 13 and 39 Weeks Selected Data
(unaudited)
13 WeeksQ3
2019
13 WeeksQ3
2018
39
Weeks2019
39
Weeks2018
Total Sales $550.3 $603.4 $ 1,702.6 $1,846.0 Net Income (Loss)(1) $
0.8 $(283.2) $ 21.8 $(269.6)
Non-GAAP(2)
Adjusted EBITDA
$22.0 $34.6 $84.9 $104.5 Adjusted Earnings $ 3.1 $19.6 $ 24.6 $39.8
(1) Includes a pre-tax goodwill non-cash impairment charge of
$313.1 million at BNC, or $302.9 million after tax on a net tax
basis, recorded in the third quarter of fiscal year 2018. (2) 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.
BNC Results
BNC sales of $461.1 million decreased by
$39.9 million, or 8.0%, as compared to the prior year period.
Comparable store sales at BNC decreased 7.7% for the quarter
representing approximately $37.2 million in revenue due to lower
textbook sales. Consistent with prior years, the Spring Rush period
extended beyond the quarter due to later school openings and the
continued pattern of students buying course materials later in the
semester. Factoring in the month of February, comparable store
sales at BNC decreased 4.9% on a year to date basis.
BNC non-GAAP Adjusted EBITDA for the quarter
was $10.2 million, as compared to $20.5 million in the prior year
period. The decrease was primarily due to lower textbook sales and
the timing of the Spring Rush.
MBS Results
MBS total sales of $116.4 million for the
quarter decreased by $22.5 million, or 16.2%, as compared to $138.9
million in the prior year period.
MBS Wholesale net sales of $77.0 million for
the quarter decreased by $15.1 million, or 16.4%, as compared to
$92.1 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 $39.4 million for the quarter
decreased by $7.4 million, or 15.8%, as compared to $46.8 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 $17.6 million for the quarter, as compared to $22.4 million in
the prior year period. This decrease was primarily driven by the
impact of lower sales, partially offset by lower selling and
administrative expenses.
DSS Results
DSS sales of $5.2 million for the quarter
decreased by $0.3 million, or 6.0% as compared to $5.5 million
during the prior year period. The decrease reflects lower sales at
Student Brands overall, partially offset by growth in certain
English and foreign language properties.
DSS non-GAAP Adjusted EBITDA was $1.4 million
for the quarter, as compared to $3.1 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.
Other
Expenses for Corporate Services, which
includes unallocated shared-service costs, such as various
corporate level expenses and other governance functions, were $6.2
million for the quarter as compared to $5.7 million in the prior
period.
Intercompany gross margin eliminations of
$(1.0) million were reflected in Adjusted EBITDA, as compared to
$(5.8) million in the prior year period.
Amended and Extended Credit Facility
The Company also announced that it has amended and extended its
existing credit facility for a five year term to ensure the
Company’s liquidity and financial flexibility through February
2024. Under the terms of the agreement, the Company will continue
to have an asset-backed revolving credit facility in an aggregate
committed principal amount of $400 million (the “Credit Facility”),
as well as the $100 million incremental first in, last out seasonal
loan facility (the “FILO Facility”).
Outlook
For fiscal year 2019, the Company has updated its outlook and
currently expects consolidated sales to be in the range of $2.15
billion to $2.2 billion before intercompany eliminations, and
consolidated Adjusted EBITDA to be approximately $100 million.
Capital expenditures are expected to be approximately $50 million,
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,
March 5, 2019 and can be accessed at the Barnes & Noble
Education corporate website at www.bned.com.
Barnes & Noble Education expects to report fiscal 2019
fourth quarter results on or about June 25, 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
1,453 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
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 680 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 subscriptions for textbook
solutions and expert questions and answers. The DSS segment also
includes tutoring and test prep services offered through our
partnership with The Princeton Review.The condensed consolidated
financial statements for the 13 and 39 weeks ended January 26, 2019
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 39 weeks ended January 27, 2018
include the financial results of Student Brands, LLC from the
acquisition date on August 3, 2017 (the second quarter of fiscal
year 2018).
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 39 weeks ended
January 26,2019
January 27,2018
January 26,2019
January 27,2018
Sales: Product sales and other $ 494,311 $ 542,729 $ 1,568,329 $
1,697,769 Rental income 56,019 60,662 134,251
148,194 Total sales 550,330 603,391 1,702,580
1,845,963 Cost of sales: (a) Product and other cost
of sales 384,275 420,499 1,211,998 1,328,353 Rental cost of sales
33,102 35,893 80,259 88,711 Total cost
of sales 417,377 456,392 1,292,257 1,417,064
Gross profit 132,953 146,999 410,323
428,899 Selling and administrative expenses 110,941 112,438
325,408 327,625 Depreciation and amortization expense 16,374 17,007
49,333 48,728 Impairment loss (non-cash) (a) — 313,130 — 313,130
Restructuring and other charges (a) 2,500 — 2,500 5,429 Transaction
costs (a) 117 49 654 1,895 Operating
income (loss) 3,021 (295,625 ) 32,428 (267,908 ) Interest expense,
net 2,546 2,954 7,904 7,828 Income
(loss) before income taxes 475 (298,579 ) 24,524 (275,736 ) Income
tax (benefit) expense (294 ) (15,344 ) 2,680 (6,113 ) Net
income (loss) $ 769 $ (283,235 ) $ 21,844 $ (269,623
) Earnings (loss) per common share: Basic $ 0.02 $ (6.04 ) $
0.46 $ (5.77 ) Diluted $ 0.02 $ (6.04 ) $ 0.46 $ (5.77 ) Weighted
average common shares outstanding: Basic 47,561 46,914 47,220
46,712 Diluted 47,937 46,914 47,772 46,712 (a) For
additional information, see Note (a) - (d) in the Non-GAAP
disclosure information of this Press Release.
13 weeks ended 39 weeks ended January 26,2019 January
27,2018 January 26,2019 January 27,2018
Percentage of
sales: Sales: Product sales and other 89.8 % 89.9 % 92.1 % 92.0
% Rental income 10.2 % 10.1 % 7.9 % 8.0 % Total sales 100.0 % 100.0
% 100.0 % 100.0 % Cost of sales: Product and other cost of sales
(a) 77.7 % 77.5 % 77.3 % 78.2 % Rental cost of sales (a) 59.1 %
59.2 % 59.8 % 59.9 % Total cost of sales 75.8 % 75.6 % 75.9 % 76.8
% Gross profit 24.2 % 24.4 % 24.1 % 23.2 % Selling and
administrative expenses 20.2 % 18.6 % 19.1 % 17.7 % Depreciation
and amortization expense 3.0 % 2.8 % 2.9 % 2.6 % Impairment loss
(non-cash) — % 51.9 % — % 17.0 % Restructuring and other charges
0.5 % — % 0.1 % 0.3 % Transaction costs — % — % — % 0.1 % Operating
income (loss) 0.5 %
(48.9)%
2.0 %
(14.5)%
Interest expense, net 0.5 % 0.5 % 0.5 % 0.4 % Income (loss) before
income taxes — %
(49.4)%
1.5 %
(14.9)%
Income tax (benefit) expense
(0.1)%
(2.5)%
0.2 %
(0.3)%
Net income (loss) 0.1 %
(46.9)%
1.3 %
(14.6)%
(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)
January 26,2019
January 27,2018 ASSETS Current assets: Cash and cash
equivalents $ 22,049 $ 22,373 Receivables, net
231,106 243,434 Merchandise inventories, net 579,582 600,419
Textbook rental inventories 50,577 61,427 Prepaid expenses and
other current assets 20,691 26,354 Total current
assets 904,005 954,007 Property and equipment, net
109,414 112,062 Intangible assets, net 208,439 224,314 Goodwill
53,982 49,282 Other noncurrent assets 40,216 40,915
Total assets $ 1,316,056 $ 1,380,580
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts
payable $ 464,933 $ 488,954 Accrued liabilities 219,713
252,202 Total current liabilities 684,646 741,156
Long-term deferred taxes, net 7,991 4,278 Other long-term
liabilities 58,632 73,468 Long-term borrowings 70,100
113,000 Total liabilities 821,369 931,902
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 724,164 715,088 Accumulated
deficit (198,359 ) (237,260 ) Treasury stock, at cost (31,629 )
(29,650 ) Total stockholders' equity 494,687 448,678
Total liabilities and stockholders' equity $ 1,316,056
$ 1,380,580
BARNES &
NOBLE EDUCATION, INC. AND SUBSIDIARIES Sales Information
(Unaudited) Total Sales
The components of the sales variances for
the 13 and 39 week periods are as follows:
Dollars in millions 13 weeks ended 39 weeks ended
January 26, 2019 January 27, 2018 January 26, 2019
January 27, 2018 BNC Sales New stores (a) $ 17.1 $ 14.1 $ 41.9 $
55.8 Closed stores (a) (21.0 ) (2.2 ) (61.4 ) (9.7 ) Comparable
stores (b) (37.2 ) (31.3 ) (83.4 ) (69.9 ) Textbook rental deferral
4.9 2.6 8.5 6.2 Service revenue (c) (1.0 ) 1.1 (0.7 ) 3.0 Other (d)
(2.7 ) (5.1 ) (4.0 ) (8.8 ) BNC sales
subtotal: $ (39.9 ) $ (20.8 ) $ (99.1 ) $ (23.4 ) MBS Sales (e)
Wholesale $ (15.1 ) $ 92.2 $ (28.8 ) $ 232.2 Direct (7.4 )
46.7 (19.1 ) 181.4 MBS sales
subtotal: $ (22.5 ) $ 138.9 $ (47.9 ) $ 413.6 DSS Sales (f) $ (0.3
)
$
5.6
$ 5.8
$
10.1
Eliminations (g) $ 9.6
$
(42.0
)
$ (2.2 )
$
(85.9
)
Total sales variance: $ (53.1 ) $ 81.7 $ (143.4 ) $ 314.4
(a) The following is a store count summary
for BNC physical stores and MBS virtual stores:
13 weeks ended 39 weeks ended January 26, 2019
January 27, 2018 January 26, 2019 January 27, 2018
Number of Stores:
BNCStores
MBSDirectStores
BNCStores
MBSDirectStores
BNCStores
MBSDirectStores
BNCStores
MBSDirectStores
Number of stores at beginning of period 773 677 777 705 768 676 769
712 Stores opened 1 6 6 6 35 32 30 19 Stores closed 1 3 1 13 30 28
17 33 Number of stores at
end of period
773 680 782 698 773 680 782 698 (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 39 weeks ended January 27, 2018
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 39 weeks ended
January 26, 2019 include the financial results of Student Brands,
LLC for the entire period and the condensed consolidated financial
statements for the 13 and 39 weeks ended January 27, 2018 include
the financial results of Student Brands, LLC from the date of
acquisition on August 3, 2017 (the second quarter of fiscal year
2018). (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 39 week periods are as follows:
13 weeks ended 39 weeks ended January 26, 2019
January 27, 2018 January 26, 2019
January 27, 2018 Textbooks (Course Materials) $ (38.6 )
(11.2 )% $ (26.3 ) (7.2 )% $ (87.1 ) (8.9)% $ (62.8 )
(6.1)% General Merchandise 1.9 1.6 % (3.5 ) (2.8 )% 6.3 1.5%
(3.3 ) (0.8)% Trade Books (0.5 ) (4.4 )% (1.5 ) (11.9 )% (2.6 )
(7.3)% (3.8 ) (9.7)% Total Comparable Store Sales $ (37.2 ) (7.7 )%
$ (31.3 ) (6.2 )% $ (83.4 ) (5.8)% $ (69.9 ) (4.7)%
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 39 weeks ended
January 26,2019
January 27,2018
January 26,2019
January 27,2018
Net income (loss) $ 769 $ (283,235 ) $ 21,844 $ (269,623 )
Reconciling items, after-tax (below) 2,327 302,879
2,725 309,404 Adjusted Earnings (Non-GAAP) $ 3,096
$ 19,644 $ 24,569 $ 39,781
Reconciling items, pre-tax Impairment loss (non-cash) (a) $ — $
313,130 $ — $ 313,130 Inventory valuation amortization (MBS)
(non-cash) (b) — — — 3,273 Restructuring and other charges (c)
2,500 — 2,500 5,429 Transaction costs (d) 117 49 654
1,895 Reconciling items, pre-tax 2,617 313,179 3,154
323,727 Less: Pro forma income tax impact (e) 290 10,300
429 14,323 Reconciling items, after-tax $
2,327 $ 302,879 $ 2,725 $ 309,404
Adjusted EBITDA 13 weeks ended 39 weeks ended
January 26,2019
January 27,2018
January 26,2019
January 27,2018
Net income (loss) $ 769 $ (283,235 ) $ 21,844 $ (269,623 ) Add:
Depreciation and amortization expense 16,374 17,007 49,333 48,728
Interest expense, net 2,546 2,954 7,904 7,828 Income tax (benefit)
expense (294 ) (15,344 ) 2,680 (6,113 ) Impairment loss (non-cash)
(a) — 313,130 — 313,130 Inventory valuation amortization (MBS)
(non-cash) (b) — — — 3,273 Restructuring and other charges (c)
2,500 — 2,500 5,429 Transaction costs (d) 117 49 654
1,895 Adjusted EBITDA (Non-GAAP) $ 22,012 $
34,561 $ 84,915 $ 104,547
(a)
For the 39 weeks ended January 27, 2018,
we completed our annual goodwill impairment test. Based on the
results of the impairment test, the carrying value of goodwill
exceeded its fair value and we recorded a goodwill impairment
(non-cash impairment loss) of $313.1 million.
(b)
For the 39 weeks ended January 27, 2018,
gross margin includes $3.3 million 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.
(c)
On December 13, 2018, Mr. Patrick Maloney
resigned as Executive Vice President, Operations of the Company and
President, BNC effective as of April 27, 2019. During the 39 weeks
ended January 26, 2019, we recognized restructuring and other
charges of approximately $2.5 million, which is comprised of the
severance and transition payments. For additional information, see
the Form 8-K dated December 13, 2018, filed with the SEC on
December 18, 2018.
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 39 weeks ended January 27, 2018, we recognized
restructuring and other charges of approximately $5.4 million,
which is comprised of the severance and transition payments. For
additional information, see the Form 8-K dated July 19, 2017, filed
with the SEC on July 20, 2017.
(d)
Transaction costs are costs incurred for
business development and acquisitions.
(e)
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 39 weeks
ended
January 26, 2019
January 27, 2018 January 26, 2019 January 27, 2018
Sales BNC $ 461,067 $ 500,888 $ 1,409,112 $ 1,508,166 MBS 116,431
138,927 365,709 413,579 DSS (b) 5,237 5,572 15,848 10,058
Elimination (32,405 ) (41,996 ) (88,089 ) (85,840 ) Total $ 550,330
$ 603,391 $ 1,702,580 $ 1,845,963
Gross profit BNC $ 99,946 $ 112,380 $ 311,344 $ 329,127 MBS
(c) 29,037 34,949 86,681 98,986 DSS (b) 4,969 5,497 15,312 9,841
Elimination (999 ) (5,827 ) (3,014 ) (5,782 ) Total $ 132,953
$ 146,999 $ 410,323 $ 432,172
Selling and administrative expenses BNC $ 89,787 $ 91,907 $ 262,427
$ 268,129 MBS 11,389 12,505 35,582 37,910 DSS (b) 3,575 2,363 9,741
4,762 Corporate Services 6,197 5,663 17,706 16,824 Elimination (7 )
— (48 ) — Total $ 110,941 $ 112,438 $
325,408 $ 327,625 Adjusted EBITDA (Non-GAAP)
(d) BNC $ 10,159 $ 20,473 $ 48,917 $ 60,998 MBS (c) 17,648 22,444
51,099 61,076 DSS (b) 1,394 3,134 5,571 5,079 Corporate Services
(6,197 ) (5,663 ) (17,706 ) (16,824 ) Elimination (992 ) (5,827 )
(2,966 ) (5,782 ) Total $ 22,012 $ 34,561 $ 84,915
$ 104,547 (a) See Explanatory Note in this
Press Release for Segment descriptions and consolidation
information. (b) DSS segment revenue includes Student Brands, LLC
subscription-based writing services business. The condensed
consolidated financial statements for the 13 and 39 weeks ended
January 26, 2019 include the financial results of Student Brands,
LLC for the entire period and the condensed consolidated financial
statements for the 13 and 39 weeks ended January 27, 2018 include
the financial results of Student Brands, LLC from the date of
acquisition on August 3, 2017 (the second quarter of fiscal year
2018). (c) For the 39 weeks ended January 27, 2018, gross margin
includes $3.3 million 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. (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 39 weeks ended
January 26, 2019
January 27, 2018 January 26, 2019 January 27, 2018
Gross margin BNC 21.7% 22.4% 22.1% 21.8% MBS 24.9% 25.2% 23.7%
23.9% DSS 94.9% 98.7% 96.6% 97.8% Elimination 3.1% 13.9% 3.4% 6.7%
Total gross margin 24.2% 24.4% 24.1% 23.4% Selling and
administrative expenses BNC 19.5% 18.3% 18.6% 17.8% MBS 9.8% 9.0%
9.7% 9.2% DSS 68.3% 42.4% 61.5% 47.3% Corporate Services N/A N/A
N/A N/A Elimination N/A N/A N/A N/A Total selling and
administrative expenses 20.2% 18.6% 19.1% 17.7%
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 and the
Company's Quarterly Report on Form 10-Q for the period ended
October 27, 2018 filed with the SEC on December 4, 2018.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190305005272/en/
Media:Carolyn J. BrownSenior
Vice PresidentCorporate Communications & Public
Affairs908-991-2967cbrown@bned.comInvestors:Thomas D. DonohueExecutive Vice
PresidentChief Financial Officer908-991-2966tdonohue@bned.com
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