Barnes & Noble Education Reports Fourth Quarter and Fiscal Year 2023 Financial Results

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:

• Consolidated fourth quarter GAAP revenue of $241.8 million decreased by $9.3 million, or 3.7%, as compared to the prior year period.
• Consolidated fourth quarter GAAP gross profit of $58.3 million decreased by $13.9 million, or 19.2%, as compared to the prior year period.
• Consolidated fourth quarter selling and administrative expenses decreased by $3.4 million, or 4.3%, as compared to the prior year period.
• Consolidated fourth quarter GAAP net loss from continuing operations was $(41.9) million, as compared to a net loss of $(9.3) million in the prior year period. The increase in net loss from continuing operations was primarily due to lower gross profit of $13.9 million, and increases in restructuring and other charges of $7.5 million, interest expense of $4.7 million and income tax expense of $10.0 million, primarily due to a $9.6 million income tax benefit recorded in the fourth quarter of fiscal year 2022.
• Consolidated fourth quarter non-GAAP Adjusted EBITDA from Continuing Operations was $(18.2) million, as compared to $(7.7) million in the prior year period.
• Fourth quarter Total Retail gross comparable store sales increased by $2.1 million, or 0.9%, comprised of a 1.0% increase in course material sales, and a 0.9% increase in general merchandise sales. For comparable store sales reporting purposes, logo general merchandise sales fulfilled by Lids and Fanatics are included on a gross basis.
• BNC’s First Day® Complete revenue grew 60% to $24.4 million. 116 campus stores utilized BNC’s First Day® Complete courseware delivery program during the 2023 Spring Term, at institutions representing approximately 580,000* in total enrollment; up from 76 campus stores and approximately 380,000* in total enrollment in the 2022 Spring Term.

Fiscal Year 2023 financial and operational highlights:

• Consolidated fiscal year 2023 GAAP revenue of $1,543.2 million increased by $47.5 million, or 3.2%, as compared to the prior year period.
• Consolidated fiscal year 2023 GAAP gross profit of $349.4 million increased by $6.6 million, or 1.9%, as compared to the prior year period.
• Consolidated fiscal year 2023 selling and administrative expenses increased by $3.6 million, or 1.0%, as compared to the prior year period.
• Consolidated fiscal year 2023 GAAP net loss from continuing operations was $(90.1) million, as compared to a net loss of $(61.6) million in the prior year period. The increase in net loss from continuing operations was primarily due to increases in restructuring and other charges of $9.2 million, interest expense of $12.6 million and income tax expense of $10.2 million, primarily due to a $9.2 million income tax benefit recorded in fiscal year 2022. These increases in expense were partially offset by higher gross profit of $6.6 million.
• Consolidated fiscal year 2023 non-GAAP Adjusted EBITDA from Continuing Operations was $(8.2) million, as compared to $(10.3) million in the prior year period.
• Total Retail segment gross comparable store sales increased by $48.0 million, or 3.2%, comprised of a 0.4% increase in course material sales, and an 8.6% increase in general merchandise sales. For comparable store sales reporting purposes, logo general merchandise sales fulfilled by Lids and Fanatics are included on a gross basis.
• Fiscal year 2023 First Day® Complete revenue grew by $93 million, or 88%, to $198 million, as compared to $105 million in the prior year period.
• 157 campus stores are committed to utilize First Day® Complete in the Fall of 2023 representing enrollment of nearly 800,000 undergraduate and post graduate students*, an increase of approximately 46% compared to Fall of 2022.
• Achieved approximately $17 million of run-rate cost savings in fiscal year 2023. The Company expects to achieve a total of $30 million to $35 million in annualized run-rate cost savings in fiscal year 2024 based on actions implemented in fiscal 2023. Additionally, the Company has identified opportunities to further reduce expenses and gross capital expenditures in fiscal year 2024.
• Ended the year with 1,366 physical and virtual stores, a net decrease of 61 stores, as compared to the prior year period, as the Company focuses on closing unprofitable stores.

*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:

• The Retail Segment operates 1,366 college, university, and K-12 school bookstores, comprised of 774 physical bookstores and 592 virtual bookstores. Our bookstores typically operate under agreements with the college, university, or K-12 schools to be the official bookstore and the exclusive seller of course materials and supplies, including physical and digital products. The majority of the physical campus bookstores have school-branded e-commerce websites which we operate independently or along with our merchant partners, and which offer students access to affordable course materials and affinity products, including emblematic apparel and gifts. The Retail Segment also offers equitable and inclusive access programs, in which course materials are offered at a reduced price through a fee charged by the institution or included in tuition, and delivered to students on or before the first day of class. Additionally, the Retail Segment offers a suite of digital content and services to colleges and universities, including a variety of open educational resource-based courseware.

• The Wholesale Segment is comprised of our wholesale textbook business and is one of the largest textbook wholesalers in the country. The Wholesale Segment centrally sources, sells, and distributes new and used textbooks to approximately 3,000 physical bookstores (including our Retail Segment's 774 physical bookstores) and sources and distributes new and used textbooks to our 592 virtual bookstores. Additionally, the Wholesale Segment sells hardware and a software suite of applications that provides inventory management and point-of-sale solutions to approximately 340 college bookstores.

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.