Barnes & Noble Education Reports Second Quarter Fiscal Year 2023 Financial Results

BASKING RIDGE, N.J.–(BUSINESS WIRE)–Barnes & Noble Education, Inc. (NYSE: BNED), a leading solutions provider for the education industry, today reported sales and earnings for the second quarter ended on October 29, 2022. Barnes & Noble Education is a highly seasonal business and the second quarter includes the Fall rush period, which is historically the largest sales period for the Company.

Financial results for the second quarter 2023:

• Consolidated second quarter GAAP sales of $617.1 million decreased 1.6%, as compared to the prior year period.
• Consolidated second quarter GAAP gross profit of $144.8 million compared to $145.6 million in the prior year period. Gross margin was 23.5% of sales as compared to 23.2% in the prior year period.
• Consolidated second quarter GAAP net income of $22.1 million, compared to $22.5 million in the prior year period.
• Consolidated second quarter non-GAAP Adjusted Earnings of $24.0 million, compared to $25.0 million in the prior year period.
• Consolidated second quarter non-GAAP Adjusted EBITDA of $39.4 million, compared to $39.0 million in the prior year period.

Operational highlights for the second quarter 2023:

• 111 campus stores adopted BNC’s First Day® Complete course materials delivery program for the 2022 Fall Term, representing approximately 545,000* in total undergraduate student enrollment, a growth rate of 85% over Fall 2021. First Day® Complete revenue increased 97% to $89.9 million.
• Seven additional campus stores with total undergraduate student enrollments of approximately 43,000* to launch BNC’s First Day Complete model in the Spring Term, including the University of Connecticut and the University of Memphis.
• Retail Gross Comparable Store Sales General Merchandise sales were up 4.5%, with particular strength in logo and emblematic sales. Total Retail segment gross comparable store sales for the quarter decreased by 2.2%, as the strength in general merchandise sales was offset by a 4.6% decrease in course material sales due to lower course material adoptions and a shift to digital offerings, which have a lower price point. Please see a more detailed definition in the Results table and Retail segment discussion below.
• DSS revenue grew 2.3% to $8.5 million. DSS has begun to adjust its cost structure, particularly within its Bartleby organization, to focus on enhanced profitability and sustainable growth.

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

“During the second quarter, total sales from our First Day® Complete and First Day® by course material delivery offerings grew 49% to $143.2 million, with First Day Complete revenue increasing 97% to $89.9 million. These results were in-line with our expectations and clearly demonstrate the profitable and predictable nature of the First Day Complete model. However, our second quarter consolidated financial performance fell short of our expectations, as declines in legacy course material sales and gross profits more than offset the gains generated by First Day Complete during the period,” said Michael P. Huseby, Chief Executive Officer, BNED. “Given the predictability of First Day Complete and its clear benefits to student outcomes, faculty instruction, and the colleges and universities we serve, we are implementing significant strategic actions to accelerate the adoption and growth of the First Day Complete model. We anticipate First Day Complete will be the only model we offer to many institutional partners going forward and we expect the vast majority of our institutional partners and their students to implement the First Day Complete model over the next two fiscal years.”

“We have also begun executing significant cost reduction initiatives to better align our overall expenses and resources with current market trends in order to bolster profitability in Fiscal 2023 and longer-term. We expect these initiatives to realize $30 million to $35 million of annualized cost savings when fully implemented and $10 million to $15 million of cost savings in the remainder of Fiscal 2023. We intend to invest these savings in our highest-return initiatives, foremost of which will be the accelerated deployment of our First Day Complete sales model and our retail offering to colleges and universities. We are confident in our ability to execute these strategic actions, which provide a clear path forward to create durable, profitable growth and increased shareholder value.”

Second Quarter and Year to Date Results for 2023

Results for the 13 and 26 weeks of Fiscal 2023 and Fiscal 2022 are as follows:

The Company has three reportable segments: Retail, Wholesale and Digital Student Solutions (“DSS”). Unallocated shared-service costs, which include various corporate level expenses and other governance functions, continue to be presented as Corporate Services. All material intercompany accounts and transactions have been eliminated in consolidation.

Retail Segment Results

Retail sales decreased by $10.3 million, or 1.7%, as compared to the prior year period. Retail Gross Comparable Store Sales decreased 2.2% for the quarter, with comparable course material sales decreasing 4.6%. Rental income declined 16.7% to $41.3 million for the 13 weeks ended October 29, 2022. The declines in course material product sales and rental income were primarily due to the shift to more digital course materials and were offset by increased revenue from the Company’s First Day models, which increased by 49% to $143.2 million, as compared to $96.0 million in the prior year period.

Retail Gross Comparable Store Sales for general merchandise increased 4.5%, benefiting from a return to more on campus activities.

Retail non-GAAP Adjusted EBITDA for the quarter was $39.4 million, as compared to $39.4 million in the prior year period. Non-GAAP Adjusted EBITDA remained flat despite lower revenue due to improved gross margins and lower selling and administrative expenses.

Wholesale Segment Results

Wholesale second quarter sales of $21.1 million decreased by $0.6 million, or 2.5%, as compared to 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 during the prior fiscal year, a decrease in customer demand resulting from a shift in buying patterns from physical textbooks to digital products, and lower demand from other third-party clients, partially offset by lower returns and allowances.

Wholesale non-GAAP Adjusted EBITDA for the quarter increased to $1.6 million, as compared to $1.2 million in the prior year. The increase in Wholesale non-GAAP Adjusted EBITDA is primarily related to lower selling and administrative expenses.

DSS Segment Results

DSS second quarter sales of $8.5 million increased by 2.3%, as compared to the prior year period. The lower than anticipated increase in revenue is primarily driven by product offering mix as well as lower than expected traffic experienced across our digital offerings.

DSS non-GAAP Adjusted EBITDA was $0.2 million for the quarter, as compared to $0.8 million in the prior year period. The decrease in non-GAAP adjusted EBITDA is primarily related to higher selling and administrative expenses. DSS has begun to adjust its cost structure, particularly within its Bartleby organization, to focus on enhanced profitability and sustainable growth.

Strategic Update

The Company is undertaking company-wide initiatives to drive efficiencies, simplify organizational structure and further reduce non-essential costs. These actions have commenced and are expected to be substantially implemented within the next thirty days. These actions are expected to provide annualized savings of $30 million to $35 million once fully implemented. The Company expects to save $10 million to $15 million in fiscal year 2023. The Company is committed to pursuing additional actions to optimize longer-term gross margin and cost structure. In connection with these initiatives, the Company expects to recognize restructuring charges of approximately $5 million to $6 million in the fiscal third quarter of 2023. These restructuring charges are excluded from non-GAAP adjusted EBITDA and from the annualized and fiscal year 2023 savings.

Outlook

For fiscal year 2023, the Company expects consolidated non-GAAP Adjusted EBITDA to be between $20 million to $30 million, representing non-GAAP Adjusted EBITDA growth of $25 million to $35 million compared to fiscal year 2022. The Company’s Retail segment will be the primary driver of non-GAAP Adjusted EBITDA growth driven by new and ongoing First Day Complete course ware model implementations, growth within its general merchandise business, new business margin, and cost reductions.

ABOUT BARNES & NOBLE EDUCATION, INC.

Barnes & Noble Education, Inc. (NYSE: BNED) is a leading solutions provider for the education industry, driving affordability, access and achievement at hundreds of academic institutions nationwide and ensuring millions of students are equipped for success in the classroom and beyond. Through its family of brands, BNED offers campus retail services and academic solutions, a digital direct-to-student learning ecosystem, wholesale capabilities and more. BNED is a company serving all who work to elevate their lives through education, supporting students, faculty and institutions as they make tomorrow a better, more inclusive and smarter world. For more information, visit www.bned.com.