Market Overview

Barnes & Noble Education Reports Second Quarter 2018 Financial Results

Share:

Consolidated Sales Increase 15% in the Second Quarter and 23% Year to
Date

Net Income Increases $19.1 Million in the Second Quarter and $12.2
Million Year to Date

Initial Benefits Recognized from Recent Acquisitions

Barnes
& Noble Education, Inc. (NYSE:
BNED), a leading provider of
educational products and services solutions for higher education and
K-12 institutions, today reported sales and earnings for the second
quarter for fiscal year 2018. The Company has two reportable segments:
Barnes & Noble College Booksellers, LLC ("BNC") and MBS Textbook
Exchange, LLC ("MBS").

Financial highlights for the second quarter 2018 and fiscal year to
date 2018:

  • Consolidated sales of $886.9 million increased 15.1%, as compared to
    the prior year period; year to date consolidated sales of $1,242.6
    million increased 23.0% as compared to the prior year period.
  • Consolidated second quarter GAAP net income of $48.4 million, as
    compared to $29.3 million in the prior year period; year to date GAAP
    net income of $13.6 million, as compared to $1.4 million in the prior
    year period.
  • Consolidated second quarter non-GAAP Adjusted EBITDA of $102.4
    million, an increase of $32.0 million, as compared to the prior year
    period; year to date non-GAAP Adjusted EBITDA of $70.0 million, an
    increase of $36.1 million, as compared to the prior year period.
  • Consolidated second quarter non-GAAP Adjusted Earnings of $49.9
    million, as compared to $29.7 million in the prior year period; year
    to date non-GAAP Adjusted Earnings of $20.1 million, as compared to
    $3.8 million in the prior year period.

Operational highlights for the second quarter 2018:

  • Expanded reach of BNED Courseware, offering Open Educational Resources
    ("OER") content to approximately 13,000 students at community
    colleges, four-year public universities and four-year private
    universities.
  • Continued to recognize benefits from the MBS integration, as MBS
    contributed $134.9 million in sales and $19.2 million of Adjusted
    EBITDA in the second quarter of fiscal year 2018.
  • Completed the acquisition of Student Brands, LLC, a leading
    direct-to-student subscription-based writing services business, on
    August 3, 2017 for $57.4 million. Student Brands contributed $4.5
    million in sales and $2.4 million of Adjusted EBITDA to BNC's results
    in the second quarter of fiscal year 2018.
  • Renewed partnership with Target Corporation to promote its brand and
    college essentials to BNED customer base for the Fall of 2018.

"Our substantially increased financial results in the second quarter
reflect the contributions of our recent acquisitions of MBS and Student
Brands. While both of these teams continue to perform financially, we
are even more encouraged by their respective potential contributions to
BNED's longer term competitive position," said Michael P. Huseby,
Chairman and Chief Executive Officer, Barnes & Noble Education. "Given
our evolving industry, we remain focused on transforming our business to
become a leading aggregator and distributor of both physical and digital
educational content, and on developing expanded direct-to-student
digital services that we can offer both in and outside of our managed
stores footprint. With the addition of Student Brands and our recently
announced partnership with The Princeton Review, we are building what we
plan to offer as a full suite of such services."

Second Quarter 2018 and Year to Date Results

Results for the 13 and 26 weeks of fiscal 2018 and fiscal 2017 are
as follows:

       
$ in millions   13 and 26 Weeks Selected Data (unaudited)  

13 Weeks

       

13 Weeks

       

26 Weeks

       

26 Weeks

  Q2 2018     Q2 2017    

2018

   

2017

 
Total Sales $886.9 $770.7 $1,242.6 $1,009.9
Net Income $48.4 $29.3 $13.6 $1.4

 

 

 

 

Non-GAAP(1)

Adjusted EBITDA

$102.4

$70.4

$70.0

$33.9

Adjusted Earnings $49.9 $29.7 $20.1 $3.8
 
(1) 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.
 

Consolidated second quarter sales of $886.9 million increased $116.2
million, or 15.1%, as compared to the prior year period. This increase
was primarily attributable to the contributions from the MBS and Student
Brands acquisitions, net new stores opened at BNC, partially offset by
the impact from declining comparable store sales at BNC.

Comparable store sales at BNC decreased 4.4% for the quarter
representing approximately $33.8 million in revenue. The decrease is
primarily attributable to textbook sales, which were down 5.0% compared
with a decrease of 3.7% in the prior year period and a decrease in
general merchandise sales of 1.9% compared with a decrease of 1.3% in
the prior year period.

Second quarter net income was $48.4 million, or $1.03 per diluted share,
compared to net income of $29.3 million, or $0.63 per diluted share, in
the prior year period. The current year's fiscal quarter has 47.0
million diluted shares outstanding, while the prior year period had 46.6
million diluted shares outstanding. The Company reported non-GAAP
Adjusted Earnings of $49.9 million during the quarter, compared with
$29.7 million in the prior year period.

The Company's Adjusted EBITDA was $102.4 million for the quarter, as
compared to $70.4 million in the prior year period, an increase due
primarily to the contributions from the MBS and Student Brands
acquisitions, partially offset by the impact from lower comparable store
sales at BNC.

As a result of the acquisition of MBS on February 27, 2017 and the
acquisition of Student Brands on August 3, 2017, the condensed
consolidated financial statements for the 13 weeks and 26 weeks ended
October 28, 2017 include the financial results of MBS and Student
Brands. All material intercompany accounts and transactions have been
eliminated in consolidation. The condensed consolidated financial
statements for the 13 weeks and 26 weeks ended October 28, 2016 do not
include any financial results of MBS and Student Brands.

Outlook

For fiscal year 2018, the Company expects sales at BNC to be relatively
flat, while BNC comparable store sales are projected to decline in the
low-to mid-single digit percentage point range year over year. In
addition, the Company expects consolidated sales to be in the range of
$2.25 billion to $2.35 billion before intercompany eliminations. The
Company expects BNED's consolidated Adjusted EBITDA to be in a range of
$105 million to $120 million. Capital expenditures are expected to be
approximately $50 million, an increase from fiscal 2017 due to new store
growth at BNC.

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 5, 2017
and can be accessed at the Barnes & Noble Education corporate website at www.bned.com.

Barnes & Noble Education expects to report fiscal 2018 third quarter
results on or about March 6, 2018.

ABOUT BARNES & NOBLE EDUCATION, INC.

Barnes & Noble Education, Inc. (NYSE:BNED), a leading
provider of educational products and services solutions for higher
education and K-12 institutions, enhances the academic and social
purpose of educational institutions. Through its Barnes & Noble College
and MBS subsidiaries, Barnes & Noble Education operates 1,483 physical
and virtual bookstores and serves more than 6 million students and
faculty, and offers a suite of digital software, content and services
including direct-to-student study tools. The Company also operates one
of the largest textbook wholesale distribution channels in the United
States. Barnes & Noble Education acts as a strategic partner to drive
student success, provide value and support to students and faculty, and
create loyalty and improve retention, while supporting the financial
goals of our college and university partners.

BNED companies include: Barnes
& Noble College Booksellers, LLC
, MBS
Textbook Exchange, LLC
, BNED
LoudCloud, LLC
, Student
Brands, LLC
, and Promoversity,
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; the general
economic environment and consumer spending patterns; decreased consumer
demand for our products, low growth or declining sales; our ability to
continue to successfully integrate the operations of MBS Textbook
Exchange, LLC into our Company; the strategic objectives, anticipated
synergies, and/or other expected potential benefits of various
acquisitions may not be fully realized or may take longer than expected;
the integration of MBS Textbook Exchange, LLC's operations into our own
may also increase the risk of our internal controls being found
ineffective; risks associated with operation or performance of MBS
Textbook Exchange, LLC's point-of-sales systems that are sold to college
bookstore customers; 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 higher education
digital products, and the inability to achieve the expected cost
savings; our ability to successfully implement our strategic initiatives
including our ability to identify, compete for and execute upon
additional acquisitions and strategic investments; 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; the risk of price
reduction or change in format of course materials by publishers, which
could negatively impact revenues and margin; changes to purchase or
rental general terms, payment terms, return policies, the discount or
margin on products or other terms with our suppliers; 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, obsolete or excessive inventory; product shortages, including
risks associated with merchandise sourced indirectly from outside the
United States; changes in law or regulation; 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 or
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 29, 2017. 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

Effective with the acquisition of MBS Textbook Exchange, LLC ("MBS") on
February 27, 2017, we determined that we have two reportable segments:
Barnes & Noble College Booksellers, LLC ("BNC") and MBS, whereas BNC was
previously our only reportable segment prior to the acquisition. The
condensed consolidated financial statements for the 13 and 26 weeks
ended October 28, 2017 include the financial results of MBS and all
material intercompany accounts and transactions have been eliminated in
consolidation. The condensed consolidated financial statements for the
13 and 26 weeks ended October 29, 2016 exclude the financial results of
MBS.

  • BNC operates 777 physical campus bookstores, the majority of which
    also have school-branded e-commerce sites operated by BNC, and BNC
    also includes our digital operations.
  • MBS operates 706 virtual bookstores and is the largest contract
    operator of virtual bookstores for college and university campuses,
    and private/parochial K-12 schools. MBS is also one of the largest
    textbook wholesalers in the country. MBS's wholesale business
    centrally sources and sells new and used textbooks to more than 3,700
    physical college bookstores, including BNC's 777 campus bookstores.

On August 3, 2017, we acquired Student Brands, LLC ("Student Brands"), a
leading direct-to-student subscription-based writing services business.
The condensed consolidated financial statements for the 13 and 26 weeks
ended October 28, 2017 include the financial results of Student Brands
in the BNC segment from the date of acquisition and all material
intercompany accounts and transactions have been eliminated in
consolidation, The condensed consolidated financial statements for the
13 and 26 weeks ended October 29, 2016 exclude the financial results of
Student Brands.

 
 

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 28,
2017
October 29,
2016
October 28,
2017
October 29,
2016
Sales:
Product sales and other $ 817,825 $ 697,927 $ 1,152,327 $ 915,663
Rental income   69,036     72,744     90,245     94,245  
Total sales   886,861     770,671     1,242,572     1,009,908  
Cost of sales: (a)
Product and other cost of sales 628,839 554,498 906,580 732,492
Rental cost of sales   41,464     44,659     54,721     58,489  
Total cost of sales   670,303     599,157     961,301     790,981  
Gross profit   216,558     171,514     281,271     218,927  
Selling and administrative expenses 115,148 101,123 214,558 185,060
Depreciation and amortization expense 16,704 12,987 31,721 25,908
Restructuring and other charges (a) 193 5,429 1,790
Transaction costs (a)   1,257     644     1,846     2,171  
Operating income 83,256 56,760 27,717 3,998
Interest expense, net   1,836     630     4,874     1,296  
Income before income taxes 81,420 56,130 22,843 2,702
Income tax expense   33,025     26,841     9,231     1,329  
Net income $ 48,395   $ 29,289   $ 13,612   $ 1,373  
 
Earnings per common share:
Basic $ 1.04 $ 0.63 $ 0.29 $ 0.03
Diluted $ 1.03 $ 0.63 $ 0.29 $ 0.03
Weighted average common shares outstanding:
Basic 46,705 46,170 46,611 46,259
Diluted 47,006 46,593 47,144 46,652
 
(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 28,
2017
October 29,
2016
October 28,
2017
October 29,
2016
Percentage of sales:
Sales:
Product sales and other 92.2 % 90.6 % 92.7 % 90.7 %
Rental income   7.8 %   9.4 %   7.3 %   9.3 %
Total sales   100.0 %   100.0 %   100.0 %   100.0 %
Cost of sales:
Product and other cost of sales (a) 76.9 % 79.4 % 78.7 % 80.0 %
Rental cost of sales (a)   60.1 %   61.4 %   60.6 %   62.1 %
Total cost of sales   75.6 %   77.7 %   77.4 %   78.3 %
Gross profit   24.4 %   22.3 %   22.6 %   21.7 %
Selling and administrative expenses 13.0 % 13.1 % 17.3 % 18.3 %
Depreciation and amortization expense 1.9 % 1.7 % 2.6 % 2.6 %
Restructuring and other charges % % 0.4 % 0.2 %
Transaction costs   0.1 %   0.1 %   0.1 %   0.2 %
Operating income 9.4 % 7.4 % 2.2 % 0.4 %
Interest expense, net   0.2 %   0.1 %   0.4 %   0.1 %
Income before income taxes 9.2 % 7.3 % 1.8 % 0.3 %
Income tax expense   3.7 %   3.5 %   0.7 %   0.1 %
Net income   5.5 %   3.8 %   1.1 %   0.2 %
 
(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 28,
2017
October 29,
2016
ASSETS
Current assets:
Cash and cash equivalents $ 17,494 $ 176,578
Receivables, net 153,646 93,250
Merchandise inventories, net 515,574 401,338
Textbook rental inventories 78,062 86,704
Prepaid expenses and other current assets 13,352   8,083  
Total current assets 778,128   765,953  
Property and equipment, net 115,318 108,499
Intangible assets, net 229,498 194,562
Goodwill 362,412 281,350
Other noncurrent assets 41,885   38,226  
Total assets $ 1,527,241   $ 1,388,590  
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 458,833 $ 439,746
Accrued liabilities 184,283   140,779  
Total current liabilities 643,116   580,525  
Long-term deferred taxes, net 16,187 25,743
Other long-term liabilities 96,294 75,962
Long-term borrowings 41,800    
Total liabilities 797,397   682,230  
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value; authorized, 5,000 shares; issued
and outstanding, none

Common stock, $0.01 par value; authorized, 200,000 shares; issued,
50,028 and 48,972
  shares, respectively; outstanding, 46,914
and 46,276 shares, respectively

500 490
Additional paid-in-capital 713,018 703,966
Retained earnings 45,975 28,375
Treasury stock, at cost (29,649 ) (26,471 )
Total stockholders' equity 729,844   706,360  
Total liabilities and stockholders' equity $ 1,527,241   $ 1,388,590  
 
 

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Earnings Per Share

(In thousands, except per share data)

(Unaudited)

       
13 weeks ended 26 weeks ended
October 28,
2017
  October 29,
2016
October 28,
2017
  October 29,
2016
Numerator for basic earnings per share:
Net income $ 48,395 $ 29,289 $ 13,612 $ 1,373
Less allocation of earnings to participating securities (16 ) (19 ) (4 ) (1 )
Net income available to common shareholders $ 48,379   $ 29,270   $ 13,608   $ 1,372  
 
Numerator for diluted earnings per share:
Net income $ 48,379 $ 29,270 $ 13,608 $ 1,372
Allocation of earnings to participating securities 16 19 4 1
Less allocation of earnings to participating securities (16 ) (19 ) (4 ) (1 )
Net income available to common shareholders $ 48,379   $ 29,270   $ 13,608   $ 1,372  
 
Denominator for basic earnings per share:
Basic weighted average common shares 46,705   46,170   46,611   46,259  
 
Denominator for diluted earnings per share:
Basic weighted average common shares 46,705 46,170 46,611 46,259
Average dilutive restricted stock units 162 364 389 339
Average dilutive performance shares 113 35 127 24
Average dilutive restricted shares 7 24 8 30
Average dilutive performance share units 19 9
Average dilutive options        
Diluted weighted average common shares 47,006   46,593   47,144   46,652  
 
Earnings per common share:
Basic $ 1.04 $ 0.63 $ 0.29 $ 0.03
Diluted $ 1.03 $ 0.63 $ 0.29 $ 0.03
 
 

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Segment Information

(In thousands, except percentages)

(Unaudited)

       

Segment Information (a)

13 weeks ended 26 weeks ended

October 28,
2017

 

October 29,
2016

October 28,
2017

 

October 29,
2016

Sales
BNC $ 761,787 $ 770,671 $ 1,011,764 $ 1,009,908
MBS 134,851 274,652
Elimination (9,777 )   (43,844 )  
Total $ 886,861   $ 770,671   $ 1,242,572   $ 1,009,908  
 
Gross profit
BNC $ 171,725 171,514 $ 220,462 $ 218,927
MBS (b) 34,200 64,037
Elimination 11,658     45    
Total $ 217,583   $ 171,514   $ 284,544   $ 218,927  
 
Selling and administrative expenses
BNC $ 100,127 $ 101,123 $ 185,769 $ 185,060
MBS 15,021     28,789    
Total $ 115,148   $ 101,123   $ 214,558   $ 185,060  
 
Adjusted EBITDA (c) (Non-GAAP)
BNC $ 71,598 $ 70,391 $ 34,693 $ 33,867
MBS (b) 19,179 35,248
Elimination 11,658     45    
Total $ 102,435   $ 70,391   $ 69,986   $ 33,867  
 

Percentage of Segment Sales

13 weeks ended 26 weeks ended

October 28,
2017

October 29,
2016

October 28,
2017

October 29,
2016

Gross margin
BNC 22.5 % 22.3 % 21.8 % 21.7 %
MBS (b) 25.4 % % 23.3 % %
Elimination (119.2 )% % (0.1 )% %
Total gross margin 24.5 % 22.3 % 22.9 % 21.7 %
 
Selling and administrative expenses
BNC 13.1 % 13.1 % 18.4 % 18.3 %
MBS 11.1 % % 10.5 % %
Total selling and administrative expenses 13.0 % 13.1 % 17.3 % 18.3 %
 

(a)

Effective with the acquisition of MBS Textbook Exchange, LLC
("MBS") on February 27, 2017, we determined that we have two
reportable segments: Barnes & Noble College Booksellers, LLC
("BNC") and MBS, whereas BNC was previously our only reportable
segment prior the acquisition. For more information, see the
Explanatory Note.

 

(b)

Excludes $1,025 and $3,273 of incremental cost of sales related to
inventory fair value amortization for the 13 and 26 weeks ended
October 28, 2017, respectively.

 

(c)

For additional information, see Note (a) in the Non-GAAP
disclosure information of this Press Release.

 
 

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Consolidated Non-GAAP Information

(In thousands)

(Unaudited)

       
Adjusted Earnings 13 weeks ended 26 weeks ended

October 28,
2017

 

October 29,
2016

October 28,
2017

 

October 29,
2016

Net income $ 48,395 $ 29,289 $ 13,612 $ 1,373
Reconciling items, after-tax (below) 1,519   394   6,525   2,425
Adjusted Earnings (Non-GAAP) $ 49,914   $ 29,683   $ 20,137   $ 3,798
 
Reconciling items, pre-tax
Inventory valuation amortization (MBS) (non-cash) (a) $ 1,025 $ $ 3,273 $
Restructuring and other charges (b) 193 5,429 1,790
Transaction costs (c) 1,257   644   1,846   2,171
Reconciling items, pre-tax 2,475 644 10,548 3,961
Less: Pro forma income tax impact (d) 956   250   4,023   1,536
Reconciling items, after-tax $ 1,519   $ 394   $ 6,525   $ 2,425
 
Adjusted EBITDA 13 weeks ended 26 weeks ended

October 28,
2017

October 29,
2016

October 28,
2017

October 29,
2016

Net income $ 48,395 $ 29,289 $ 13,612 $ 1,373
Add:
Depreciation and amortization expense 16,704 12,987 31,721 25,908
Interest expense, net 1,836 630 4,874 1,296
Income tax expense 33,025 26,841 9,231 1,329
Inventory valuation amortization (MBS) (non-cash) (a) 1,025 3,273
Restructuring and other charges (b) 193 5,429 1,790
Transaction costs (c) 1,257   644   1,846   2,171
Adjusted EBITDA (Non-GAAP) $ 102,435   $ 70,391   $ 69,986   $ 33,867
 

(a)

For the 13 and 26 weeks ended October 28, 2017, gross margin
includes $1.0 million and $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. 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. Pursuant to the terms of
the Retirement Letter Agreement, Mr. Roberts received an aggregate
payment of approximately $4.4 million, comprised of salary, bonus
and benefits. In addition, the Company paid Mr. Roberts and Mr.
Huseby a one-time cash transition payment of approximately $0.5
million and $0.3 million, respectively, at the time of the
transition. During the 26 weeks ended October 28, 2017, we
recognized restructuring and other charges of approximately $5.4
million, which is comprised of the termination and transition
payments. For additional information, see Form 8-K dated July 19,
2017, filed with the SEC on July 20, 2017.

 
In Fiscal 2016, we implemented a plan to restructure our digital
operations which was completed in the first quarter of Fiscal 2017,
and was primarily comprised of costs related to employee matters.
 

(c)

Transaction costs are costs incurred for business development and
acquisitions.

 

(d)

Represents the income tax effects of the non-GAAP items.

 
 
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. These non-GAAP financial
measures should not be considered as alternatives to net income as
an indicator of the Company's performance or any other measures of
performance derived in accordance with GAAP.
 
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 29, 2017
filed with the SEC on July 12, 2017, which includes consolidated
financial statements for each of the three years for the period
ended April 29, 2017 (Fiscal 2017, Fiscal 2016, and Fiscal 2015) and
the Company's Quarterly Report on Form 10-Q for the period ended
July 29, 2017 filed with the SEC on August 30, 2017.
 
 

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 28,
2017

 

October 29,
2016

October 28,
2017

 

October 29,
2016

MBS Sales (a)
Wholesale $ 47.5 $ $ 140.0 $
Direct 87.4     134.7    

      MBS total sales subtotal:

$ 134.9 $ $ 274.7 $
BNC Sales
New stores (b) $ 26.3 $ 50.0 $ 41.7 $ 58.5
Closed stores (b) (5.2 ) (10.7 ) (7.5 ) (12.5 )
Comparable stores (c) (33.8 ) (24.5 ) (38.6 ) (32.6 )

Textbook rental deferral                    

2.2 (3.6 ) 3.6 (2.2 )
Service revenue (d) 4.5 2.3 6.4 2.4
Other (e) (2.9 ) 1.3   (3.7 ) 1.5  

      BNC total sales subtotal:

$ (8.9 ) $ 14.8 $ 1.9 $ 15.1
Eliminations (f) $ (9.8 ) $   $ (43.9 ) $  

      Total sales variance

$ 116.2   $ 14.8   $ 232.7   $ 15.1  
 
(a) On February 27, 2017, we acquired MBS Textbook Exchange, LLC
("MBS"). The condensed consolidated financial statements for the 13
and 26 weeks ended October 28, 2017 include the financial results of
MBS and all material intercompany accounts and transactions have
been eliminated in consolidation. The condensed consolidated
financial statements for the 13 and 26 weeks ended October 29, 2016
exclude the financial results of MBS.
 
Our retail business (BNC and MBS Direct) is highly seasonal, with
sales generally highest in the second and third fiscal quarters,
when college students generally purchase textbooks for the upcoming
semesters, and lowest in the first and fourth fiscal quarters. Sales
attributable to our MBS wholesale business are generally highest in
our first, second and third quarter, as it sells textbooks for
retail distribution, which somewhat offsets the decreased first
quarter sales attributable to our retail business.
 
(b) The following is a store count summary for BNC physical stores and
MBS virtual stores:
       
13 weeks ended October 28, 2017 13 weeks ended October 29, 2016
BNC Stores   MBS Direct Stores BNC Stores
Stores opened 4 1
Stores closed 4 12
Number of stores open at end of period 777 706 771
 
26 weeks ended October 28, 2017 26 weeks ended October 29, 2016
BNC Stores MBS Direct Stores BNC Stores
Stores opened 24 14 34
Stores closed 16 20 14
Number of stores open at end of period 777 706 771
 
(c) See below.
 
(d) Service revenue includes Student Brands, brand partnerships,
Promoversity, LoudCloud, shipping and handling and revenue from
other programs.
 
(e) Other includes certain adjusting items related to return reserves
and other deferred items.
 
(f) Eliminate MBS sales to BNED and BNED commissions earned from MBS.
 
 

Comparable Sales - Barnes & Noble College

 

Comparable store sales variances by category for the 13 and 26 and
week periods are as follows:

       
13 weeks ended 26 weeks ended
October 28, 2017     October 29, 2016 October 28, 2017     October 29, 2016
Textbooks $ (28.9 )   (5.0 )% $ (21.2 )   (3.7 )% $ (36.5 )   (5.5 )% $ (30.0 )   (4.4 )%
General Merchandise (3.4 ) (1.9 )% (2.3 ) (1.3 )% 0.2 0.1 % (0.7 ) (0.2 )%
Trade Books (1.5 ) (11.2 )% (0.8 ) (5.6 )% (2.2 ) (8.3 )% (1.5 ) (5.2 )%
Other   % (0.2 ) (88.0 )% (0.1 ) (88.2 )% (0.4 ) (88.7 )%
Total Comparable Store Sales $ (33.8 ) (4.4 )% $ (24.5 ) (3.2 )% $ (38.6 ) (3.9 )% $ (32.6 ) (3.3 )%
 

Effective for the first quarter of Fiscal 2017, 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 better
reflects the manner in which management views comparable sales, as well
as the seasonal nature of our business. Prior year comparable store
sales have been updated to exclude store inventory sales to MBS, which
are reflected as intercompany inventory transfers since the acquisition.

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