Market Overview

Barnes & Noble Education Reports Third Quarter 2018 Financial Results

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Consolidated Sales Increase 15.7% in the Third Quarter and 20.5% Year
to Date

Continued 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 third
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 third quarter 2018 and fiscal year to
date 2018:

  • Consolidated sales of $603.4 million increased 15.7%, as compared to
    the prior year period; year to date consolidated sales of $1,846.0
    million increased 20.5% as compared to the prior year period.
  • Consolidated third quarter GAAP net loss of $(283.2) million, as
    compared to net income of $3.8 million in the prior year period; year
    to date GAAP net loss of $(269.6) million, as compared to net income
    of $5.1 million in the prior year period. The third quarter and year
    to date net loss includes a non-cash goodwill impairment charge of
    $313.1 million in the BNC segment.
  • Consolidated third quarter non-GAAP Adjusted Earnings of $19.6
    million, as compared to $4.0 million in the prior year period; year to
    date non-GAAP Adjusted Earnings of $39.8 million, as compared to $7.8
    million in the prior year period.
  • Consolidated third quarter non-GAAP Adjusted EBITDA of $34.6 million,
    an increase of $15.8 million, or 83.7%, as compared to the prior year
    period; year to date non-GAAP Adjusted EBITDA of $104.6 million, an
    increase of $51.9 million, or 98.4%, as compared to the prior year
    period.

Operational highlights for the third quarter 2018:

  • Continued to expand and enhance the Company's First Day™ inclusive
    access systems solutions, with adoptions doubling compared to the
    prior year.
  • Increased BNC e-commerce sales by 5.8% in the quarter, with
    approximately 68% of online orders picked up in-store.
  • Partnership announced with The Princeton Review to offer its
    products and services to the Company's network of more than six
    million students and through its more than 780 physical bookstores;
    launched joint landing page for e-commerce sales.
  • Continued to recognize benefits of the synergies and integration of
    MBS, with $138.9 million of sales in the third quarter and $20.8
    million of Adjusted EBITDA.
  • Student Brands continued to increase its number of subscribers, with
    $5.6 million of sales in the third quarter and $3.4 million of
    Adjusted EBITDA.
  • Expanded BNED Courseware offering this spring semester to extend to
    approximately 16,000 students through 18 courses.

"We remain focused on strengthening our position as a leading aggregator
and distributor of physical and digital educational content, and on
developing expanded direct-to-student digital services that we can offer
both in and outside our managed stores footprint," said Michael P.
Huseby, Chairman and Chief Executive Officer, Barnes & Noble Education.
"Our acquisitions of MBS and Student Brands, which both performed
extremely well in the quarter, as well as our newly expanded digital
distribution relationships with leading publishers, are just a few
examples of how we are evolving our business model to effectively
compete and provide sustainable value to the students, faculty and
institutions we serve."

Third Quarter 2018 and Year to Date Results

Results for the 13 and 39 weeks of fiscal 2018 and fiscal 2017 are as
follows:

  $ in millions       13 and 39 Weeks Selected Data (unaudited)

13 Weeks

   

13 Weeks

   

39 Weeks

   

39 Weeks

Q3 2018

Q3 2017 2018 2017
Total Sales $603.4 $521.6 $1,846.0 $1,531.5
Net (Loss) Income(1) $(283.2) $3.8 $(269.6) $5.1
 

Non-GAAP(2)

Adjusted EBITDA $34.6 $18.8 $104.6 $52.7
Adjusted Earnings $19.6 $4.0 $39.8 $7.8
  (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.
(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.
 

Consolidated third quarter sales of $603.4 million increased $81.7
million, or 15.7%, as compared to the prior year period. This increase
was primarily attributable to the contributions from the MBS and Student
Brands acquisitions and net new stores opened at BNC, partially offset
by the impact from declining comparable store sales at BNC.

Comparable store sales at BNC decreased 6.2% for the quarter
representing approximately $31.3 million in revenue. 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 4.2% on a year to date
basis.

In the third quarter, the Company completed its annual goodwill
impairment test required by GAAP, and determined that the carrying
amount of goodwill at BNC exceeded its estimated fair value, due to the
reduction in BNED's market capitalization. As a result, the Company
recorded a pre-tax goodwill non-cash impairment charge of $313.1 million
at BNC or $302.9 million on a net tax basis.

Third quarter net loss was $(283.2) million, or $(6.04) per diluted
share, compared to net income of $3.8 million, or $0.08 per diluted
share, in the prior year period. The current year's fiscal quarter has
46.9 million diluted shares outstanding, while the prior year period had
46.8 million diluted shares outstanding. The Company reported non-GAAP
Adjusted Earnings of $19.6 million during the quarter, compared with
$4.0 million in the prior year period.

The Company's Adjusted EBITDA was $34.6 million for the quarter, as
compared to $18.8 million in the prior year period, an increase due
primarily to the contributions from the MBS and Student Brands
acquisitions of $20.8 million and $3.4 million, respectively, partially
offset by the Adjusted EBITDA 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 39 weeks ended
January 27, 2018 include the financial results of MBS for the entire
year and Student Brands from the acquisition date. All material
intercompany accounts and transactions have been eliminated in
consolidation. The condensed consolidated financial statements for the
13 weeks and 39 weeks ended January 28, 2017 do not include any
financial results of MBS and Student Brands.

Outlook

For fiscal year 2018, the Company continues to expect sales at BNC to be
relatively flat, while BNC comparable store sales are now projected to
decline in the mid-single digit percentage point range year over year.
The Company continues to expect consolidated sales to be in the range of
$2.25 billion to $2.35 billion before intercompany eliminations. The
Company is raising its consolidated Adjusted EBITDA guidance, and now
expects to achieve consolidated Adjusted EBITDA of $115 million to $125
million for fiscal year 2018, up from the previous range of $105 million
to $120 million. Capital expenditures are now expected to be
approximately $45 million (down from prior guidance of $50 million),
which represents 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 9:00 a.m. Eastern Time on Thursday, March 1, 2018 and
can be accessed at the Barnes & Noble Education corporate website at www.bned.com.

Barnes & Noble Education expects to report fiscal 2018 fourth quarter
results on or about June 26, 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 1,480 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; 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 MBS
Textbook Exchange, LLC's operations into our own may also increase the
risk of our internal controls being found ineffective; 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; 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; changes to purchase or rental general terms, payment terms,
return policies, the discount or margin on products or other terms with
our suppliers; 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; 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 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 39 weeks
ended January 27, 2018 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 39 weeks ended January 28, 2017 exclude the financial results of
MBS.

  • BNC operates 782 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 698 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 782 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 39 weeks
ended January 27, 2018 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 39 weeks ended January 28, 2017 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   39 weeks ended

January 27,
2018

 

January 28,
2017

January 27,
2018

 

January 28,
2017

Sales:
Product sales and other $ 540,903 $ 457,147 $ 1,693,230 $ 1,372,810
Rental income 62,488   64,477   152,733   158,722
Total sales 603,391   521,624   1,845,963   1,531,532
Cost of sales: (a)
Product and other cost of sales 419,641 366,190 1,326,221 1,098,682
Rental cost of sales 37,215   39,509   91,936   97,998
Total cost of sales 456,856   405,699   1,418,157   1,196,680
Gross profit 146,535   115,925   427,806   334,852
Selling and administrative expenses 111,974 97,111 326,532 282,171
Depreciation and amortization expense 17,007 13,149

48,728

39,057
Impairment loss (non-cash) (a) 313,130 313,130
Restructuring and other charges (a) 5,429 1,790
Transaction costs (a) 49   467   1,895   2,638
Operating (loss) income (295,625 ) 5,198 (267,908 ) 9,196
Interest expense, net 2,954   679   7,828   1,975
Loss (income) before income taxes (298,579 ) 4,519 (275,736 ) 7,221
Income tax (benefit) expense (15,344 ) 758   (6,113 ) 2,087
Net (loss) income $ (283,235 ) $ 3,761   $ (269,623 ) $ 5,134
 
(Loss) Earnings per common share:
Basic $ (6.04 ) $ 0.08 $ (5.77 ) $ 0.11
Diluted $ (6.04 ) $ 0.08 $ (5.77 ) $ 0.11
Weighted average common shares outstanding:
Basic 46,914 46,276 46,712 46,265
Diluted 46,914 46,844 46,712 46,716

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

 

13 weeks ended

39 weeks ended

January 27,
2018

January 28,
2017

January 27,
2018

January 28,
2017

Percentage of sales:
Sales:
Product sales and other 89.6% 87.6% 91.7% 89.6%
Rental income 10.4% 12.4% 8.3% 10.4%
Total sales 100.0% 100.0% 100.0% 100.0%
Cost of sales:
Product and other cost of sales (a) 77.6% 80.1% 78.3% 80.0%
Rental cost of sales (a) 59.6% 61.3% 60.2% 61.7%
Total cost of sales 75.7% 77.8% 76.8% 78.1%
Gross profit 24.3% 22.2% 23.2% 21.9%
Selling and administrative expenses 18.6% 18.6% 17.7% 18.4%
Depreciation and amortization expense 2.8% 2.5% 2.6% 2.6%
Impairment loss (non-cash) 51.9% —% 17.0% —%
Restructuring and other charges —% —% 0.3% 0.1%
Transaction costs —% 0.1% 0.1% 0.2%
Operating (loss) income (49.0)% 1.0% (14.5)% 0.6%
Interest expense, net 0.5% 0.1% 0.4% 0.1%
(Loss) income before income taxes (49.5)% 0.9% (14.9)% 0.5%
Income tax (benefit) expense (2.5)% 0.1% (0.3)% 0.1%
Net (loss) income (47.0)% 0.8% (14.6)% 0.4%
(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 27,
2018
January 28,
2017
ASSETS
Current assets:
Cash and cash equivalents $ 22,373 $ 132,061
Receivables, net 243,434 178,825
Merchandise inventories, net 614,499 494,032
Textbook rental inventories 61,427 67,372
Prepaid expenses and other current assets 12,274   8,134  
Total current assets 954,007   880,424  
Property and equipment, net 110,987 107,272
Intangible assets, net 224,314 191,628
Goodwill 49,282 281,346
Other noncurrent assets 41,990   39,233  
Total assets $ 1,380,580   $ 1,499,903  
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 488,954 $ 480,378
Accrued liabilities 252,202   207,731  
Total current liabilities 741,156   688,109  
Long-term deferred taxes, net 4,278 22,709
Other long-term liabilities 73,468 76,196
Long-term borrowings 113,000    
Total liabilities 931,902   787,014  
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 715,088 706,736
(Accumulated deficit) Retained earnings (237,260 ) 32,136
Treasury stock, at cost (29,650 ) (26,473 )
Total stockholders' equity 448,678   712,889  
Total liabilities and stockholders' equity $ 1,380,580   $ 1,499,903  
 
 

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Earnings Per Share

(In thousands, except per share data)

(Unaudited)

   
13 weeks ended 39 weeks ended
January 27,
2018
  January 28,
2017
January 27,
2018
  January 28,
2017
Numerator for basic earnings per share:
Net (loss) income $ (283,235 ) $ 3,761 $ (269,623 ) $ 5,134
Less allocation of earnings to participating securities   (1 )   (3 )
Net (loss) income available to common shareholders $ (283,235 ) $ 3,760   $ (269,623 ) $ 5,131  
 
Numerator for diluted earnings per share:
Net (loss) income $ (283,235 ) $ 3,760 $ (269,623 ) $ 5,131
Allocation of earnings to participating securities 1 3
Less allocation of earnings to participating securities   (1 )   (3 )
Net (loss) income available to common shareholders $ (283,235 ) $ 3,760   $ (269,623 ) $ 5,131  
 
Denominator for basic earnings per share:
Basic weighted average common shares 46,914   46,276   46,712   46,265  
 
Denominator for diluted earnings per share:
Basic weighted average common shares 46,914 46,276 46,712 46,265
Average dilutive restricted stock units 512 397
Average dilutive performance shares 52 33
Average dilutive restricted shares 4 21
Average dilutive performance share units
Average dilutive options        
Diluted weighted average common shares 46,914   46,844   46,712   46,716  
 
(Loss) Earnings per common share:
Basic $ (6.04 ) $ 0.08 $ (5.77 ) $ 0.11
Diluted $ (6.04 ) $ 0.08 $ (5.77 ) $ 0.11
 
 

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Segment Information

(In thousands, except percentages)

(Unaudited)

 

Segment Information (a)

13 weeks ended 39 weeks ended
January 27, 2018   January 28, 2017 January 27, 2018   January 28, 2017
Sales
BNC $ 506,460 $ 521,624 $ 1,518,224 $ 1,531,532
MBS 138,927 413,579
Elimination (41,996 )   (85,840 )  
Total $ 603,391   $ 521,624   $ 1,845,963   $ 1,531,532  
 
Gross profit
BNC $ 117,413 115,925 $ 337,875 $ 334,852
MBS (b) 34,949 98,986
Elimination (5,827 )   (5,782 )  
Total $ 146,535   $ 115,925   $ 431,079   $ 334,852  
 
Selling and administrative expenses
BNC $ 97,777 $ 97,111 $ 283,546 $ 282,171
MBS 14,197     42,986    
Total $ 111,974   $ 97,111   $ 326,532   $ 282,171  
 
Adjusted EBITDA (Non-GAAP) (c)
BNC $ 19,636 $ 18,814 $ 54,329 $ 52,681
MBS (b) 20,752 56,000
Elimination (5,827 )   (5,782 )  
Total $ 34,561   $ 18,814   $ 104,547   $ 52,681  
 

Percentage of Segment Sales

13 weeks ended 39 weeks ended
January 27, 2018 January 28, 2017 January 27, 2018 January 28, 2017
Gross margin
BNC 23.2 % 22.2 % 22.3 % 21.9 %
MBS (b) 25.2 % % 23.9 % %
Elimination 13.9 % % 6.7 % %
Total gross margin 24.3 % 22.2 % 23.4 % 21.9 %
 
Selling and administrative expenses
BNC 19.3 % 18.6 % 18.7 % 18.4 %
MBS 10.2 % % 10.4 % %
Total selling and administrative expenses 18.6 % 18.6 % 17.7 % 18.4 %
(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 $3,273 of incremental cost of sales related to inventory
fair value amortization for the 39 weeks ended January 27, 2018.
 
(c) For additional information, see "Use of Non-GAAP Financial
Information" 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 39 weeks ended
January 27, 2018   January 28, 2017 January 27, 2018   January 28, 2017
Net (loss) income $ (283,235 ) $ 3,761 $ (269,623 ) $ 5,134
Reconciling items, after-tax (below) 302,879   286   309,404   2,714
Adjusted Earnings (Non-GAAP) $ 19,644   $ 4,047   $ 39,781   $ 7,848
 
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) 5,429 1,790
Transaction costs (d) 49   467   1,895   2,638
Reconciling items, pre-tax 313,179 467 323,727 4,428
Less: Pro forma income tax impact (e) 10,300   181   14,323   1,714
Reconciling items, after-tax $ 302,879   $ 286   $ 309,404   $ 2,714
 
Adjusted EBITDA 13 weeks ended 39 weeks ended
January 27, 2018 January 28, 2017 January 27, 2018 January 28, 2017
Net (loss) income $ (283,235 ) $ 3,761 $ (269,623 ) $ 5,134
Add:
Depreciation and amortization expense 17,007 13,149 48,728 39,057
Interest expense, net 2,954 679 7,828 1,975
Income tax expense (15,344 ) 758 (6,113 ) 2,087
Impairment loss (non-cash) (a) 313,130 313,130
Inventory valuation amortization (MBS) (non-cash) (b) 3,273
Restructuring and other charges (c) 5,429 1,790
Transaction costs (d) 49   467   1,895   2,638
Adjusted EBITDA (Non-GAAP) $ 34,561   $ 18,814   $ 104,547   $ 52,681
(a)   During the 13 weeks ended January 27, 2018, we completed our annual
goodwill impairment test. In performing the valuation, we used cash
flows that reflected management's forecasts and discount rates that
included risk adjustments consistent with the current market
conditions. Based on the results of the impairment test, the
carrying value of the BNC reporting unit exceeded its fair value and
we recorded a goodwill impairment (non-cash impairment loss) of
$313.1 million for the BNC segment. For additional information, see
Form 10-Q for the quarter ended January 27, 2018 which is expected
to be filed on March 1, 2018.
 
(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. The non-cash fair value
inventory adjustment for MBS was recognized over six months from the
date of acquisition and was allocated based on monthly sales.
 
(c) 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 39 weeks ended January 27, 2018, 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.
 
(d) Transaction costs are costs incurred for business development and
acquisitions.
 
(e) 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), the Company's Quarterly Report on Form 10-Q for the period
ended July 29, 2017 filed with the SEC on August 30, 2017 and the
Company's Quarterly Report on Form 10-Q for the period ended October 28,
2017 filed with the SEC on December 5, 2017.

 

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 27, 2018   January 28, 2017 January 27, 2018   January 28, 2017
MBS Sales (a)
Wholesale $ 92.2 $ $ 232.2 $
Direct 46.7     181.4    

          MBS total sales subtotal:

$ 138.9 $ $ 413.6 $
BNC Sales
New stores (b) $ 14.1 $ 34.2 $ 55.8 $ 92.7
Closed stores (b) (2.2 ) (8.0 ) (9.7 ) (20.6 )
Comparable stores (c) (31.3 ) (27.3 ) (69.9 ) (59.8 )
Textbook rental deferral 2.6 2.3 6.2 0.1
Service revenue (d) 6.7 0.9 13.1 3.3
Other (e) (5.1 ) 1.1   (8.8 ) 2.5  
BNC total sales subtotal: $ (15.2 ) $ 3.2 $ (13.3 ) $ 18.2
Eliminations (f) $ (42.0 )   $ (85.9 )  
Total sales variance $ 81.7   $ 3.2   $ 314.4   $ 18.2  
(a)   On February 27, 2017, we acquired MBS Textbook Exchange, LLC
("MBS"). The condensed consolidated financial statements for the 13
and 39 weeks ended January 27, 2018 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 39 weeks ended January 28, 2017
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 January 27, 2018   13 weeks ended January 28, 2017
BNC Stores   MBS Direct Stores BNC Stores
Stores opened 6 5 2
Stores closed 1 13 3
Number of stores open at end of period 782 698 770
 
39 weeks ended January 27, 2018 39 weeks ended January 28, 2017
BNC Stores MBS Direct Stores BNC Stores
Stores opened 30 19 36
Stores closed 17 33 17
Number of stores open at end of period 782 698 770
(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 39 and week
periods are as follows:

  13 weeks ended   39 weeks ended
January 27, 2018   January 28, 2017 January 27, 2018   January 28, 2017
Textbooks $ (26.3 )   (7.2 )% $ (25.4 )   (6.7 )% $ (62.8 )   (6.1 )% $ (55.3 )   (5.3 )%
General Merchandise (3.5 ) (2.8 )% (0.5 ) (0.5 )% (3.3 ) (0.8 )% (1.2 ) (0.3 )%
Trade Books (1.5 ) (11.9 )% (1.2 ) (8.3 )% (3.8 ) (9.5 )% (2.7 ) (6.2 )%
Other   % (0.2 ) (86.7 )%   % (0.6 ) (88.3 )%
Total Comparable Store Sales $ (31.3 ) (6.2 )% $ (27.3 ) (5.3 )% $ (69.9 ) (4.7 )% $ (59.8 ) (4.0 )%
 

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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