Barnes & Noble Education Reports Fourth Quarter and Fiscal Year 2022 Financial Results

FY22 Consolidated GAAP Net Loss Improved by $71 million

FY22 Non-GAAP Adjusted EBITDA Improved by $61 million

BNC’s First Day^® Complete and First Day^® Inclusive Access Offerings Fiscal 2022 Revenue Grew 91%

FY22 Retail Segment Gross Comparable Store Sales Increased 20%

FY22 General Merchandise Gross Comparable Store Sales Increased 76%

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 2022, which ended on April 30, 2022.

The improvement in financial results compared to the prior year is primarily related to the re-opening of stores that had temporarily closed due to the COVID-19 pandemic in the prior year. The comparability of sales, specifically logo and emblematic sales, is impacted by the recognition of logo and emblematic sales on a net basis in our consolidated financial statements during fiscal year 2022, as compared to on a gross basis prior to April 4, 2021 of fiscal year 2021. See the Retail Gross Comparable Store Sales below.

Financial results for the fourth quarter and fiscal year 2022:

• Consolidated fourth quarter GAAP sales of $260.8 million increased 17.1% as compared to the prior year period; consolidated fiscal year sales of $1,531.4 million increased 6.8% as compared to the prior year.
• Consolidated fourth quarter GAAP net loss was $(11.0) million, compared to a restated* $(52.4) million in the prior year period. Consolidated fiscal year GAAP net loss was $(68.9) million, compared to a restated* $(139.8) million in the prior year.
• Consolidated fourth quarter non-GAAP Adjusted EBITDA was $(6.2) million, compared to $(31.4) million in the prior year; the consolidated fiscal year non-GAAP Adjusted EBITDA was $(4.8) million, compared to $(65.6) million in the prior year.
• Consolidated fourth quarter non-GAAP Adjusted Earnings was $(11.6) million, compared to a restated* $(40.3) million in the prior year period; consolidated fiscal year non-GAAP Adjusted Earnings was $(55.6) million, compared to a restated* $(96.5) million in the prior year.
• Retail segment gross comparable store sales for the quarter increased by 32.6%, as compared to a 6.9% decline in the prior year; Retail segment gross comparable store sales for the year increased by 19.6%, as compared to a 26.1% decline in the prior year. For comparable store sales reporting purposes, logo and emblematic general merchandise sales fulfilled by FLC and Fanatics are included on a gross basis. Please see a more detailed definition in the Results table and Retail segment discussion below.

* The Company identified certain out of period adjustments related primarily to income tax benefit, and restructuring and other charges, for the 13 and 52 weeks ended May 1, 2021. The adjustments increased our fiscal year 2021 reported net loss by $8.0 million but did not have an impact on our non-GAAP Adjusted EBITDA, cash flows or liquidity. Refer to Note 2. Summary of Significant Accounting Policies to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended April 30, 2022, which is expected to be filed on or about June 29, 2022, for further information.

Operational highlights for fiscal year 2022:

• 76 campus stores utilized BNC’s First Day^® Complete courseware delivery program during the 2022 Spring Term, representing approximately 380,000* in total undergraduate student enrollment.
• 112 campus stores are committed to utilize BNC’s First Day^® Complete courseware delivery program during the 2022 Fall Term, representing approximately 547,000* in total undergraduate student enrollment, a growth rate of 85% over Fall 2021 based on undergraduate student enrollment.
• BNC’s First Day^® Complete revenue increased over 5x to $106 million.
• BNC’s First Day^® by Course revenue increased 24% to $128 million.
• DSS revenue grew 30% to $35.7 million, with bartleby^® revenue growing approximately 40%.
• Continued to attract new clients and generate new business growth, signing 92 new physical and virtual bookstores for estimated first year annual sales of approximately $128 million, or $102 million on a net basis.
• Barnes & Noble Education was ranked as the #1 Most Trusted Company by Newsweek in the Retail industry category and the only education company included in the final list of 32 retail companies.

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

“Entering into Fiscal 2022 we expected certain challenges to persist, including declining enrollments, fewer international students, ongoing remote and virtual class offerings, and fewer on campus activities. Fiscal 2022 proved to be more challenging than we anticipated – both the Fall and Spring academic terms were disrupted by new COVID strains,” said Michael P. Huseby, Chief Executive Officer and Chairman, BNED. “Yet, despite the macro challenges that the industry faced, we are highly encouraged by the progress that has been made against our key strategic initiatives and how strongly they are resonating with our campus partners. Many of our campus partners see the value in ensuring their students have all of their required course materials on or before the first day of class with BNC’s First Day Complete revenue growing more than 5x over the prior year, while our First Day by Course offering simultaneously grew 24%. For the upcoming Fall term, 112 of our campus stores are committed to utilize First Day Complete, representing undergraduate enrollment of approximately 547,000 students, an 85% growth rate over Fall 2021 based on undergraduate student enrollment. Our partnership with FLC and Fanatics, which was in start-up mode for much of FY 2022, propelled our general merchandise business growth of 76% on a comparable sales basis. Our high-margin DSS business continued to help tutor students, gaining 400,000 gross subscribers while posting 40% annual revenue growth for bartleby’s digital offerings.”

“As we look out to Fiscal 2023, while we expect certain challenges to persist, especially those continuing to impact our wholesale business, we expect our results to improve significantly over Fiscal 2022, benefitting from the continued growth of our strategic initiatives and the return to a more traditional on-campus learning and events environment.”

Fourth Quarter and Fiscal Year Results for 2022

Results for the 13 weeks and 52 weeks of fiscal year 2022 and fiscal year 2021 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

Fourth quarter Retail sales increased $38.0 million, or 18.3%, as compared to the prior year period. Gross comparable store sales, which include logo and emblematic sales fulfilled by FLC and Fanatics on a gross basis, increased 32.6% for the quarter, compared to a negative 6.9% in the prior year period. Fourth quarter Retail gross comparable store sales increased by 4.0% in course material sales and 63.2% in general merchandise sales.

Fiscal year 2022 Retail sales increased $109.2 million, or 8.2%, as compared to the prior year period. Gross comparable store sales increased 19.6% for the fiscal year, compared to a negative 26.1% in the prior year period. Fiscal year 2022 Retail gross comparable store sales increased by 2.3% in course material sales and 76.1% in general merchandise sales.

Course material sales benefitted from the growth of the Company’s inclusive access models, which collectively grew 91% on a full year basis to $234.2 million, despite overall undergraduate enrollment declines in higher education. General merchandise sales benefitted greatly from the return to the on campus learning experience and improved merchandising of products in stores and online resulting from the Company’s partnership with FLC and Fanatics.

Retail non-GAAP Adjusted EBITDA was $4.2 million for the quarter, compared to $(22.3) million in the prior year period. For fiscal year 2022, Retail non-GAAP Adjusted EBITDA was $8.7 million, compared to $(66.8) million in the prior year period, due to increased sales and improved gross margin.

Wholesale Segment Results

Wholesale fourth quarter sales of $9.1 million decreased $0.6 million as compared to the prior year period. Wholesale sales for fiscal year 2022 of $112.2 million decreased $53.6 million, as compared to the prior year period. The wholesale business has been affected by a number of factors, including a constraint on its used book inventory due to the lack of on campus textbook buyback opportunities, and lower overall customer demand resulting from the shift in buying patterns from physical textbooks to digital course materials.

Wholesale non-GAAP Adjusted EBITDA for the quarter was $(8.0) million, as compared to $(7.3) million in the prior year period. Wholesale non-GAAP Adjusted EBITDA for fiscal year 2022 was $3.8 million, compared to $18.6 million in the prior year period, primarily due to lower sales.

DSS Segment Results

DSS fourth quarter sales of $9.7 million increased $1.3 million, or 15.6%, as compared to the prior year period. DSS fiscal year 2022 sales of $35.7 million increased $8.3 million, or 30.3%, as compared to the prior year period, primarily due to an increase in bartleby subscriptions.

DSS non-GAAP Adjusted EBITDA was $1.5 million for the quarter, compared to $1.1 million in the prior year period. DSS non-GAAP Adjusted EBITDA was $5.5 million for fiscal year 2022, compared to $4.5 million in the prior year period, benefitting from the growth in bartleby subscriptions.

Other

Selling and administrative expenses for Corporate Services, which includes unallocated shared-service costs, such as various corporate level expenses and other governance functions, were $3.6 million for the fourth quarter and $23.0 million for the fiscal year.

Outlook

For fiscal year 2023, the Company expects consolidated non-GAAP Adjusted EBITDA to be between $30 million to $40 million. The Company expects significant improvement in its Retail business being driven by new First Day Complete implementations, growth within its general merchandise business and new business wins. The challenges within its wholesale business, including constrained used book inventory and higher inflationary pressures on wages and freight, are expected to persist. DSS non-GAAP Adjusted EBITDA is expected to be near fiscal year 2022 levels as revenue growth is offset by investments in product enhancements.

Conference Call

A conference call with Barnes & Noble Education, Inc. senior management will be webcast at 8:30 a.m. Eastern Time on Wednesday, June 29, 2022 and can be accessed at the Barnes & Noble Education corporate website at investor.bned.com or www.bned.com. The webcast will contain investor materials that can also be accessed at investor.bned.com or www.bned.com.

Barnes & Noble Education expects to report fiscal year 2023 first quarter results in September 2022.

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.

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, including any statements made in regards to our response to the COVID-19 pandemic. 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: risks associated with COVID-19 and the governmental responses to it, including its impacts across our businesses on demand and operations, as well as on the operations of our suppliers and other business partners, and the effectiveness of our actions taken in response to these risks; general competitive conditions, including actions our competitors and content providers may take to grow their businesses; a decline in college enrollment or decreased funding available for students; decisions by colleges and universities to outsource their physical and/or online bookstore operations or change the operation of their bookstores; implementation of our digital strategy may not result in the expected growth in our digital sales and/or profitability; risk that digital sales growth does not exceed the rate of investment spend; the performance of our online, digital and other initiatives, integration of and deployment of, additional products and services including new digital channels, and enhancements to higher education digital products, and the inability to achieve the expected cost savings; the risk of price reductions or changes in formats of course materials by publishers, which could negatively impact revenues and margin; the general economic environment and consumer spending patterns; decreased consumer demand for our products, low growth or declining sales; the strategic objectives, successful integration, anticipated synergies, and/or other expected potential benefits of various acquisitions may not be fully realized or may take longer than expected; the integration of the operations of various acquisitions into our own may also increase the risk of our internal controls being found ineffective; changes to purchase or rental terms, payment terms, return policies, the discount or margin on products or other terms with our suppliers; our ability to successfully implement our strategic initiatives including our ability to identify, compete for and execute upon additional acquisitions and strategic investments; risks associated with operation or performance of MBS Textbook Exchange, LLC’s point-of-sales systems that are sold to college bookstore customers; technological changes; risks associated with counterfeit and piracy of digital and print materials; our international operations could result in additional risks; our ability to attract and retain employees; risks associated with data privacy, information security and intellectual property; trends and challenges to our business and in the locations in which we have stores; non-renewal of managed bookstore, physical and/or online store contracts and higher-than-anticipated store closings; disruptions to our information technology systems, infrastructure, 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; work stoppages or increases in labor costs; possible increases in shipping rates or interruptions in shipping service; 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, as well as the risks associated with the 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, recurring billing or similar marketing and sales activities; 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; 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 30, 2022. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described as anticipated, believed, estimated, expected, intended or planned. Subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements in this paragraph. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this press release.

EXPLANATORY NOTE

We have three reportable segments: Retail, Wholesale and DSS as follows:

• The Retail Segment operates 1,427 college, university, and K-12 school bookstores, comprised of 805 physical bookstores and 622 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 sites which we operate and which offer students access to affordable course materials and affinity products, including emblematic apparel and gifts. The Retail Segment also offers inclusive access programs, in which course materials, including e-content, are offered at a reduced price through a course materials fee, 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 3,100 physical bookstores (including our Retail Segment's 805 physical bookstores) and sources and distributes new and used textbooks to our 622 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 350 college bookstores.
• The Digital Student Solutions ("DSS") Segment includes products and services to assist students to study more effectively and improve academic performance. The DSS Segment is comprised of the operations of Student Brands, LLC, a leading direct-to-student subscription-based writing services business, and bartleby^®, an institutional and direct-to-student subscription-based offering providing textbook solutions, expert questions and answers, writing and tutoring.

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.

Retail Gross Comparable Store Sales

Retail Gross Comparable Store Sales variances by category are as follows:

To supplement the Total Sales table presented above, the Company uses Retail Gross Comparable Store Sales as a key performance indicator. Retail Gross Comparable Store Sales includes sales from physical and virtual stores that have been open for an entire fiscal year period and does not include sales from permanently closed stores for all periods presented. For Retail Gross Comparable Store Sales, sales for logo and emblematic general merchandise fulfilled by FLC, Fanatics and digital agency sales are included on a gross basis for consistent year-over-year comparison.

Effective April 4, 2021, as contemplated by the FLC Partnership's merchandising agreement and e-commerce agreement, we began to transition the fulfillment of logo and emblematic general merchandise sales to FLC and Fanatics. As the logo and emblematic general merchandise sales are fulfilled by FLC and Fanatics, we recognize commission revenue earned for these sales on a net basis in our consolidated financial statements, as compared to the recognition of logo and emblematic sales on a gross basis in the periods prior to April 4, 2021.

We believe the current Retail Gross Comparable Store Sales calculation method reflects management’s view that such comparable store sales are an important measure of the growth in sales when evaluating how established stores have performed over time. We present this metric as additional useful information about the Company’s operational and financial performance and to allow greater transparency with respect to important metrics used by management for operating and financial decision-making. Retail Gross Comparable Store Sales are also referred to as "same-store" sales by others within the retail industry and the method of calculating comparable store sales varies across the retail industry. As a result, our calculation of comparable store sales is not necessarily comparable to similarly titled measures reported by other companies and is intended only as supplemental information and is not a substitute for net sales presented in accordance with GAAP.

Adjusted EBITDA by Segment (non-GAAP) ^(a)

The following is Adjusted EBITDA by Segment for the 13 and 52 week periods: