Barnes Noble Education Inc

Elements of Results of Operations

Our condensed consolidated financial statements reflect our consolidated financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States (“GAAP”). The results of operations reflected in our condensed consolidated financial statements are presented on a consolidated basis. All material intercompany accounts and transactions have been eliminated in consolidation.

Our sales are primarily derived from the sale of course materials, which include new, used, rental and digital textbooks. Additionally, at college and university bookstores which we operate, we sell general merchandise, including emblematic apparel and gifts, trade books, computer products, school and dorm supplies, convenience and café items and graduation products. Our rental income is primarily derived from the rental of physical textbooks. We also derive revenue from other sources, such as sales of bookstore management, hardware and point-of-sale software, and other services.

Our cost of sales primarily includes costs such as merchandise costs, textbook rental amortization, warehouse costs related to inventory management and order fulfillment, insurance, certain payroll costs, and management service agreement costs, including rent expense, related to our college and university contracts and other facility related expenses.

Results of Operations

Results of Operations - Summary - Continuing Operations(a)

(a)Adjusted Earnings and Adjusted EBITDA are non-GAAP financial measures. See Use of Non-GAAP Measures discussion below.

Results of Operations - Discontinued Operations

On May 31, 2023, we completed the sale of assets related to our former Digital Student Solutions (“DSS”)segment, which met the criteria for classification as Assets Held for Sale and Discontinued Operations. The results of operations related to our former DSS segment are included in the condensed consolidated statements of operations as“Income (loss) from discontinued operations, net of tax.” The cash flows of our former DSS segment are also presented separately in our condensed consolidated statements of cash flows. For additional information, see Part II - Item 7. Management's Discussion and Analysisin our Annual Report on Form 10-K for the fiscal year ended April 27, 2024 (as updated through our Current Report on Form 8-K filed with the SEC on December 11, 2024).

Results of Operations - Continuing Operations - 13 and 39 weeks ended January 25, 2025 compared with the 13 and 39 weeks ended January 27, 2024

(a)Represents the percentage these costs bear to the related sales, instead of total sales.

Third quarter fiscal year 2025 total revenue increased by 2.1%, or $9.7 million, from last year to $466.3 million, primarily driven by growth in our BNC First Day® programs and a net decrease in physical and virtual locations, some of which were closures of underperforming stores, which has helped to improve profitability. Gross Comparable Store Sales increased by $30.1 million, or 6.6%, during the quarter, driven by revenues from BNC First Day programs which increased by $38.2 million, or 20.8%, helping to offset much of the decline from closed stores in total revenue. Income from Continuing Operations increased by $27.5 million, or 283.3% to $17.8 million, compared to $(9.7) million in the prior year. Adjusted EBITDA from Continuing Operations improved by $6.3 million, or 29.8%, to $27.4 million from $21.1 million last year, primarily due to lower selling and administrative expenses of $8.2 million as the result of cost-saving and productivity initiatives, closed stores, and growth in our BNC First Day® programs.

Fiscal year 2025 year to date revenue increased by $0.7 million, or 0.1% to $1,331.9 million, primarily driven by growth in our BNC First Day® programs and a net decrease in physical and virtual locations, some of which were closures of underperforming stores, which has helped to improve profitability. Gross Comparable Store Sales increased by $64.4 million, or 4.8%, during the year, driven by revenues from BNC First Day programs which increased by $93.9 million, or 21.1%, helping to offset much of the decline from closed stores in total revenue. Loss from Continuing Operations was $(30.7) million, inclusive of a loss on extinguishment of debt of $(55.2) million, compared to $(34.5) million in the prior year period. Adjusted EBITDA from Continuing Operations improved by $26.4 million to $72.7 million from $46.3 million last year primarily due to lower selling and administrative expenses of $31.7 million primarily related to cost saving and productivity initiatives, closed stores, and growth in our BNC First Day® programs.

Sales

The following table summarizes our sales for the 13 and 39 weeks ended January 25, 2025 and January 27, 2024:

The sales increase during the 13 and 39 weeks ended January 25, 2025 is primarily related to higher comparable store sales and new store sales primarily due to our BNC First Day® programs, offset by lower sales resulting from closed stores. The components of the sales variances for the 13 and 39 week periods are reflected in the table below.

(a) Logo general merchandise sales are recognized on a net basis as commission revenue in the condensed consolidated financial statements. For Gross Comparable Store Sales details, see below.

(b) Other revenue includes brand partnership marketing, fulfillment operations, liquidation sales, shipping and handling, marketplace sales, certain accounting adjusting items related to return reserves, and other deferred items.

The following is a store count summary for physical stores and virtual stores.

During the 39 weeks ended January 25, 2025, we opened 49 stores and closed 130 stores, with estimated net annual sales of $159 million. The Company’s strategic initiative is to close under-performing and less profitable stores.

Generally, sales are impacted by revenue from net new/closed stores, conversion to BNC First Day® programs, increased campus traffic, and an increase in the number and timing of on campus activities and events, such as graduations, athletic events, alumni events, merchandising and marketing programs, and prospective student campus tours.

Our total sales increased by $9.7 million, or 2.1%, to $466.3 million during the 13 weeks ended January 25, 2025 from $456.7 million during the 13 weeks ended January 27, 2024.

•Product sales and other increased by $7.8 million, or 1.9%, to $423.2 million during the 13 weeks ended January 25, 2025 from $415.4 million during the 13 weeks ended January 27, 2024.

◦Course material product sales increased by $10.5 million, or 3.3%, to $328.1 million during the 13 weeks ended January 25, 2025, compared to $317.6 million in the prior year period. The increase was primarily related to higher comparable store sales and new store sales primarily due to our BNC First Day® programs, which increased by $38.2 million, or 20.8%, to $222.2 million, offset by lower sales resulting from closed stores.

◦Gross Comparable Store Sales for course materials increased by $23.3 million, or 6.8%, compared to the prior year period as discussed below.

◦General merchandise product net sales decreased by $0.9 million, or 1.2%, to $71.6 million, compared to $72.5 million in the prior year period, primarily due to lower emblematic product sales. Gross Comparable Store Sales for general merchandise increased by $6.8 million, or 6.1%, compared to the prior year period as discussed below.

◦Service and other revenue decreased by $1.9 million, or 7.3%, to $23.5 million, compared to $25.3 million in the prior year period, primarily due to lower liquidation sales, lower web deferrals revenue, lower shipping and handling and lower partnership marketing income, offset by higher rental penalty fees and higher marketplace sales.

•Rental income for course materials increased by $1.9 million, or 4.5%, to $43.2 million during the 13 weeks ended January 25, 2025 from $41.3 million during the 13 weeks ended January 27, 2024 primarily due to the growth of our BNC First Day® programs, offset by lower rentals due to closed stores and the shift to digital products.

Our total sales increased by $0.7 million, or 0.1%, to $1,331.9 million during the 39 weeks ended January 25, 2025 from $1,331.2 million during the 39 weeks ended January 27, 2024.

•Product sales and other decreased by $4.0 million, or 0.3%, to $1,233.8 million during the 39 weeks ended January 25, 2025 from $1,237.7 million during the39 weeks ended January 27, 2024.

◦Course material product sales increased by $13.2 million, or 1.4%, to $975.5 million during the 39 weeks ended January 25, 2025, compared to $962.3 million in the prior year period. The increase was primarily related to higher comparable store sales and new store sales primarily due to our BNC First Day® programs, which increased by $93.9 million, or 21.1%, to $539.0 million, offset by lower sales resulting from closed stores.

◦Gross Comparable Store Sales for course materials increased by $67.6 million, or 7.3%, compared to the prior year period as discussed below.

◦General merchandise product net sales decreased by $9.6 million, or 5.0%, to $184.0 million, compared to $193.6 million in the prior year period, primarily due to closed stores, lower graduation product sales due to timing of spring graduation events shifting to the fourth quarter of fiscal year 2024 from the first quarter of fiscal year 2025, and lower emblematic product sales. Gross Comparable Store Sales for general merchandise decreased by $3.2 million, or (0.8)%, compared to the prior year period as discussed below.

◦Service and other revenue decreased by $7.5 million, or 9.2%, to $74.3 million, compared to $81.8 million in the prior year period, primarily due to lower liquidation sales, lower shipping and handling and lower partnership marketing income, offset by higher rental penalty fees and higher marketplace sales.

•Rental income for course materials increased by $4.6 million, or 4.9%, to $98.1 million during the 13 weeks ended January 25, 2025 from $93.5 million during the 13 weeks ended January 27, 2024 primarily due to the growth of our BNC First Day® programs, offset by lower rentals due to closed stores and the shift to digital products.

Gross Comparable Store Sales

To supplement the Total Sales table presented above, the Company uses Gross Comparable Store Sales as a key performance indicator. 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 Gross Comparable Store Sales, sales for logo general merchandise fulfilled by Lids, Fanatics and digital agency sales are included on a gross basis in Gross Comparable Store Sales compared to a net basis as commission revenue in our condensed consolidated financial statements.

We believe the current 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. 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.

The increase in course material sales was primarily due to the growth of BNC First Day® affordable access course material programs (as discussed above), offset by declines in a la carte courseware sales. The decrease in general merchandise sales are primarily related to lower logo product sales, graduation product sales due to timing of spring graduation events shifting to the fourth quarter of fiscal year 2024 from the first quarter of fiscal year 2025, lower sales related to cafe and convenience products, and trade books sales.

Gross Comparable Store Sales variances by category for the 13 and 39 week periods are as follows:

Cost of Sales and Gross Margin

Our cost of sales increased as a percentage of sales to 79.3% during the 13 weeks ended January 25, 2025 compared to 78.1% during the 13 weeks ended January 27, 2024. Our gross margin decreased by $3.7 million, or 3.7%, to $96.4 million, or 20.7% of sales, during the 13 weeks ended January 25, 2025 from $100.0 million, or 21.9% of sales during the 13 weeks ended January 27, 2024.

Our cost of sales increased as a percentage of sales to 78.9% during the 39 weeks ended January 25, 2025 compared to 78.4% during the 39 weeks ended January 27, 2024. Our gross margin decreased by $5.7 million, or 2.0%, to $281.2 million, or 21.1% of sales, during the 39 weeks ended January 25, 2025 from $286.9 million, or 21.6% of sales during the 39 weeks ended January 27, 2024.

The following table summarizes the cost of sales for the 13 and 39 weeks ended January 25, 2025 and January 27, 2024:

The following table summarizes the gross margin for the 13 and 39 weeks ended January 25, 2025 and January 27, 2024:

For the 13 weeks ended January 25, 2025, the gross margin as a percentage of sales decreased as discussed below:

•For the 13 weeks ended January 25, 2025, Product and other gross margin decreased (130 basis points), primarily due to lower margin rates (160 basis points) for course materials due to higher markdowns related to closed stores and higher inventory reserves, offset by lower contract costs as a percentage of sales (30 basis points) related to our college and university contracts as a result of the shift to digital and First Daymodels and lower performing school contracts not renewed.

•For the 13 weeks ended January 25, 2025, the Rental gross margin as a percentage of sales decreased driven primarily by lower rental margin rates, offset by lower contract costs as a percentage of sales related to our college and university contracts.

For the 39 weeks ended January 25, 2025, the gross margin as a percentage of sales decreased as discussed below:

•For the 39 weeks ended January 25, 2025, Product and other gross margin decreased (60 basis points), primarily due to lower margin rates (100 basis points) for course materials due to lower markdowns, offset by lower contract costs as a percentage of sales (40 basis points) related to our college and university contracts as a result of the shift to digital and First Daymodels and lower performing school contracts not renewed.

•For the 39 weeks ended January 25, 2025, the Rental gross margin as a percentage of sales increased driven primarily by higher rental margin rates, and lower contract costs as a percentage of sales related to our college and university contracts.

Selling and Administrative Expenses

During the 13 weeks ended January 25, 2025, selling and administrative expenses decreased by $8.2 million, or 10.3%, to $71.6 million from $79.8 million during the 13 weeks ended January 27, 2024. This decrease was primarily due to a $9.9 million decrease in payroll and related operating costs, and cost savings initiatives, partially offset by a $1.7 million increase in incentive plan expense.

During the 39 weeks ended January 25, 2025, selling and administrative expenses decreased by $31.7 million, or 13.0%, to $211.5 million from $243.2 million during the 39 weeks ended January 27, 2024. This decrease was primarily due to a $32.2 million decrease in payroll and related operating costs, and cost savings initiatives, partially offset by a $0.5 million increase in incentive plan expense.

Depreciation and Amortization Expense

Depreciation and amortization expense decreased by $2.3 million, to $7.8 million during the 13 weeks ended January 25, 2025 from $10.1 million during the 13 weeks ended January 27, 2024. The decrease was primarily attributable to lower depreciable assets and intangibles due to the store impairment loss recognized in Fiscal 2024, offset by capital additions and accelerated intangible amortization related to closed stores.

Depreciation and amortization expense decreased by $1.2 million, to $29.4 million during the 39 weeks ended January 25, 2025 from $30.6 million during the 39 weeks ended January 27, 2024. The decrease was primarily attributable to lower depreciable assets and intangibles due to the store impairment loss recognized in Fiscal 2024, offset by capital additions and accelerated intangible amortization related to closed stores.

Impairment Loss (non-cash)

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets.

During the 13 and 39 weeks ended January 25, 2025, we evaluated certain of our store-level long-lived assets for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $1.7 million (both pre-tax and after-tax), comprised of 0.3 million, $0.3 million, and $1.1 million of property and equipment, operating lease right-of-use assets, and amortizable intangibles, respectively, on the condensed consolidated statement of operations.

During the 13 and 39 weeks ended January 27, 2024, we evaluated certain of our store-level long-lived assets for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $5.8 million (both pre-tax and after-tax), comprised of $0.4 million, $2.7 million, and $2.7 million of property and equipment, operating lease right-of-use assets, and amortizable intangibles, respectively, on the condensed consolidated statement of operations.

For additional information, see Item 1. Financial Statements - Note 2. Summary of Significant Accounting Policies and Note 6. Fair Value Measurements.

Loss on extinguishment of debt

On June 10, 2024, our existing Term Loan lenders converted approximately $34.0 million of outstanding principal and accrued and unpaid interest into our Common Stock. We recognized a loss on extinguishment of debt of $55.2 million during the 39 weeks ended January 25, 2025 in the condensed consolidated statement of operations in connection with the Term Loan Debt Conversion which represents the difference between the Common Stock fair value issued upon conversion and the net carrying value of the Term Loan, plus unamortized deferred financing costs related to the Term Loan. As a result of the Term Loan Debt Conversion, the Term Loan and its related documentation was terminated. There were no debt conversions in the comparable prior period. See Item 1. Financial Statements - Note 5. Equity and Earnings Per Share and Note 7. Debt.

Restructuring and other charges

During the 13 and 39 weeks ended January 25, 2025, we recognized restructuring and other charges totaling $(7.6) million and $(4.1) million, respectively, comprised primarily of $(7.6) million and $(9.0) million, respectively, related to the termination of liabilities related to a frozen retirement benefit plan (non-cash), $0.1 million and $0.4 million, respectively, related to severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction initiatives, $0 and $2.0 million, respectively, of severance primarily related to the resignation of our former Chief Executive Officer on June 11, 2024, and $0.1 million and $1.1 million, respectively, for legal and advisory professional service costs for restructuring and process improvements and other charges.

During the 13 and 39 weeks ended January 27, 2024, we recognized restructuring and other charges totaling $3.4 million and $12.3 million, respectively, comprised primarily of $3.4 million and $11.2 million, respectively, for costs primarily associated with professional service costs for restructuring and process improvements, and $0 and $1.1 million, respectively, for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost savings initiatives.

Operating Income (Loss)

Our operating income was $22.9 million during the 13 weeks ended January 25, 2025, compared to operating income of $0.9 million during the 13 weeks ended January 27, 2024. The increase in operating income is due to the matters discussed above. For the 13 weeks ended January 25, 2025, operating income, excluding the $1.7 million of impairment loss (non-cash) and the $(7.6) million of restructuring and other charges, discussed above, was $17.0 million (or 3.6% of sales). For the 13 weeks ended January 27, 2024, operating income, excluding the $5.8 million of impairment loss (non-cash) and the $3.4 million of restructuring and other charges, discussed above, was $10.1 million (or 2.2% of sales).

Our operating loss was $(12.5) million during the 39 weeks ended January 25, 2025, compared to operating loss of $(5.0) million during the 39 weeks ended January 27, 2024. The increase in operating loss is due to the matters discussed above. For the 39 weeks ended January 25, 2025, excluding the $1.7 million of impairment loss (non-cash) and the $55.2 million of loss on extinguishment of debt and the $(4.1) million of restructuring and other charges, discussed above, operating income was $40.3 million (or 3.0% of sales). For the 39 weeks ended January 27, 2024, excluding the $5.8 million of impairment loss (non-cash) and the $12.3 million of restructuring and other charges, discussed above, operating income was $13.1 million (or 1.0% of sales).

Interest Expense, Net

Net interest expense decreased by $5.5 million to $5.1 million during the 13 weeks ended January 25, 2025 from $10.6 million during the 13 weeks ended January 27, 2024. Net interest expense decreased by $11.4 million to $18.2 million during the 39 weeks ended January 25, 2025 from $29.5 million during the 39 weeks ended January 27, 2024. Interest expense decreased primarily due to the June 10, 2024 debt financing transaction, lower borrowing and lower interest rates.

Income Tax Expense

We recorded an income tax expense of $10.7 million on pre-tax income of $17.8 million during the 13 weeks ended January 25, 2025, which represented an effective income tax rate of 60.0% and we recorded an income tax expense of $0.2 million on a pre-tax loss of $(9.7) million during the 13 weeks ended January 27, 2024, which represented an effective income tax rate of (2.4)%. The effective tax rate for the 13 weeks ended January 25, 2025 is higher than the prior year comparable period due to the IRC 382 limitation on attribute utilization, offset by the impact of accounting method changes filed for our full year 2024 tax return in the current period

We recorded an income tax expense of $11.9 million on pre-tax loss of $(30.7) million during the 39 weeks ended January 25, 2025, which represented an effective income tax rate of (38.8)% and we recorded an income tax expense of $0.5 million on a pre-tax loss of $(34.5) million during the 39 weeks ended January 27, 2024, which represented an effective income tax rate of (1.5)%. The effective tax rate for the 13 weeks is higher and for the 39 weeks ended January 25, 2025 is lower than the prior year comparable period due to the IRC 382 limitation on attribute utilization offset by the impact of accounting method changes filed on our full year 2024 tax return and permanent differences related to the loss on the debt-to-equity conversion in the current period.

Net Income (Loss) from Continuing Operations

As a result of the factors discussed above, net income from continuing operations was $7.1 million during the 13 weeks ended January 25, 2025, compared with net loss of $(9.9) million during the 13 weeks ended January 27, 2024. As a result of the factors discussed above, net loss from continuing operations was $(42.6) million during the 39 weeks ended January 25, 2025, compared with $(35.0) million during the 39 weeks ended January 27, 2024.

Adjusted Earnings (non-GAAP) is $3.8 million during the 13 weeks ended January 25, 2025, compared with $0.1 million during the 13 weeks ended January 27, 2024. Adjusted Earnings (non-GAAP) is $13.2 million during the 39 weeks ended January 25, 2025, compared with $(14.4) million during the 39 weeks ended January 27, 2024.See Adjusted Earnings (non-GAAP) discussion below.