Barnes & Noble Education, Inc.

Unless the context otherwise indicates, references in these Notes to the accompanying condensed consolidated financial statements to the "Company” refer to Barnes & Noble Education, Inc. ("BNED"), a Delaware corporation. References to “Barnes & Noble College” refer to the Company's college bookstore business operated through its subsidiary Barnes & Noble College Booksellers, LLC. References to “MBS” refer to the Company's virtual bookstore and wholesale textbook distribution business operated through its subsidiary MBS Textbook Exchange, LLC.

This Form 10-Q should be read in conjunction with the Company's audited consolidated financial statements and accompanying notes included in its Annual Report on Form 10-K for the fiscal year ended May 3, 2025 ("Fiscal 2025"), which includes restated consolidated financial statements for certain interim periods within Fiscal 2025 and for the fiscal year ended April 27, 2024.

Note 1. Organization

Description of Business

Barnes & Noble Education, Inc. is one of the largest contract operators of physical and virtual bookstores for college and university campuses and K-12 institutions across the United States. The Company is also a textbook wholesaler, and bookstore management hardware and software provider. The Company operates 1,120 physical and virtual bookstores, delivering essential educational content and general merchandise within a dynamic omnichannel retail environment.

The Company provides product and service offerings designed to address the most pressing issues in higher education, including access, enhanced convenience and improved affordability through innovative course material delivery models designed to drive improved student experiences and outcomes. The Company offers its BNC First Day®affordable access course material programs, consisting of First Day Completeand First Day, which provide faculty-required course materials to students on or before the first day of class.

•First Day Complete is adopted by an institution and includes all or the majority of undergraduate classes (and on occasion graduate classes), providing students with both physical and digital materials. In addition to providing numerous benefits to students, faculty and administrators, the First Day Complete model drives substantially greater unit sales and sell-through for the bookstore.

•First Day is adopted by a faculty member for a single course, and students receive primarily digital course materials through their school's learning management system (“LMS”).

The Barnes & Noble brand (licensed from the Company's former parent) along with the Company's subsidiary brands, BNC and MBS, are synonymous with innovation in bookselling and campus retailing in the United States. The Company's large college footprint, reputation, and credibility in the marketplace not only support the Company's marketing efforts to universities, students, and faculty, but are also important to the Company's relationship with leading educational publishers who rely on the Company as one of their primary distribution channels.

Note 2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The results of operations reflected in the Company's condensed consolidated financial statements are presented on a consolidated basis. The accompanying condensed consolidated financial statements reflect the Company's condensed consolidated financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended ("Exchange Act"). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to Securities and Exchange Commission ("SEC") rules. The Company had no other comprehensive income (loss) for the periods presented; accordingly, comprehensive income (loss) is equal to Net income (loss) on the Company's condensed consolidated statements of operations. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements of the Company contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly its consolidated financial position and the results of its operations and cash flows for the periods reported. All material intercompany accounts and transactions have been eliminated in consolidation.

The Company's fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of April. Due to the seasonal nature of the business, the results of operations for the 13 and 39 weeks ended January 31, 2026 ("Fiscal 2026") are not indicative of the results expected for the 52 weeks ending May 2, 2026.

Seasonality

The Company's business is highly seasonal, particularly with respect to textbook sales and rentals, with the major portion of sales and operating profit realized during the second and third fiscal quarters when college students generally purchase and rent textbooks for the upcoming semesters and lowest in the first and fourth fiscal quarters. The Company's quarterly results also may fluctuate depending on the timing of the start of the various schools’ semesters, as well as shifts in its fiscal calendar dates. During the current fiscal year, the Company experienced a modest increase in the number of academic start periods occurring in the 13 and 39 weeks ended January 31, 2026, compared to the prior year, primarily due to differences in the fiscal calendar week alignment year over year.

As the concentration of digital product sales increases, revenue will be recognized earlier during the academic term as digital textbook revenue is recognized when the digital content is made available to the customer compared to: (i) the rental of physical textbooks where revenue is recognized over the rental period, and (ii) a la carte courseware sales where revenue is recognized when the customer takes physical possession of the Company's products, which occurs either at the point of sale for products purchased at physical locations or upon receipt of the Company's products by its customers for products ordered through the Company's websites and virtual bookstores. See Revenue Recognition and Deferred Revenue discussion below.

These shifts in timing may affect the comparability of the Company's results across periods. Sales attributable to the Company's wholesale business are generally highest in the Company's first, second and third quarters, as it sells textbooks and other course materials for retail distribution. See Revenue Recognition and Deferred Revenue discussion below.

Use of Estimates

In preparing consolidated financial statements in conformity with GAAP, the Company is required to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents and Restricted Cash

The Company considers all short-term, highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.

Restricted cash is included within prepaid expenses and other current assets in the condensed consolidated balance sheets and consists primarily of segregated funds related to commissions payable to Fanatics Lids College, Inc., d/b/a “Lids,” for logo merchandise sales pursuant to the Lids service provider merchandising agreement. Restricted cash also includes amounts classified within other noncurrent assets representing funds held in trust for future distributions related to employee benefit plans.

Restricted cash is included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts presented in the condensed consolidated statements of cash flows. The following table reconciles cash and cash equivalents and restricted cash as reported in the condensed consolidated balance sheets to the total amounts presented in the condensed consolidated statements of cash flows.

Merchandise Inventories

Merchandise inventories, which consist of finished goods, are stated at the lower of cost or market. Market value of the Company's inventory, which is all purchased finished goods, is determined based on its estimated net realizable value, which is generally the selling price less normally predictable costs of disposal and transportation. Reserves for non-returnable inventory represent write-downs that reduce the cost basis of the asset. These write-downs are based on the Company's history of liquidating non-returnable inventory, which includes certain assumptions, including markdowns and inventory aging.

Cost is determined primarily by the retail inventory method for the Company's retail business. Textbook and trade book inventories for retail and wholesale are valued using the LIFO method. The LIFO reserve related to the Company’s inventory balance was $6,446 as of January 31, 2026 and May 3, 2025, respectively.

For the Company's physical bookstores, the Company estimates and accrues inventory shortage for the period between the last physical count and the balance sheet date. Shortage rates are estimated and accrued based on historical rates and can be affected by changes in merchandise mix and changes in actual shortage trends.

The physical bookstores fulfillment order is directed first to the Company's wholesale operations before other sources of inventory are utilized. The products that the Company sells originate from a wide variety of domestic and international vendors. After internal sourcing, the bookstore purchases textbooks from outside suppliers and publishers.

Textbook Rental Inventories

Physical textbooks out on rent are categorized as textbook rental inventories. At the time a rental transaction is consummated, the book is removed from merchandise inventories and moved to textbook rental inventories at cost. The cost of the book is amortized down to its estimated residual value over the rental period with the amortization expense recognized in cost of goods sold. At the end of the rental period, upon return, the book is removed from textbook rental inventories and recorded in merchandise inventories at its amortized cost.

Leases

The Company recognizes lease assets and lease liabilities on the condensed Consolidated Balance Sheets for all operating lease arrangements based on the present value of future lease payments as required by Accounting Standards Codification (“ASC”) Topic 842, Leases. The Company does not recognize lease assets or lease liabilities for short-term leases (i.e., those with a term of twelve months or less). The Company recognizes lease expense for contracts with fixed lease payments on a straight-line basis over the contractual term. The Company recognizes variable lease payments as incurred. The Company recognizes lease expense related to its college and university contracts as cost of sales in the Company's Consolidated Statements of Operations and recognizes lease expense related to its various office spaces as selling and administrative expenses in the Company's Consolidated Statements of Operations. For additional information, see Note 11. Leases.

Revenue Recognition and Deferred Revenue

Product sales and rentals

The majority of the Company's revenue is derived from the sale of products through its bookstore locations, including virtual bookstores, and its bookstore affiliated e-commerce websites, and contains a single performance obligation. Revenue from sales of the Company's products is recognized at the point in time when control of the products is transferred to its customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for the products. For additional information, see Note 4. Revenue.

Product revenue is recognized when the customer takes physical possession of the Company's products, which occurs either at the point of sale for products purchased at physical locations or upon receipt of the Company's products by its customers for products ordered through the Company's websites and virtual bookstores. Wholesale product revenue is recognized upon shipment of physical textbooks at which point title passes and risk of loss is transferred to the customer. Additional revenue is recognized for shipping charges billed to customers and shipping costs are accounted for as fulfillment costs within cost of goods sold.

Revenue from the sale of digital textbooks, which contains a single performance obligation, is recognized upon delivery of the digital content as product revenue in the Company's consolidated financial statements. A software feature is embedded within the content of the Company's digital textbooks, such that upon expiration of the term the customer is no longer able to access the content. While the sale of the digital textbook allows the customer to access digital content for a fixed period of time, once the digital content is delivered to the customer, the Company's performance obligation is complete.

Revenue from the rental of physical textbooks is deferred and recognized over the rental period based on the passage of time commencing at the point of sale, when control of the product transfers to the customer and is recognized as rental income in the Company's consolidated financial statements. Rental periods are typically for a single semester and are always less than one year in duration. The Company offers a buyout option to allow the purchase of a rented physical textbook at the end of the rental period if the customer desires to do so. The Company records the buyout purchase when the customer exercises and pays the buyout option price which is determined at the time of the buyout. In these instances, the Company accelerates any remaining deferred rental revenue at the point of sale. Such buyouts have historically been, and continue to be, immaterial to the financial statements.

Revenue recognized for the Company's BNC First Day® offerings is consistent with its policies outlined above for product, digital and rental sales, net of an anticipated opt-out or return provision. Given the growth of BNC First Day programs, the timing of cash collection from the Company's school partners may shift to periods subsequent to when the revenue is recognized. When a school adopts the Company's BNC First Day® affordable access course material program offerings, cash collection from the school generally occurs after the institution's drop/add dates, which is later in the working capital cycle, particularly in the Company's third quarter given the timing of the Spring Term and its quarterly reporting period, as compared to direct-to-student point-of-sale transactions where cash is generally collected during the point-of-sale transaction or within a few days from the credit card processor.

The Company estimates returns based on an analysis of historical experience. A provision for anticipated merchandise returns is provided through a reduction of sales and cost of goods sold in the period that the related sales are recorded.

For sales and rentals involving third-party products, the Company evaluates whether it is acting as a principal or an agent. The Company's determination is based on the evaluation of whether the Company controls the specified goods or services prior to transferring them to the customer. There are significant judgments involved in determining whether the Company controls the specified goods or services prior to transferring them to the customer including whether it has the ability to direct the use of the good or service and obtain substantially all of the remaining benefits from the good or service. For those transactions where the Company is the principal, the Company recognizes revenue on a gross basis; for transactions in which the Company is an agent to a third-party, the Company recognizes revenue on a net basis.

The Company's logo and emblematic general merchandise sales are fulfilled by Lids and Fanatics, and the Company recognizes commission revenue earned for these sales on a net basis in its consolidated financial statements.

The Company does not currently operate gift card or customer loyalty programs, however, it accepts Barnes & Noble Booksellers ("B&N") gift cards, and also sells third-party gift cards, including B&N gift cards, in its stores. The Company expects to launch its own gift card program in the fourth quarter of Fiscal 2026. The Company does not account for promotional offers as expenses. Sales tax collected from customers is excluded from reported revenues. The Company's payment terms are generally within 30 days and do not extend beyond one year.

Service and other revenue

Service and other revenue is primarily derived from brand marketing services which includes promotional activities and advertisements within the Company's physical bookstores and web properties performed on behalf of third-party customers, shipping and handling, and revenue from other programs.

Brand marketing agreements often include multiple performance obligations which are individually negotiated with the Company's customers. For these arrangements that contain distinct performance obligations, the Company allocates the transaction price based on the relative standalone selling price method by comparing the standalone selling price (“SSP”) of each distinct performance obligation to the total value of the contract. The revenue is recognized as each performance obligation is satisfied, typically at a point in time for brand marketing service and over time for advertising efforts as measured based upon the passage of time for contracts that are based on a stated period of time or the number of impressions delivered for contracts with a fixed number of impressions.

Cost of Sales

The Company's 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 the Company's college and university contracts and other facility related expenses.

Selling and Administrative Expenses

The Company's selling and administrative expenses consist primarily of store payroll and store operating expenses. Selling and administrative expenses also include long-term incentive plan compensation expense and general office expenses, such as merchandising, procurement, field support, and professional services.

Income Taxes

The provision for income taxes includes federal, state and local income taxes currently payable and those deferred because of temporary differences between the financial statement and tax basis of assets and liabilities. The deferred tax assets and liabilities are measured using the enacted tax rates and laws that are expected to be in effect when the differences reverse. The Company regularly reviews deferred tax assets for recoverability and establishes a valuation allowance, if determined to be necessary. For additional information, see Note 14. Income Taxes.

Accounting Pronouncements

Recently Issued Accounting Pronouncements

There were no new accounting pronouncements issued during the quarter ended January 31, 2026, that are expected to have a material impact on the Company’s condensed consolidated financial statements.

Recently Issued Accounting Pronouncements Adopted

In September 2025, Financial Accounting Standards Board (the "FASB") issued ASU No. 2025-07 (“ASU 2025-07”), "Derivatives and Hedging (Topic 815): Derivatives Scope Refinements and Scope Clarification for Share-Based Noncash Consideration from a Customer in a Revenue Contract."The guidance refines the scope of Topic 815 to clarify which contracts are subject to derivative accounting. The guidance also provides clarification under Topic 606 related to share-based payments from a customer in a revenue contract.

The amendments in ASU 2025-07 are effective for fiscal years beginning after December 15, 2026, and interim periods within those fiscal years, with early adoption permitted. The Company elected to early adopt ASU 2025-07 effective May 4, 2025, the first day of Fiscal 2026. The adoption did not have a material impact on the Company’s condensed consolidated financial statements. See Note 9. Derivativefor further discussion.