Sales Increased 1.0% Year to Date
Sales Decreased 0.6% for the Third Quarter as
Community College Enrollments Decline
Strategic Transactions Completed to
Significantly Reduce Digital Spend While Expanding Digital
Services
Barnes & Noble Education, Inc. (NYSE:BNED), one of
the largest contract operators of bookstores on college and
university campuses across the United States and a leading provider
of digital education services, today reported sales and earnings
for the third quarter and year to date periods for fiscal 2016.
Fiscal year to date sales of $1,513.3 million increased $14.3
million, or 1.0%, as compared to the prior year period.
Third quarter sales of $518.4 million decreased $3.2 million, or
0.6%, as compared to the prior year period. The Company reported a
net loss of $(3.6) million, including a non-cash impairment loss of
$8.5 million, net of tax. Excluding the impairment loss, the
Company reported non-GAAP net income of $4.9 million during the 13
weeks ended January 30, 2016 which is $3.8 million lower than the
prior year period.
Comparable store sales decreased 4.1% for the quarter.
Consistent with the past, the Spring Rush period extended beyond
the quarter due to later school openings, as well as to the
continued pattern of students buying course materials later in the
semester. Factoring in the three additional weeks of February,
comparable store sales decreased 2.9%, which is a slight
improvement from similar comparable results for the second
quarter.
“Course material sales for the Spring Rush period were adversely
impacted by decreased enrollments in two year community colleges,”
said Max J. Roberts, Chief Executive Officer of Barnes & Noble
Education, Inc.
Comparable store sales excluding two year community colleges
decreased by 2.2% for the quarter and 0.9% year to date; and
factoring in the three additional Spring Rush weeks decreased 1.2%
for the quarter and 0.5% year to date.
In an effort to reduce and manage digital expenditures, while at
the same time maintaining high quality digital products, the
Company has taken the following actions: the Company is closing its
Yuzu® offices and eliminating staffing in California and
Washington, resulting in non-cash impairment and restructuring
charges; the Company worked with VitalSource, a part of the Ingram
Content Group; and the Company acquired LoudCloud Systems, Inc.
The Company has established a long-term relationship with
VitalSource, a global leader in building, enhancing and delivering
digital content. This collaboration will allow the Company to
significantly lower its future digital expenses. “Our relationship
with VitalSource will provide for a seamless transition with a Yuzu
branded product, ensuring students continue to have an excellent
digital reading experience and access to a broad digital catalog,”
said Mr. Roberts.
The acquisition of LoudCloud, a sophisticated digital platform
and analytics provider with a proven product and existing clients
in the higher education, for-profit and K-12 markets, positions the
Company to be able to provide a robust digital learning platform to
drive improved outcomes for students and to better serve its
clients. LoudCloud’s current product capabilities include a
competency based courseware platform, a learning analytics platform
and services, an eReading product, and a learning management system
(LMS). Its software captures and analyzes key behavioral and
performance metrics from students, allowing educators to monitor
and improve student success. The acquisition of LoudCloud closed on
March 4, 2016 for a purchase price of $17.9 million and was
financed completely with cash from operations.
“These actions give us the capabilities to offer digital
products that our clients are demanding, improve our competitive
position, and positively impact revenue and profitability,” said
Mr. Roberts. “We expect these transactions to reduce our digital
spend from $26 million in fiscal 2016 to approximately $13 million
in fiscal 2017, resulting in $13 million of forecasted expense
reduction.”
During the third quarter ended January 30, 2016, the Company
recorded a non-cash impairment loss totaling $12.0 million ($8.5
million, net of the tax benefit), related to all of the capitalized
content costs for the Yuzu eTextbook platform, and also an
impairment of its investment in Flashnotes.
The Company expects to incur restructuring charges for
severance, retention, and lease terminations of $7-$8 million in
the fiscal fourth quarter of 2016 and $1-$2 million in the fiscal
first quarter of 2017. It is expected that approximately $4.0
million of these fourth quarter charges will be non-cash.
Third Quarter and Nine Month 2016 Results
Results for the 13 and 39 weeks of fiscal 2016 and fiscal 2015
are as follows:
$ in millions 13 and 39 Weeks Selected Data
(unaudited)
13
Weeks2016
13
Weeks2015(1)
39
Weeks2016
39
Weeks2015(1)
Total Sales $518.4 $521.6 $1,513.3 $1,499.0 Net (Loss) Income
$(3.6) $8.7 $2.9 $19.4
Non-GAAP(2)
Adjusted EBITDA
$22.6 $26.9 $60.2 $70.9 Net Income excluding Impairment Loss $4.9
$8.7 $11.4 $19.4
(1) Financials for fiscal 2015 have been
presented on a carve-out basis.
(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. During the 13 and 39 weeks ended January 30, 2016, we
recorded a non-cash impairment loss totaling $12.0 million ($8.5
million net of the tax benefit), related to all of the capitalized
content costs for the Yuzu® eTextbook platform, and also an
impairment of its investment in Flashnotes.
The Company’s Adjusted EBITDA, excluding the impairment charge
of $12.0 million, was $22.6 million for the quarter, as compared to
$26.9 million in the prior year period, due primarily to reduced
earnings from lower comparable store sales partially offset by
positive earnings from net new stores.
Third quarter net loss was $(3.6) million, or $(0.07) per
diluted share, compared to net income of $8.7 million, or $0.09 per
diluted share, in the prior year period. The current year’s fiscal
quarter has 48.1 million diluted shares outstanding, while the
prior year period had 39.0 million shares outstanding. Excluding
the impairment loss of $8.5 million, net of tax benefit, the
Company reported non-GAAP net income of $4.9 million during the
quarter, compared with net income of $8.7 million in the prior year
period.
The current period reflects the dilution resulting from the
issuance of additional shares of Barnes & Noble, Inc. common
stock in connection with the previously disclosed Series J
preferred shares by Barnes & Noble, Inc. in July 2015, prior to
the legal separation from Barnes & Noble, Inc., partially
offset by the share repurchase program announced in December 2015
of 906,732 shares in the quarter for $8.7 million.
Outlook
For fiscal year 2016, the Company expects its comparable store
sales to be approximately 2.0% lower than the prior year which is
in the outlook range previously provided. Also, the Company expects
capital expenditures to be approximately $50 million.
Conference Call
A conference call with Barnes & Noble Education, Inc. senior
management will be webcast at 10:00 a.m. Eastern Time on Tuesday,
March 8, 2016 and can be accessed at the Barnes & Noble
Education, Inc. corporate website at www.bned.com.
Barnes & Noble Education, Inc. expects to report fiscal 2016
fourth quarter results on or about June 28, 2016.
ABOUT BARNES & NOBLE EDUCATION, INC.
Barnes & Noble Education, Inc. (NYSE: BNED), one
of the largest contract operators of bookstores on college and
university campuses across the United States and a leading provider
of digital education services, enhances the academic and social
purpose of educational institutions. Through its Barnes &
Noble College subsidiary, Barnes & Noble
Education serves more than 5 million college students and
their faculty through its 748 stores on campuses nationwide,
delivering essential educational content and tools within a dynamic
retail environment. Through its eTextbook platform Yuzu®, Barnes
& Noble Education offers an excellent digital reading
experience and access to a broad catalog of digital academic
relevant titles. Barnes & Noble Education acts as a
strategic partner to drive student success; provide value and
support to students and faculty; and create loyalty and retention,
all while supporting the financial goals of college and university
partners.
General information on Barnes & Noble Education,
Inc. can 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 Barnes & Noble Education
and its business that are based on the beliefs of the management of
Barnes & Noble Education as well as assumptions made by and
information currently available to the management of Barnes &
Noble Education. When used in this communication, the words
“anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,”
“will,” “forecasts,” “projections,” and similar expressions, as
they relate to Barnes & Noble Education or the management of
Barnes & Noble Education, identify forward-looking statements.
Moreover, Barnes & Noble Education operates in a very
competitive and rapidly changing environment. New risks emerge from
time to time. It is not possible for the management of Barnes &
Noble Education to predict all risks, nor can Barnes & Noble
Education assess the impact of all factors on its 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 Barnes & Noble Education 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 the current views of Barnes & Noble
Education with respect to future events, the outcome of which is
subject to certain risks, including, among others: general
competitive conditions, including actions our competitors 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 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; challenges to running our
company independently from Barnes & Noble, Inc. (“Barnes &
Noble”) now that the complete legal and structural separation of
Barnes & Noble Education from Barnes & Noble (the
“Spin-Off”) has been completed; the potential adverse impact on our
business resulting from the Spin-Off; restructuring 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, including possible delays and
unexpected challenges in the outsourcing and transition in our
current Yuzu® platform to the Vital Source platform, integration of
and deployment of, additional products and services, and further
enhancements to, Yuzu® and any future 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 and execute upon additional
acquisitions and strategic investments; technological changes; our
international expansion could result in additional risks; changes
to payment terms, return policies, the discount or margin on
products or other terms with our suppliers; risks associated with
data privacy, information security and intellectual property;
trends and challenges to our business and in the locations in which
we have stores; non-renewal of contracts; disruptions to our
computer systems, data lines, telephone systems or supply chain,
including the loss of suppliers; work stoppages or increases in
labor costs; our ability to attract and retain employees; possible
increases in shipping rates or interruptions in shipping service,
effects of competition; obsolete or excessive inventory; product
shortages; higher-than-anticipated store closings; changes in law
or regulation; the amount of our indebtedness and ability to comply
with covenants applicable to any future debt financing; our ability
to satisfy future capital and liquidity requirements; our ability
to access the credit and capital markets at the times and in the
amounts needed and on acceptable terms; adverse results from
litigation, governmental investigations or tax-related proceedings
or audits; changes in accounting standards; and the other risks and
uncertainties detailed in the section titled “Risk Factors” in
Barnes & Noble Education’s Prospectus filed with the Securities
and Exchange Commission (“SEC”) on July 15, 2015 and in Barnes
& Noble Education’s other filings made hereafter from time to
time with the SEC.
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 Barnes
& Noble Education or persons acting on its behalf are expressly
qualified in their entirety by the cautionary statements in this
paragraph. Barnes & Noble Education undertakes 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 On February 26, 2015,
Barnes & Noble, Inc. (“Barnes & Noble”) announced plans for
the complete legal and structural separation of Barnes & Noble
Education, Inc. (the “Company”) from Barnes & Noble (the
“Spin-Off”). Under the Separation and Distribution Agreement
between Barnes & Noble and the Company, Barnes & Noble
planned to distribute all of its equity interest in us, consisting
of all of the outstanding shares of our Common Stock, to Barnes
& Noble’s stockholders on a pro rata basis. Following the
Spin-Off, Barnes & Noble would not own any equity interest in
us, and we would operate independently from Barnes & Noble.
On July 14, 2015, Barnes & Noble approved the final
distribution ratio and declared a pro rata dividend of the
outstanding shares of our Common Stock, par value $0.01 per share
("Common Stock"), to Barnes & Noble’s existing stockholders.
The pro rata dividend was made on August 2, 2015 to the Barnes
& Noble stockholders of record (as of July 27, 2015). Each
Barnes & Noble stockholder of record received a distribution of
0.632 shares of our Common Stock for each share of Barnes &
Noble common stock held on the record date. On August 2,
2015, we completed the legal separation from Barnes & Noble, at
which time we began to operate as an independent publicly-traded
company. Our Common Stock began to trade on a “when-issued” basis
on the NYSE under the symbol “BNED WI” beginning on July 23, 2015.
On August 3, 2015, when-issued trading of our Common Stock ended,
our Common Stock began “regular-way” trading under the symbol
“BNED.” The results of operations for the 39 weeks ended
January 31, 2015 and the 13 weeks ended August 1, 2015 reflected in
our condensed consolidated financial statements are presented on a
stand-alone basis since we were still part of Barnes & Noble,
Inc. until the consummation of the Spin-Off on August 2, 2015, and
the results of operations for the 26 weeks ended January 30, 2016
reflected in our condensed consolidated financial statements are
presented on a consolidated basis as we became a separate
consolidated entity.
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 30, 2016 January 31, 2015
January 30, 2016 January 31, 2015 Sales:
Product sales and other $ 457,126 $ 461,059 $ 1,359,848 $ 1,346,152
Rental income 61,297 60,495 153,422 152,845
Total sales 518,423 521,554 1,513,270
1,498,997 Cost of sales and occupancy: Product and other cost of
sales and occupancy 361,030 362,740 1,073,319 1,062,930 Rental cost
of sales and occupancy 36,753 37,192 92,646
93,624 Total cost of sales and occupancy 397,783
399,932 1,165,965 1,156,554 Gross profit 120,640 121,622
347,305 342,443 Selling and administrative expenses 98,010 94,694
287,133 271,553 Depreciation and amortization 13,081 12,583 39,350
37,635 Impairment loss (non-cash) (a) 11,987 - 11,987
- Operating (loss) income (2,438 ) 14,345 8,835 33,255
Interest expense, net 711 30 1,268 49 (Loss)
income before income taxes (3,149 ) 14,315 7,567 33,206 Income tax
expense 454 5,665 4,687 13,818 Net (loss)
income $ (3,603 ) $ 8,650 $ 2,880 $ 19,388 (Loss)
Earnings per common share: Basic $ (0.07 ) $ 0.09 $ 0.06 $ 0.34
Diluted $ (0.07 ) $ 0.09 $ 0.06 $ 0.34 Weighted average
common shares outstanding: Basic 48,088 38,924 45,907 37,955
Diluted 48,088 38,970 46,173 37,998
(a) For additional information, see Note
(a) below of this Press Release.
Net (loss) income
excluding Impairment loss: Net (loss) income (GAAP - as
reported above) $ (3,603 ) $ 8,650 $ 2,880 $ 19,388
Impairment loss (non-cash), net of tax
benefit (a)
$ 8,490 $ - $ 8,490 $ - Net Income excluding Impairment loss
(non-GAAP) $ 4,887 $ 8,650 $ 11,370 $ 19,388 (a) As a result
of the restructuring of our digital operations, during the 13 and
39 weeks ended January 30, 2016, we recorded a non-cash impairment
loss totaling $12 million ($8.5 million net of tax benefit),
related to all of the capitalized content costs for the Yuzu®
eTextbook platform ($9 million), and recorded a non-recurring other
than temporary loss related to an investment held at cost ($3
million).
Percentage of Sales: Sales: Product sales and other
88.2% 88.4% 89.9% 89.8% Rental income 11.8% 11.6% 10.1% 10.2% Total
sales 100.0% 100.0% 100.0% 100.0% Cost of sales and occupancy:
Product and other cost of sales and occupancy (a) 79.0% 78.7% 78.9%
79.0% Rental cost of sales and occupancy (a) 60.0% 61.5% 60.4%
61.3% Total cost of sales and occupancy 76.7% 76.7% 77.0% 77.2%
Gross profit 23.3% 23.3% 23.0% 22.8% Selling and administrative
expenses 18.9% 18.2% 19.0% 18.1% Depreciation and amortization 2.5%
2.4% 2.6% 2.5% Impairment loss (non-cash) 2.3% 0.0% 0.8% 0.0%
Operating (loss) income (0.4)% 2.7% 0.6% 2.2% Interest expense, net
0.1% 0.0% 0.1% 0.0% (Loss) income before income taxes (0.5)% 2.7%
0.5% 2.2% Income tax expense 0.1% 1.1% 0.3% 0.9% Net (loss) income
(0.6)% 1.6% 0.2% 1.3% (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 30, 2016
January 31, 2015 ASSETS Current assets: Cash and cash
equivalents $ 126,909 $ 174,620 Receivables, net 183,133 188,477
Merchandise inventories, net 542,489 462,062 Textbook rental
inventories 65,757 69,726 Prepaid expenses and other current assets
5,754 3,438 Short-term deferred tax assets, net 24,323
26,871 Total current assets 948,365
925,194 Property and equipment: Buildings and
leasehold improvements 167,280 152,817 Fixtures and equipment
354,797 328,779 522,077 481,596 Less
accumulated depreciation and amortization 408,573
376,863 Net property and equipment 113,504
104,733 Goodwill 274,070 274,070 Intangible assets,
net 190,549 200,753 Other noncurrent assets 33,635
34,548 Total assets $ 1,560,123 $ 1,539,298
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts
payable $ 507,731 $ 492,200 Accrued liabilities 199,655
190,794 Total current liabilities 707,386
682,994 Long-term deferred taxes, net 64,154 71,463
Other long-term liabilities 69,937 62,670
Total liabilities 841,477 817,127
Commitments and contingencies - - Stockholders' Equity:
Preferred membership interests - - Parent company investment -
722,171 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, 48,294 and 0 shares,
respectively; outstanding, 47,346 and 0 shares, respectively 483 -
Additional paid-in capital 697,662 - Retained earnings 29,798 -
Treasury stock, at cost (9,297 ) - Total
stockholders' equity 718,646 722,171 Total
liabilities and stockholders' equity $ 1,560,123 $ 1,539,298
BARNES & NOBLE EDUCATION, INC. AND
SUBSIDIARIES Adjusted EBITDA (Non-GAAP) Information
(In thousands) (Unaudited)
13 weeks ended 39 weeks ended
January 30, 2016 January 31, 2015 January 30,
2016 January 31, 2015 Adjusted
EBITDA $ 22,630 $ 26,928 $ 60,172 $ 70,890 Subtract: Depreciation
and amortization 13,081 12,583 39,350 37,635 Interest expense, net
711 30 1,268 49 Income tax expense 454 5,665 4,687 13,818
Impairment loss (non-cash) (a) 11,987 -
11,987 - Net (loss) income $ (3,603 ) $ 8,650 $ 2,880 $
19,388 (a) As a result of the restructuring of our digital
operations, during the 13 and 39 weeks ended January 30, 2016, we
recorded a non-cash impairment loss totaling $12 million ($8.5
million net of tax benefit), related to all of the capitalized
content costs for the Yuzu® eTextbook platform ($9 million), and
recorded a non-recurring other than temporary loss related to an
investment held at cost ($3 million).
Use of
Non-GAAP Financial Information - Adjusted EBITDA To
supplement the Company’s 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 measure of
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).
The Company’s management reviews this non-GAAP measure internally
to evaluate the Company’s performance and manage its operations.
The Company believes that the inclusion of Adjusted EBITDA results
provides investors useful and important information regarding the
Company’s operating results. The non-GAAP measure included in the
Press Release attached hereto as Exhibit 99.1 has been reconciled
to the comparable GAAP measure as required under Securities and
Exchange Commission (the “SEC”) rules regarding the use of non-GAAP
financial measures. The Company urges investors to carefully review
the GAAP financial information included as part of the Company’s
Prospectus dated July15, 2015 and filed with the SEC on that date,
which includes consolidated financial statements for each of the
three years for the period ended May 2, 2015 (fiscal 2015, fiscal
2014 and fiscal 2013), the quarterly earnings release for the
period ended August 1, 2015 included as part of the Company's Form
8-K dated September 9, 2015 and filed with the SEC on that date,
the Company's Quarterly Report on Form 10-Q for the period ended
August 1, 2015 filed with the SEC on September 10, 2015, and the
Company's Quarterly Report on Form 10-Q for the period ended
October 31, 2015 filed with the SEC on December 9, 2015.
BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES
Earnings Per Share (In thousands, except per share
data) (Unaudited)
13 weeks ended 39 weeks
ended January 30, 2016 January 31, 2015
January 30, 2016 January 31, 2015 Numerator for
basic earnings per share: Net (loss) income $ (3,603 ) $ 8,650
$ 2,880 $ 19,388 Accretion of dividends on preferred stock - (5,192
) - (6,077 ) Less allocation of earnings to participating
securities - (83 ) (9 ) (335 )
Net (loss) income available to common shareholders $ (3,603 ) $
3,375 $ 2,871 $ 12,976
Numerator for
diluted earnings per share: Net (loss) income available to
common shareholders $ (3,603 ) $ 3,375 $ 2,871 $ 12,976 Accretion
of dividends on preferred stock (a) - - - - Allocation of earnings
to participating securities - 83 9 335 Less diluted allocation of
earnings to participating securities - (83 )
(9 ) (334 ) Net (loss) income available to common
shareholders $ (3,603 ) $ 3,375 $ 2,871 $ 12,977
Denominator for basic (loss) earnings per
share: Basic weighted average common shares (b) 48,088
38,924 45,907 37,955
Denominator for diluted earnings per share:
(b) (c) Basic weighted average common shares 48,088 38,924
45,907 37,955 Average dilutive restricted stock units - - 247 -
Average dilutive options - 46 19
43 Diluted weighted average common shares
48,088 38,970 46,173
37,998
Earnings per common
share: Basic $ (0.07 ) $ 0.09 $ 0.06 $ 0.34
Diluted $ (0.07 ) $ 0.09 $ 0.06 $ 0.34
(a) The dilutive effect of the accretion of preferred
membership interests for fiscal year 2015 were excluded from the
calculation of earnings per share using the two-class method
because the effect would be antidilutive. (b) For periods
prior to the Spin-Off from Barnes & Noble on August 2, 2015,
Basic earnings per share and weighted-average basic shares
outstanding are based on the number of shares of Barnes & Noble
common stock outstanding as of the end of the period, adjusted for
an assumed distribution ratio of 0.632 shares of our Common Stock
for every one share of Barnes & Noble common stock held on the
record date for the Spin-Off. (c) For periods prior to the
Spin-Off from Barnes & Noble on August 2, 2015, Diluted
earnings per share and weighted-average diluted shares outstanding
reflect potential common shares from Barnes & Noble equity
plans in which our employees participated based on the distribution
ratio.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160308005957/en/
Barnes & Noble Education, Inc.Media:Carolyn J. Brown, 908-991-2967Vice
President, Corporate Communicationscbrown@bned.comorInvestors:Thomas Donohue, 908-991-2966Vice
President, Treasurer and Investor Relationstdonohue@bned.com
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