Barnes & Noble Education, Inc. — Fiscal 2022 Form 10-K Summary
Reporting period: The filing is an annual report for the 52 weeks ended April 30, 2022, with comparison to the 52 weeks ended May 1, 2021. It does not represent a standalone “2021 Q4” filing. BNED operates Retail, Wholesale and Digital Student Solutions (DSS) segments, serving more than 6 million students through 1,427 physical and virtual bookstores.
Financial performance and liquidity
| Metric | Fiscal 2022 | Fiscal 2021 | Change |
|---|---|---|---|
| Total sales | $1,531.4 million | $1,433.9 million | Up 6.8% |
| Gross profit | $372.8 million | $252.7 million | Up 47.5% |
| Gross margin | 24.3% | 17.6% | Up 670 basis points |
| Operating loss | $67.4 million | $176.9 million | Improved by $109.5 million |
| Net loss | $68.9 million | $139.8 million | Improved by $70.9 million |
| Adjusted EBITDA | $(4.8) million | $(65.6) million | Improved by $60.8 million |
| Operating cash flow | $2.1 million | $32.9 million | Down $30.8 million |
| Capital expenditures | $43.5 million | $37.2 million | Up $6.3 million |
| Free cash flow | $(41.6) million | $(17.1) million | Lower by $24.5 million |
Product sales and other revenue increased 7.6% to $1,398.0 million, while rental income declined 0.6% to $133.4 million. Retail sales increased 8.2% to $1,439.7 million, DSS sales increased 30.3% to $35.7 million, and Wholesale sales declined 32.3% to $112.2 million.
Retail course-material sales increased 8.1% to $710.7 million and general-merchandise sales increased 11.8% to $558.8 million. First Day and First Day Complete revenue increased 91% to $234.2 million. Retail gross comparable-store sales increased 19.6%, including a 2.3% increase in course materials and a 76.1% increase in general merchandise.
Cash, cash equivalents and restricted cash totaled $21.9 million at year-end, including $10.4 million of unrestricted cash and $11.5 million of restricted cash. Total borrowings were $225.7 million, consisting of $185.7 million under the revolving Credit Facility and $40.0 million under the FILO Facility. Total liabilities were $843.2 million against total assets of $1.0716 billion and stockholders’ equity of $228.4 million.
Material changes versus the prior comparable period
- Results benefited from the reopening of stores that had been temporarily closed during the pandemic, although lower enrollment, remote and hybrid learning, and Omicron-related disruptions continued to affect demand.
- Gross margin improved substantially because of favorable Retail sales mix, higher margin rates, lower markdowns and lower inventory-related losses. Fiscal 2021 included a $15.0 million merchandise inventory loss and write-off; Fiscal 2022 included $0.4 million.
- Retail operating loss improved to $37.3 million from $155.3 million. Wholesale operating income declined to $0.5 million from $14.7 million, while DSS operating loss improved to $6.8 million from $8.1 million.
- The Fanatics/Fanatics Lids College partnership changed the presentation of logo and emblematic merchandise revenue from gross sales to net commission revenue beginning April 4, 2021, reducing reported revenue comparability.
- First Day Complete was offered through 76 campus bookstores for the Spring 2022 term, compared with 14 in the prior year. BNED added 92 stores and closed 82 stores, ending with 805 physical and 622 virtual stores.
- The Fiscal 2021 financial statements were restated. The restatement increased Fiscal 2021 net loss by $8.0 million, primarily due to deferred-tax valuation allowance and restructuring adjustments, without affecting cash flows or Adjusted EBITDA.
Outlook, commentary, risks and unusual items
Management expects long-term growth from inclusive-access programs, digital education solutions, expanded e-commerce, new bookstore accounts, strategic partnerships and the Fanatics/FLC merchandising relationship. The filing does not provide quantified Fiscal 2023 revenue, earnings or cash-flow guidance.
- COVID-19 remained a material source of uncertainty, affecting campus activity, enrollment, store traffic, supplier operations, labor availability and the timing of sales.
- Management expects continued pressure from declining higher-education enrollment, especially at community colleges and among international students; price-sensitive consumers; digital disintermediation; publisher direct-to-student models; and changes in textbook formats.
- Supply-chain constraints, limited used-textbook buyback activity, publisher consignment programs and inventory obsolescence may pressure revenue, margins and liquidity.
- BNED recorded a $6.4 million non-cash impairment charge in Fiscal 2022, compared with $27.6 million in Fiscal 2021, and $0.9 million of restructuring and other charges, compared with $10.7 million in Fiscal 2021.
- On June 7, 2022, after year-end, BNED entered into a $30.0 million term loan bearing interest at 11.25% and maturing June 7, 2024. On June 28, 2022, lenders provided limited waivers relating to potential defaults arising from the Fiscal 2021 restatement.
- The company reported a material weakness in internal control over financial reporting related to the precision of management’s review of the deferred-tax-asset valuation allowance. Management and Ernst & Young concluded that internal controls were not effective as of April 30, 2022.
- BNED stated that it was in compliance with its Credit Facility covenants at year-end and believed available cash, operating cash flow, credit facilities and vendor financing would support foreseeable operating and financing needs; however, it cautioned that additional financing may be required if funds are insufficient.
- Legal matters arise in the ordinary course, but management does not believe pending matters are reasonably likely to have a material adverse effect. The filing notes that legal outcomes remain inherently uncertain.
Most important facts for investors to verify
- Whether the return to campus and enrollment trends sustain Retail sales and improve profitability.
- The economic contribution, revenue presentation and margin impact of First Day, First Day Complete and other digital offerings.
- Wholesale inventory availability, textbook returns, publisher consignment arrangements and exposure to obsolescence.
- Cash generation relative to $43.5 million of annual capital expenditures, seasonal working-capital needs and total debt service.
- Terms, covenants, repayment requirements and interest burden of the post-year-end $30.0 million term loan and amended credit facilities.
- Progress in remediating the material weakness and whether future filings require additional restatements or valuation-allowance adjustments.
- The comparability of reported Retail revenue because logo and emblematic merchandise sales shifted from gross to net reporting under the Fanatics/FLC partnership.