Barnes & Noble Education, Inc. — Fiscal 2024 Third-Quarter Form 10-Q
Business context and reporting period
BNED operates college, university and K-12 physical and virtual bookstores, textbook wholesale and inventory-management businesses. It operated 1,272 stores and served more than 5.8 million students at January 27, 2024. The filing covers the 13 and 39 weeks ended January 27, 2024, compared with January 28, 2023. Results are highly seasonal, with the second and third fiscal quarters typically generating the highest textbook-related sales.
The Digital Student Solutions segment was sold on May 31, 2023 for net cash proceeds of approximately $20.0 million and is presented as discontinued operations. BNED now reports Retail and Wholesale segments, with unallocated costs classified as Corporate Services.
Financial performance and key metrics
| Metric | 13 weeks ended Jan. 27, 2024 | 13 weeks ended Jan. 28, 2023 | 39 weeks ended Jan. 27, 2024 | 39 weeks ended Jan. 28, 2023 |
|---|---|---|---|---|
| Total sales | $456.7 million | $438.1 million | $1,331.2 million | $1,301.4 million |
| Gross profit | $100.0 million | $97.0 million | $286.9 million | $291.2 million |
| Gross margin | 21.9% | 22.1% | 21.6% | 22.4% |
| Operating income (loss) | $0.9 million | $(15.1) million | $(5.0) million | $(32.0) million |
| Net loss from continuing operations | $(9.9) million | $(22.1) million | $(35.0) million | $(48.3) million |
| Total net loss | $(9.6) million | $(25.0) million | $(35.8) million | $(55.6) million |
| Adjusted EBITDA, continuing operations | $20.3 million | $5.2 million | $43.7 million | $10.0 million |
Product sales and other revenue increased 5.5% in the quarter and 2.7% year to date, while rental income declined 6.8% and 3.2%, respectively. BNC First Day revenue increased 52% to $184.0 million in the quarter and 44% to $445.1 million year to date. First Day Complete was used by 160 campus stores in Spring 2024, covering estimated enrollment of approximately 805,000 students.
Selling and administrative expense declined 13.2% in the quarter and 13.5% year to date, reflecting cost-reduction initiatives. Interest expense increased 54% in the quarter to $10.6 million and 88% year to date to $29.5 million, including substantially higher amortization of deferred financing costs. The company recorded $5.8 million of non-cash impairment expense and $3.4 million of restructuring charges in the quarter; year-to-date amounts were $5.8 million and $12.3 million, respectively.
Cash flow, liquidity and debt
- Cash flow used in operating activities from continuing operations was $83.2 million for the 39 weeks, compared with $21.2 million used in the prior-year period.
- Free cash flow, a non-GAAP measure, was negative $114.6 million, compared with negative $40.8 million.
- Capital expenditures were $11.5 million, down from $21.7 million.
- Cash, cash equivalents and restricted cash totaled $15.0 million at January 27, 2024, including $6.9 million of restricted cash. Unrestricted cash and cash equivalents were $8.1 million.
- Total debt was $254.3 million net of deferred financing costs, consisting principally of $224.1 million under the asset-backed Credit Facility and $31.8 million under the Term Loan.
- The Credit Facility matures December 28, 2024; the Term Loan matures April 7, 2025 and bears interest at 11.25%, with interest permitted to be paid in kind through September 2, 2024.
- Accounts receivable were $315.1 million and inventories were $386.1 million, including merchandise and textbook rental inventories.
Management stated that losses, projected cash needs, current liquidity and the Credit Facility maturity raise substantial doubt about BNED’s ability to continue as a going concern. The company’s ability to continue depends on raising additional liquidity and implementing further restructuring and cost-saving actions. BNED stated it was in compliance with debt covenants as of January 27, 2024 and through the filing date.
Material changes, outlook and risks
- Operating results improved materially because of First Day program growth and cost reductions, but gross margin declined year to date and higher financing costs continue to offset operating gains.
- BNED opened 41 stores and closed 135 stores during the 39 weeks, with estimated net annual sales reduction of approximately $65 million, as it exited underperforming stores and contracts lost to competitors.
- Management reported annualized savings of approximately $30 million to $35 million from Fiscal 2023 initiatives and targeted approximately $25 million of additional Fiscal 2024 savings, of which approximately $18 million had been achieved by January 27, 2024.
- The Board continues to review strategic alternatives, including capital raises, asset divestitures, a sale of the business and standalone growth. No transaction or outcome was assured.
- After quarter-end, BNED received an $8.5 million tax refund on February 16, 2024 and expected additional refunds of approximately $2.4 million. On March 12, 2024, it amended the Credit Agreement to establish liquidity and refinancing milestones requiring a binding commitment by April 3, 2024, subject to a possible extension to April 10, 2024.
- On February 27, 2024, the NYSE notified BNED that its common stock had traded below the $1.00 minimum closing bid-price requirement for 30 consecutive business days. BNED has a six-month cure period and may pursue a reverse stock split, but delisting remains a risk.
- Key operating risks include dependence on refinancing or additional capital, borrowing-base and covenant restrictions, delayed collections from schools under First Day programs, competition from digital platforms and publishers, enrollment and store-contract trends, supplier and used-textbook availability, cybersecurity, regulatory changes affecting equitable-access programs, and reliance on Fanatics and Lids.
Most important facts for investors to verify
- Whether BNED secures sufficient liquidity or refinancing before the December 28, 2024 Credit Facility maturity and satisfies the lender milestones.
- Whether First Day adoption and revenue growth continue to offset declining a la carte, rental and closed-store sales without further margin deterioration.
- Whether operating cash flow improves as school receivables are collected and inventory and vendor-payment pressures normalize.
- The terms and potential dilution, collateral impact or control consequences of any capital raise, asset sale, refinancing or strategic transaction.
- Whether BNED cures the NYSE minimum-price deficiency within the applicable period and avoids suspension or delisting.
- The sustainability of reported Adjusted EBITDA improvements after excluding impairment, restructuring and financing-related items.