Barnes & Noble Education, Inc. — Fiscal 2023 Form 10-K Summary
Reporting period: Fiscal year ended April 29, 2023 (52 weeks). The filing is an annual Form 10-K, not a quarterly filing; the requested “2022 Q4” period does not match the filing period. Fiscal 2022 comparable period ended April 30, 2022.
Business context
BNED operates college, university, and K-12 bookstores, textbook wholesale and fulfillment operations, point-of-sale and inventory-management systems, and digital education solutions. At year-end, the company operated 774 physical and 592 virtual bookstores, serving more than 6 million students. Continuing operations comprise the Retail and Wholesale segments, with unallocated Corporate Services costs.
The Digital Student Solutions segment was classified as held for sale and discontinued operations during the fourth quarter of Fiscal 2023. BNED completed its sale on May 31, 2023 for approximately $20 million of net cash proceeds.
Financial performance
| Metric | Fiscal 2023 | Fiscal 2022 | Change |
|---|---|---|---|
| Total sales | $1,543.2 million | $1,495.7 million | Up 3.2% |
| Gross profit | $349.4 million | $342.8 million | Up 1.9% |
| Gross margin | 22.6% | 22.9% | Down 30 bps |
| Operating loss | $(66.4) million | $(60.6) million | Loss increased |
| Net loss from continuing operations | $(90.1) million | $(61.6) million | Loss increased |
| Net loss, including discontinued operations | $(101.9) million | $(68.9) million | Loss increased |
| Basic and diluted loss per share | $(1.94) | $(1.33) | Loss increased |
| Adjusted EBITDA, continuing operations | $(8.1) million | $(10.3) million | Improved by $2.2 million |
- Revenue mix: Product sales and other revenue increased 3.2% to $1,406.7 million; rental income increased 2.4% to $136.6 million.
- Retail: Sales increased 3.6% to $1,491.7 million. Course-material sales increased 1.8% to $927.9 million, while general-merchandise sales increased 11.1% to $385.5 million.
- Wholesale: Sales declined 5.2% to $106.4 million, reflecting lower demand for physical textbooks, a shift toward digital products, and higher returns and allowances.
- First Day programs: Total revenue increased 48% to approximately $347 million. First Day Complete sales increased 88% to $198 million, and First Day sales increased 15% to $149 million.
- Comparable sales: Retail gross comparable sales increased 3.2%; comparable general-merchandise sales increased 8.6%, while comparable textbook sales increased 0.4%.
- Expenses: Selling and administrative expenses increased 1.0% to $357.6 million. Interest expense increased 125% to $22.7 million because of higher borrowings and interest rates.
- Unusual charges: BNED recorded $6.0 million of non-cash impairment charges and $10.1 million of restructuring and other charges, compared with $6.4 million and $0.9 million, respectively, in Fiscal 2022.
Cash flow, liquidity, and debt
- Cash flow from continuing operating activities was $90.5 million, compared with $(16.2) million in Fiscal 2022. Management attributed the improvement primarily to accounts-receivable collections, timing of vendor payments, lower right-of-use payments, and tax refunds.
- Free cash flow, a non-GAAP measure, was $62.4 million, compared with $(49.9) million in Fiscal 2022. It reflects $25.1 million of capital expenditures, $19.0 million of cash interest, and a $16.0 million net cash tax refund.
- Capital expenditures declined to $25.1 million from $33.6 million.
- Cash and cash equivalents totaled $14.2 million at April 29, 2023. Including restricted cash of $16.7 million, continuing-operations cash, cash equivalents, and restricted cash totaled $30.9 million.
- Total debt was $182.2 million, consisting of $154.2 million under the asset-backed Credit Facility and $30.0 million under the Term Loan, net of $2.0 million of deferred financing costs. The $40.0 million FILO seasonal facility was repaid in Fiscal 2023.
- Accounts payable increased to $267.9 million from $182.6 million, reflecting delayed vendor and other payments associated with reduced borrowing-base availability.
- Management stated that losses, projected cash needs, and liquidity constraints initially raised substantial doubt about the company’s ability to continue as a going concern. Management concluded that subsequent debt amendments, the DSS sale, and operational restructuring plans were sufficient to alleviate that substantial doubt for at least twelve months from the financial-statement issuance date.
Material changes versus Fiscal 2022
- Sales grew modestly as campus traffic and activities normalized, but profitability deteriorated because of higher interest expense, restructuring charges, impairment charges, and margin pressure.
- Retail performance improved, aided by First Day programs, higher general merchandise sales, improved used-textbook availability, and greater campus activity.
- Wholesale sales and gross margin declined as customers shifted from physical textbooks to digital products and as returns and markdowns increased.
- The store portfolio contracted from 1,427 to 1,366 locations after 66 openings and 127 closures; management stated that closures included underperforming and satellite stores.
- Inventory increased to $353.3 million from $323.5 million, while total assets declined to $980.8 million from $1.07 billion and stockholders’ equity declined to $130.8 million from $228.4 million.
- BNED implemented a cost-reduction program that generated approximately $17 million of Fiscal 2023 savings. Management expected annualized Fiscal 2024 savings of $30 million to $35 million and planned approximately $25 million of additional capital-expenditure and cost reductions.
- Net revenue presentation for logo and emblematic merchandise remains affected by the Fanatics/Lids partnership: BNED records commission revenue on a net basis rather than merchandise sales on a gross basis.
Guidance, outlook, risks, and unusual items
- Management planned to move many institutions to First Day Complete in Fiscal 2024 and the majority of stores by Fiscal 2025, but cautioned that adoption targets may not be achieved.
- Management expected long-term growth in gross general-merchandise sales through expanded assortments, e-commerce capabilities, and the Fanatics/Lids partnership.
- On July 28, 2023, the Credit Facility maturity was extended to December 28, 2024, and the Term Loan maturity was extended to April 7, 2025. The amendments added or modified availability and minimum-EBITDA requirements, permitted payment-in-kind interest on the Term Loan through September 2, 2024, and required the appointment of a Chief Restructuring Officer and exploration of strategic liquidity alternatives.
- The primary financial risks are liquidity and covenant compliance, dependence on seasonal borrowing and vendor financing, continued operating losses, high debt service costs, and reliance on successful debt amendments and strategic transactions.
- Other material risks include lower college enrollment, price-sensitive consumers, digital disintermediation, textbook supply and inventory obsolescence, contract losses or cancellations, labor and shipping costs, cybersecurity and data-privacy exposure, reliance on VitalSource, Fanatics and Lids, and the lingering effects of COVID-19.
- The company reported no material unresolved staff comments and received unqualified audit opinions on its financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether the company can maintain required availability and minimum-EBITDA levels under the amended Credit Facility and avoid further covenant waivers or amendments.
- The actual post-filing liquidity position, borrowing-base availability, vendor-payment status, and use of the DSS sale proceeds.
- Progress toward the stated $30 million to $35 million of annualized cost savings and approximately $25 million of additional reductions.
- First Day Complete adoption, revenue growth, margins, cash-collection timing, opt-out rates, and the effect of school payment terms on working capital.
- Whether continuing operations can reach positive operating income and EBITDA after excluding restructuring and impairment charges.
- The sustainability of Retail comparable-sales growth and the effect of store closures, lower enrollment, and digital textbook adoption.
- The company’s strategic liquidity alternatives and any resulting equity dilution, asset sales, refinancing, or changes in control.
- The realizability of tax refunds, deferred tax assets, inventory reserves, and long-lived-asset carrying values.