Barnes & Noble Education, Inc. — Form 10-K Summary
Reporting period: Fiscal 2021, the 52 weeks ended May 1, 2021, compared primarily with Fiscal 2020, the 53 weeks ended May 2, 2020. The request references “2020 Q4,” but the provided filing is an annual Form 10-K for Fiscal 2021. Results were materially affected by COVID-19 and are not fully comparable with the prior period.
Business context
BNED operates 1,417 physical and virtual college, university, and K-12 bookstores, a wholesale textbook and bookstore technology business, and direct-to-student digital education services through its Retail, Wholesale, and Digital Student Solutions segments. The company serves more than 6 million students.
- Retail: 769 physical and 648 virtual bookstores at year-end.
- Wholesale: textbook distribution and inventory-management hardware and software serving approximately 3,300 physical bookstores and approximately 400 bookstore technology customers.
- Digital Student Solutions: Student Brands and bartleby subscription-based writing, tutoring, textbook solution, and study services.
Financial performance
| Metric | Fiscal 2021 | Fiscal 2020 | Change |
|---|---|---|---|
| Total sales | $1,433.9 million | $1,851.1 million | Down 22.5% |
| Gross profit | $252.7 million | $442.5 million | Down 42.9% |
| Gross margin | 17.6% | 23.9% | Down 630 basis points |
| Operating loss | $(176.2) million | $(42.8) million | Worsened by $133.4 million |
| Net loss | $(131.8) million | $(38.3) million | Worsened by $93.5 million |
| Loss per diluted share | $(2.65) | $(0.80) | Worsened by $1.85 |
| Adjusted EBITDA | $(65.6) million | $42.2 million | Down $107.8 million |
| Free cash flow | $(115.6) million | $3.3 million | Down $118.9 million |
Product sales and other revenue declined 22.2% to $1,299.7 million, while rental income declined 25.4% to $134.2 million. Cost of sales rose to 82.4% of sales from 76.1%, reflecting lower volume, unfavorable product mix, markdowns, and inventory charges.
- Retail sales declined 22.3% to $1,330.5 million; comparable-store sales declined 26.1%.
- Wholesale sales declined 16.4% to $165.8 million.
- DSS sales increased 15.7% to $27.4 million, primarily due to higher bartleby subscription sales.
- First Day inclusive-access revenue increased 94% year over year.
- More than 300,000 new customers paid for bartleby products and services, representing 70% growth from Fiscal 2020.
Cash flow, liquidity, debt, and balance sheet
- Operating cash flow was $32.9 million, compared with $(8.7) million in Fiscal 2020. The improvement was primarily supported by $41.8 million of proceeds from the sale of logo and emblematic merchandise inventory to FLC and working-capital changes.
- Capital expenditures were $37.2 million, including $11.7 million for product and system development and $8.7 million for content development.
- Cash and cash equivalents were $8.0 million; cash, cash equivalents, and restricted cash totaled $16.8 million at year-end.
- Total borrowings were $177.6 million, consisting of $127.6 million under the asset-backed Credit Facility and $50.0 million under the FILO Facility.
- The Credit Facility has aggregate commitments of $400 million, with an option to request up to $100 million of additional commitments; the FILO Facility provides up to $100 million of seasonal capacity.
- Total liabilities were $737.4 million and stockholders’ equity was $301.0 million.
- Contractual obligations totaled $549.7 million, including $320.8 million of lease obligations and $202.6 million of Credit Facility and FILO obligations.
- Management stated that cash flows, borrowing availability, and vendor financing should fund normal operating and debt-service needs for the foreseeable future, but noted that future financing access is not assured.
Material changes versus the prior comparable period
- COVID-19 caused campus closures, reduced campus traffic, remote learning, lower enrollment, fewer athletic events, and weaker general merchandise demand.
- Retail comparable sales fell $414.6 million, including declines of 15.2% in course materials, 45.9% in general merchandise, and 64.3% in trade books.
- Retail adjusted EBITDA declined from $36.2 million to $(66.8) million. Wholesale adjusted EBITDA declined from $21.6 million to $18.6 million, while DSS adjusted EBITDA increased from $3.4 million to $4.5 million.
- Gross margin was reduced by a $15.0 million merchandise inventory loss and write-off, including a $10.3 million loss on the sale of logo merchandise to FLC and a $4.7 million write-off related to exiting or rationalizing certain product offerings.
- The company recorded a $27.6 million non-cash impairment charge on certain Retail store-level long-lived assets, compared with a $0.4 million impairment charge in Fiscal 2020.
- Restructuring and other charges were $10.0 million, primarily for severance, professional services, process improvements, and Fanatics/FLC-related costs, versus $18.6 million in Fiscal 2020.
- In December 2020, Fanatics and Lids purchased 2.3 million BNED treasury shares for $15.0 million, or $6.50 per share. BNED also entered into a merchandising partnership with Fanatics and FLC, which began shifting logo merchandise sales to a commission-based, net-revenue model in April 2021.
- BNED signed 98 new physical and virtual bookstore contracts with estimated first-year sales of approximately $103 million and generated $77 million of net new business after store closures and contract losses.
Guidance, outlook, risks, and unusual items
Management did not provide specific numerical earnings or revenue guidance in the filing. Management expected most schools to return to traditional on-campus learning and athletic activities in the upcoming fall semester, but emphasized substantial uncertainty regarding COVID-19 variants, enrollment, university budgets, athletics, and the pace of recovery.
- Strategic priorities include expanding inclusive-access and digital offerings, growing e-commerce and general merchandise through the Fanatics/FLC partnership, pursuing new bookstore accounts, and achieving cost savings from operational restructuring.
- Key risks include renewed campus closures, declining enrollment, competition from publishers and online platforms, price pressure, reduced used-textbook supply, loss or non-renewal of bookstore contracts, inventory obsolescence, supplier concentration, cybersecurity and privacy incidents, and limited access to capital.
- The Credit Facility contains borrowing, availability, fixed-charge coverage, cash-control, and other covenant provisions. BNED reported compliance with all covenants as of May 1, 2021.
- A $30.5 million current income-tax receivable was recorded for CARES Act net operating loss carrybacks. A further portion of the $25.3 million long-term LIFO-related tax liability could become payable within 12 months, but the timing and amount were not reasonably estimable.
- Antitrust class actions concerning inclusive access and course-material sales were dismissed with prejudice on June 14, 2021. The company stated that an appeal could be pursued and that potential losses could not be estimated.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. Critical audit matters were the non-returnable inventory reserve and long-lived asset impairment.
Investor verification checklist
- Verify the company’s post-pandemic comparable-store sales, enrollment exposure, and return to on-campus operations.
- Assess whether First Day, bartleby, and other digital initiatives can offset declines in physical textbook and general merchandise revenue while improving margins.
- Review the Fanatics/FLC partnership’s impact on reported revenue mix, commission economics, inventory ownership, and working capital.
- Monitor liquidity, seasonal borrowing under the FILO Facility, covenant headroom, and the required July 31 repayment mechanics.
- Evaluate the sustainability of cost reductions and whether additional impairment, restructuring, or inventory charges may be required.
- Track the resolution or appeal of the dismissed antitrust litigation and any related financial exposure.
- Reconcile GAAP results with management’s non-GAAP Adjusted EBITDA and Free Cash Flow, particularly the treatment of inventory losses, impairment, restructuring, and content amortization.