Barnes & Noble Education: 3Q Results Show COVID Impact

Barnes & Noble Education reported their third quarter results on March 9th, showing a predictable decrease in revenues due to Covid.  Third quarter sales ($411MM) were off 18% versus 2020 which contributed to a year to date negative revenue ($1,211MM) variance of 24%.  EBITDA for the period showed a loss of $(48)MM versus $(1.7)MM in 2020. The year to date loss is $(87)MM versus income of $2.1 in 2020.  The company indicated they took a write down of $27MM for store fixtures.

It is worth noting that revenue results for 3Q 2020 were off 8% for the quarter and 6% year to date versus 2019 showing that the COVID impact has been significantly worse in recent periods.  In the 2019 3Q filing, revenues for the quarter were $550mm which indicates revenue has fallen $140mm over two years.  Year to date revenues in 2019 were $1.6B versus $1.2B in 2021.

(See Follett release below).

As this chart shows however, recent investors might be happy with share performance:

 

Additional details from their press release: 

Operational highlights for the third quarter 2021:

•Entered into a long-term strategic omnichannel merchandising partnership with FLC, forging an alliance with the two online and offline leaders in the licensed sports and emblematic merchandise category. Under the terms of the agreement, Fanatics and Lids together made a $15 million strategic equity investment in BNED

•BNC First Day® year-over-year revenue increased 107%, benefiting from the accelerated move to digital courseware.

•Reached agreements with 31 campus stores to date, which includes new business accounts, to support the BNC First Day® Complete program in Fall Term 2021, representing over 160,000 in total undergraduate enrollment; up from 12 campus stores and 43,000 in total undergraduate enrollment in Fall Term 2020.

•Continue to work with a significant number of additional campuses to secure agreements to launch First Day Complete for Fall Term 2021.

•Gained over 210,000 gross subscribers for the bartleby® suite of services year to date, with DSS revenue increasing 11.8% for the same period.

•Announced agreement with Wolfram|Alpha to develop a math solver as a new feature in the Company’s bartleby suite of solutions. Powered by Wolfram|Alpha’s best-in-class computation engine, the math solver will allow students to access an interactive digital calculator that provides real-time, step-by-step explanations for even the most advanced math problems.

•Continued to attract new clients and generate new business growth, signing over $84 million in net new business to date this fiscal year and expanding BNED’s footprint by 54 BNC institutions and 31 K-12 schools.

 

Related news from Higher Ed retailer Follett:  Web Sales Show Rapid Growth

ABA: Bookseller Video Montage: Dealing with COVID

 

 

 

Also an hour program from WGBH (Boston) about how independent bookstores are dealing with COVID-19

https://www.wgbh.org/news/local-news/2020/12/05/saving-bookstores-how-independent-shops-cope-against-covid-and-e-commerce-giants

Barnes & Noble Education Reports Full Year. Standstill Agreement with Key Investor

Two important news stories related to the performance and future of Barnes & Noble Education this week.

Firstly, the company reported their full year results and, no surprise, the business performance was much below 2019.  From their press release:

Financial results for the fourth quarter and fiscal year 2020:

• Consolidated fourth quarter sales of $256.9 million decreased 23.2% as compared to the prior year period; fiscal year 2020 consolidated sales of $1,851.1 million decreased 9.0% as compared to the prior year.
• Consolidated fourth quarter GAAP net loss was $(40.3) million, compared to a net loss of $(46.2) million in the prior year period. Consolidated fiscal year 2020 GAAP net loss was $(38.3) million, compared to a net loss of $(24.4) million in the prior year.
• Consolidated fourth quarter non-GAAP Adjusted EBITDA loss was $(20.7) million, compared to non-GAAP Adjusted EBITDA of $19.7 million in the prior year; fiscal year 2020 consolidated non-GAAP Adjusted EBITDA was $42.2 million, compared to non-GAAP Adjusted EBITDA of $104.9 million in the prior year.
• Consolidated fourth quarter non-GAAP Adjusted Earnings was $(28.1) million, compared to non-GAAP Adjusted Earnings of $0.5 million in the prior year period; fiscal year 2020 consolidated non-GAAP Adjusted Earnings was $(21.1) million, compared to non-GAAP Adjusted Earnings of $25.4 million in the prior year.

Operational highlights for the fiscal year 2020:

• Progressed on the execution of a number of strategic initiatives; all of which remained on target prior to the onset of the COVID-19 pandemic, which has accelerated the demand and need to scale such key initiatives.
• Continued to drive subscriptions for the Company’s bartleby® suite of solutions, gaining more than 170,000 subscribers in fiscal year 2020, representing over 200% growth over fiscal year 2019 new subscribers.
• Achieved a six-fold increase in fiscal year 2020 bartleby revenue versus prior year; bartleby peak Spring traffic increased over 10x year-over-year and almost 3x versus peak Fall traffic.
• Completed initial build of the Company’s next generation eCommerce platform; recently executed selective launch with expected further roll-out throughout fiscal year 2021 to grow increased high-margin general merchandise sales.
• Continued to grow the BNC First Day® inclusive access programs, with revenue increasing 91% year-over-year.
• Increased adoption of BNC First Day Complete, with eleven campus partners utilizing the complete access model in the upcoming Fall Term 2020, increasing from four in fiscal year 2020.
• Continued to win new business for both physical and virtual bookstores, including the University of Nevada, Reno, Western Kentucky University, Front Range Community College and The City Colleges of Chicago.
• Provided valuable solutions to schools to help mitigate the COVID-19 on-campus learning disruption utilizing BNED’s virtual store offerings and course material fulfillment capabilities, its BNC First Day offering, and its digital bartleby offerings to help students continue to perform while studying remotely.

COVID-19 impacts on bookstore sales were particularly acute in the final quarter with same store sales of $238.5 million for the quarter, declining $81.4 million, or 25.4%, as compared to the prior year period, with comparable store sales decreasing 34.7%. Retail non-GAAP Adjusted EBITDA was $(13.0) million for the quarter, compared to $29.1 million in the prior year period.

While the company is excited about their online subscription study tools and products, the revenue base is still low versus the overall company. 2020 full year DSS revenues of $24mm were 10% higher versus 2019 but saw a 21% increase in the 4th quarter which could bode well for future growth during the COVID period.  However, any suggestion this line item compensates for the decline in retail sales in the short to medium term would be misguided.

Later in the week, the company also announced they have reached a cooperation agreement with Outerbridge Investment LLC a key investor which will result in Outerbridge placing board members on the B&N Education board.  From the press release:

Pursuant to the cooperation agreement, Outerbridge will vote all of its shares in favor of all the persons nominated by the Board to serve as directors of the Company at the 2020 Annual Meeting, which will include Mr. Robinson. Additionally, pursuant to the agreement, the Company has agreed to nominate Zachary Levenick as a director candidate for election at the 2020 Annual Meeting. Outerbridge has also agreed to abide by certain customary standstill provisions. The full agreement between BNED and Outerbridge will be filed in a Form 8-K with the U.S. Securities and Exchange Commission.

“We have engaged in a constructive dialogue with BNED over the past year and are pleased to have reached this agreement in support of BNED’s future,” said Rory Wallace, Chief Investment Officer of Outerbridge. “With its unique set of offerings that serve digital, virtual and in-person education, and its highly differentiated retail business, BNED has a special opportunity not only to deliver value to its shareholders and to all stakeholders in the higher education system, but to help shape the future of the industry by stepping forward in this time of disruption. The Company has demonstrated its ability to manage expenses and liquidity while simultaneously growing bartleby^® and its inclusive access offerings, First Day^® and First Day Complete at an impressive, and accelerating, rate. We remain deeply committed to BNED, which we believe to be an investment opportunity with tremendous standalone and strategic value, and are excited to continue our engagement with management and the Board as we pursue our common goal of enhancing shareholder value.”

Morgan Stanley & Co. is acting as financial advisor to the Company and Gibson, Dunn & Crutcher LLP is acting as legal counsel to the Company. Olshan Frome Wolosky LLP is acting as legal counsel to Outerbridge.

Earlier in 2020, the company enacted a short term shareholder rights plan otherwise known as a poison pill defence to ward off unwanted suitors.  (Press Release)

BNED is trending higher over the past six months but remains significantly below its 52 week high.