BARNES & NOBLE EDUCATION, INC. | ||||
(Exact name of registrant as specified in its charter) | ||||
Delaware | 1-37499 | 46-0599018 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
120 Mountain View Blvd., Basking Ridge, NJ | 07920 | |||
(Address of principal executive offices) | (Zip Code) | |||
Registrant’s telephone number, including area code: (908) 991-2665 | ||||
Not Applicable | ||||
(Former name or former address, if changed since last report) |
□ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
□ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
□ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
□ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Exhibit No. | Description | |
99.1 | Press Release of Barnes & Noble Education, Inc., dated February 28, 2017. |
Exhibit No. | Description | |
99.1 | Press Release of Barnes & Noble Education, Inc., dated February 28, 2017. |
Media Contact: | Investor Contact: | ||
Carolyn J. Brown | Thomas Donohue | ||
Vice President | Vice President | ||
Corporate Communications | Treasurer and Investor Relations | ||
Barnes & Noble Education, Inc. | Barnes & Noble Education, Inc. | ||
(908) 991-2967 | (908) 991-2966 | ||
cbrown@bned.com | tdonohue@bned.com |
• | Third quarter sales of $521.6 million increased 0.6% as compared to the prior year period; year to date sales of $1,531.5 million increased 1.2% as compared to the prior year period. |
• | Third quarter comparable store sales decreased 4.9%; year to date comparable store sales decreased 3.6%. |
• | Third quarter GAAP net income of $3.8 million, as compared to a net loss of $(3.6) million in the prior year period; year to date net income was $5.1 million, as compared to $2.9 million in the prior year period. |
• | Third quarter non-GAAP Adjusted EBITDA of $18.8 million, a decrease of $5.4 million as compared to the prior year period; year to date non-GAAP Adjusted EBITDA of $52.7 million, a decrease of $9.0 million as compared to the prior year period. |
• | Third quarter non-GAAP Adjusted Earnings of $4.0 million, as compared to $5.8 million in the prior year period; year to date non-GAAP Adjusted Earnings of $7.8 million, as compared to $12.3 million in the prior year period. |
• | Completed expansion of price match program to remaining textbook stores. |
• | Web sales increased for textbook and general merchandise offerings, slowing the negative general merchandise trend from the fall semester. |
• | Gained traction with Barnes & Noble Education Courseware, with continued adoptions for the fall 2017 back to school selling season. |
$ in millions | 13 and 39 Weeks Selected Data (unaudited) | ||||||
13 Weeks Q3 2017 | 13 Weeks Q3 2016 | 39 Weeks 2017 | 39 Weeks 2016 | ||||
Total Sales | $521.6 | $518.4 | $1,531.5 | $1,513.3 | |||
Net Income | $3.8 | $(3.6) | $5.1 | $2.9 | |||
Non-GAAP(1) | |||||||
Adjusted EBITDA | $18.8 | $24.2 | $52.7 | $61.7 | |||
Adjusted Earnings | $4.0 | $5.8 | $7.8 | $12.3 | |||
(1) These non-GAAP financial measures have been reconciled in the attached schedules to the most directly comparable GAAP measure as required under SEC rules regarding the use of non-GAAP financial measures. |
13 weeks ended | 39 weeks ended | ||||||||||||||
January 28, 2017 | January 30, 2016 | January 28, 2017 | January 30, 2016 | ||||||||||||
Sales: | |||||||||||||||
Product sales and other | $ | 457,147 | $ | 457,126 | $ | 1,372,810 | $ | 1,359,848 | |||||||
Rental income | 64,477 | 61,297 | 158,722 | 153,422 | |||||||||||
Total sales | 521,624 | 518,423 | 1,531,532 | 1,513,270 | |||||||||||
Cost of sales: | |||||||||||||||
Product and other cost of sales | 366,190 | 361,030 | 1,098,682 | 1,073,319 | |||||||||||
Rental cost of sales | 39,509 | 36,753 | 97,998 | 92,646 | |||||||||||
Total cost of sales | 405,699 | 397,783 | 1,196,680 | 1,165,965 | |||||||||||
Gross profit | 115,925 | 120,640 | 334,852 | 347,305 | |||||||||||
Selling and administrative expenses | 97,111 | 96,453 | 282,171 | 285,557 | |||||||||||
Depreciation and amortization expense | 13,149 | 13,081 | 39,057 | 39,350 | |||||||||||
Transaction costs | 467 | 783 | 2,638 | 802 | |||||||||||
Restructuring costs (a) | — | 774 | 1,790 | 774 | |||||||||||
Impairment loss (non-cash) (a) | — | 11,987 | — | 11,987 | |||||||||||
Operating income (loss) | 5,198 | (2,438 | ) | 9,196 | 8,835 | ||||||||||
Interest expense, net | 679 | 711 | 1,975 | 1,268 | |||||||||||
Income (Loss) before income taxes | 4,519 | (3,149 | ) | 7,221 | 7,567 | ||||||||||
Income tax expense | 758 | 454 | 2,087 | 4,687 | |||||||||||
Net income (loss) | $ | 3,761 | $ | (3,603 | ) | $ | 5,134 | $ | 2,880 | ||||||
Earnings (Loss) per common share: | |||||||||||||||
Basic | $ | 0.08 | $ | (0.07 | ) | $ | 0.11 | $ | 0.06 | ||||||
Diluted | $ | 0.08 | $ | (0.07 | ) | $ | 0.11 | $ | 0.06 | ||||||
Weighted average common shares outstanding: | |||||||||||||||
Basic | 46,276 | 48,088 | 46,265 | 45,907 | |||||||||||
Diluted | 46,844 | 48,088 | 46,716 | 46,173 | |||||||||||
(a) For additional information, see Note (a) in the Non-GAAP disclosure information of this Press Release. | |||||||||||||||
Non-GAAP Disclosures: (a) | |||||||||||||||
Adjusted Earnings | $ | 4,047 | $ | 5,841 | $ | 7,848 | $ | 12,336 | |||||||
Adjusted EBITDA | $ | 18,814 | $ | 24,187 | $ | 52,681 | $ | 61,748 | |||||||
(a) For additional information, see the Non-GAAP disclosure information of this Press Release. | |||||||||||||||
13 weeks ended | 39 weeks ended | ||||||||||
January 28, 2017 | January 30, 2016 | January 28, 2017 | January 30, 2016 | ||||||||
Percentage of sales: | |||||||||||
Sales: | |||||||||||
Product sales and other | 87.6 | % | 88.2 | % | 89.6 | % | 89.9 | % | |||
Rental income | 12.4 | % | 11.8 | % | 10.4 | % | 10.1 | % | |||
Total sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||
Cost of sales: | |||||||||||
Product and other cost of sales (a) | 80.1 | % | 79.0 | % | 80.0 | % | 78.9 | % | |||
Rental cost of sales (a) | 61.3 | % | 60.0 | % | 61.7 | % | 60.4 | % | |||
Total cost of sales | 77.8 | % | 76.7 | % | 78.1 | % | 77.0 | % | |||
Gross profit | 22.2 | % | 23.3 | % | 21.9 | % | 23.0 | % | |||
Selling and administrative expenses | 18.6 | % | 18.6 | % | 18.4 | % | 18.9 | % | |||
Depreciation and amortization expense | 2.5 | % | 2.5 | % | 2.6 | % | 2.6 | % | |||
Transaction costs | 0.1 | % | 0.2 | % | 0.2 | % | 0.1 | % | |||
Restructuring costs | — | % | 0.1 | % | 0.1 | % | 0.1 | % | |||
Impairment loss (non-cash) | — | % | 2.3 | % | — | % | 0.8 | % | |||
Operating income (loss) | 1.0 | % | (0.4 | )% | 0.6 | % | 0.5 | % | |||
Interest expense, net | 0.1 | % | 0.1 | % | 0.1 | % | 0.1 | % | |||
Income (Loss) before income taxes | 0.9 | % | (0.5 | )% | 0.5 | % | 0.4 | % | |||
Income tax expense | 0.1 | % | 0.1 | % | 0.1 | % | 0.3 | % | |||
Net income (loss) | 0.8 | % | (0.6 | )% | 0.4 | % | 0.1 | % | |||
(a) Represents the percentage these costs bear to the related sales, instead of total sales. |
January 28, 2017 | January 30, 2016 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 132,061 | $ | 108,162 | |||
Receivables, net | 178,825 | 183,133 | |||||
Merchandise inventories, net | 494,032 | 542,489 | |||||
Textbook rental inventories | 67,372 | 65,757 | |||||
Prepaid expenses and other current assets | 8,134 | 5,754 | |||||
Total current assets | 880,424 | 905,295 | |||||
Property and equipment, net | 107,272 | 113,504 | |||||
Intangible assets, net | 191,628 | 190,549 | |||||
Goodwill | 281,346 | 274,070 | |||||
Other noncurrent assets | 39,233 | 33,635 | |||||
Total assets | $ | 1,499,903 | $ | 1,517,053 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 480,378 | $ | 488,984 | |||
Accrued liabilities | 207,731 | 199,655 | |||||
Total current liabilities | 688,109 | 688,639 | |||||
Long-term deferred taxes, net | 22,709 | 39,831 | |||||
Other long-term liabilities | 76,196 | 69,937 | |||||
Total liabilities | 787,014 | 798,407 | |||||
Commitments and contingencies | — | — | |||||
Stockholders' equity: | |||||||
Preferred stock, $0.01 par value; authorized, 5,000 shares; issued and outstanding, none | — | — | |||||
Common stock, $0.01 par value; authorized, 200,000 shares; issued, 48,972 and 48,294 shares, respectively; outstanding, 46,276 and 47,346 shares, respectively | 490 | 483 | |||||
Additional paid-in-capital | 706,736 | 697,662 | |||||
Retained earnings | 32,136 | 29,798 | |||||
Treasury stock, at cost | (26,473 | ) | (9,297 | ) | |||
Total stockholders' equity | 712,889 | 718,646 | |||||
Total liabilities and stockholders' equity | $ | 1,499,903 | $ | 1,517,053 |
13 weeks ended | 39 weeks ended | ||||||||||||||
January 28, 2017 | January 30, 2016 | January 28, 2017 | January 30, 2016 | ||||||||||||
Numerator for basic earnings per share: | |||||||||||||||
Net income (loss) | $ | 3,761 | $ | (3,603 | ) | $ | 5,134 | $ | 2,880 | ||||||
Less allocation of earnings to participating securities | (1 | ) | — | (3 | ) | (9 | ) | ||||||||
Net income (loss) available to common shareholders | $ | 3,760 | $ | (3,603 | ) | $ | 5,131 | $ | 2,871 | ||||||
Numerator for diluted earnings per share: | |||||||||||||||
Net (loss) income available to common shareholders | $ | 3,760 | $ | (3,603 | ) | $ | 5,131 | $ | 2,871 | ||||||
Allocation of earnings to participating securities | 1 | — | 3 | 9 | |||||||||||
Less diluted allocation of earnings to participating securities | (1 | ) | — | (3 | ) | (9 | ) | ||||||||
Net income (loss) available to common shareholders | $ | 3,760 | $ | (3,603 | ) | $ | 5,131 | $ | 2,871 | ||||||
Denominator for basic earnings per share: | |||||||||||||||
Basic weighted average common shares (a) | 46,276 | 48,088 | 46,265 | 45,907 | |||||||||||
Denominator for diluted earnings per share: (a)(b) | |||||||||||||||
Basic weighted average common shares | 46,276 | 48,088 | 46,265 | 45,907 | |||||||||||
Average dilutive restricted stock units | 512 | — | 397 | 247 | |||||||||||
Average dilutive performance shares | 52 | — | 33 | — | |||||||||||
Average dilutive restricted shares | 4 | — | 21 | — | |||||||||||
Average dilutive options | — | — | — | 19 | |||||||||||
Diluted weighted average common shares | 46,844 | 48,088 | 46,716 | 46,173 | |||||||||||
Earnings (Loss) per common share: | |||||||||||||||
Basic | $ | 0.08 | $ | (0.07 | ) | $ | 0.11 | $ | 0.06 | ||||||
Diluted | $ | 0.08 | $ | (0.07 | ) | $ | 0.11 | $ | 0.06 | ||||||
(a) For periods prior to the Spin-Off from Barnes & Noble on August 2, 2015, Basic earnings per share and weighted-average basic shares outstanding are based on the number of shares of Barnes & Noble common stock outstanding as of the end of the period, adjusted for an assumed distribution ratio of 0.632 shares of the Company's Common Stock for every one share of Barnes & Noble common stock held on the record date for the Spin-Off. | |||||||||||||||
(b) For periods prior to the Spin-Off from Barnes & Noble on August 2, 2015, Diluted earnings per share and weighted-average diluted shares outstanding reflect potential common shares from Barnes & Noble equity plans in which the Company's employees participated based on the distribution ratio. | |||||||||||||||
Adjusted Earnings | 13 weeks ended | 39 weeks ended | |||||||||||||
January 28, 2017 | January 30, 2016 | January 28, 2017 | January 30, 2016 | ||||||||||||
Net income (loss) | $ | 3,761 | $ | (3,603 | ) | $ | 5,134 | $ | 2,880 | ||||||
Reconciling items, after-tax (below) | 286 | 9,444 | 2,714 | 9,456 | |||||||||||
Adjusted Earnings (Non-GAAP) | $ | 4,047 | $ | 5,841 | $ | 7,848 | $ | 12,336 | |||||||
Reconciling items, pre-tax | |||||||||||||||
Transaction costs (a) | $ | 467 | $ | 783 | $ | 2,638 | $ | 802 | |||||||
Restructuring costs (b) | — | 774 | 1,790 | 774 | |||||||||||
Impairment loss (non-cash) (b) | — | 11,987 | — | 11,987 | |||||||||||
Reconciling items, pre-tax | 467 | 13,544 | 4,428 | 13,563 | |||||||||||
Less: Pro forma income tax impact (c) | 181 | 4,100 | 1,714 | 4,107 | |||||||||||
Reconciling items, after-tax | $ | 286 | $ | 9,444 | $ | 2,714 | $ | 9,456 | |||||||
Adjusted EBITDA | 13 weeks ended | 39 weeks ended | |||||||||||||
January 28, 2017 | January 30, 2016 | January 28, 2017 | January 30, 2016 | ||||||||||||
Net income (loss) | $ | 3,761 | $ | (3,603 | ) | $ | 5,134 | $ | 2,880 | ||||||
Add: | |||||||||||||||
Depreciation and amortization expense | 13,149 | 13,081 | 39,057 | 39,350 | |||||||||||
Interest expense, net | 679 | 711 | 1,975 | 1,268 | |||||||||||
Income tax expense | 758 | 454 | 2,087 | 4,687 | |||||||||||
Transaction costs (a) | 467 | 783 | 2,638 | 802 | |||||||||||
Restructuring costs (b) | — | 774 | 1,790 | 774 | |||||||||||
Impairment loss (non-cash) (b) | — | 11,987 | — | 11,987 | |||||||||||
Adjusted EBITDA (Non-GAAP) | $ | 18,814 | $ | 24,187 | $ | 52,681 | $ | 61,748 | |||||||
(a) Transaction costs are costs incurred for business development and acquisitions. Prior to the third quarter of Fiscal 2017, transactions costs were included in selling and administrative expenses in the condensed consolidated statement of operations. | |||||||||||||||
(b) In Fiscal 2016, we implemented a plan to restructure our digital operations. As a result of this restructuring, we recorded a non-cash impairment loss totaling $12 million ($8.5 million net of tax benefit), related to all of the capitalized content costs for the Yuzu® eTextbook platform ($9 million), and recorded a non-recurring other than temporary loss related to an investment held at cost ($3 million) during the 13 and 39 weeks ended January 30, 2016. | |||||||||||||||
Additionally, we announced a reduction in staff and closure of the facilities in Mountain View, California, and Redmond, Washington, that support the Yuzu® eTextbook platform. We recorded restructuring costs of $8.8 million in Fiscal 2016 comprised of employee-related costs (including severance and retention) and facility exit costs. During the 39 weeks ended January 28, 2017, we recorded $1.8 million in additional restructuring costs primarily for employee related costs (including severance and retention). The majority of the restructuring related to employee matters was completed in the first quarter of Fiscal 2017. | |||||||||||||||
(c) The amounts shown represent the projected reduction in income tax expense based on the Company's current combined federal and state aggregate income tax rate. | |||||||||||||||
Use of Non-GAAP Financial Information - Adjusted Earnings and Adjusted EBITDA | |||||||
To supplement the Company’s condensed consolidated financial statements presented in accordance with generally accepted accounting principles (“GAAP”), in the Press Release attached hereto as Exhibit 99.1, the Company uses the non-GAAP financial measures of Adjusted Earnings (defined as Net Income adjusted for certain reconciling items) and Adjusted EBITDA (defined by the Company as earnings before interest, taxes, depreciation and amortization, as adjusted for additional items subtracted from or added to net income). | |||||||
These non-GAAP financial measures are not intended as substitutes for and should not be considered superior to measures of financial performance prepared in accordance with GAAP. In addition, the Company's use of these non-GAAP financial measures may be different from similarly named measures used by other companies, limiting their usefulness for comparison purposes. These non-GAAP financial measures should not be considered as alternatives to net income as an indicator of the Company's performance or any other measures of performance derived in accordance with GAAP. | |||||||
The Company's management reviews these Non-GAAP financial measures as internal measures to evaluate the Company's performance and manage the Company's operations. The Company's management believes that these measures are useful performance measures which are used by the Company to facilitate a comparison of on-going operating performance on a consistent basis from period-to-period. The Company's management believes that these Non-GAAP financial measures provide for a more complete understanding of factors and trends affecting the Company's business than measures under GAAP can provide alone, as it excludes certain items that do not reflect the ordinary earnings of its operations. The Company's Board of Directors and management also use Adjusted EBITDA as one of the primary methods for planning and forecasting overall expected performance, for evaluating on a quarterly and annual basis actual results against such expectations, and as a measure for performance incentive plans. The Company's management believes that the inclusion of Adjusted EBITDA and Adjusted Earnings results provides investors useful and important information regarding the Company's operating results. | |||||||
The non-GAAP measures included in the Press Release attached hereto as Exhibit 99.1 has been reconciled to the comparable GAAP measures as required under Securities and Exchange Commission (the “SEC”) rules regarding the use of non-GAAP financial measures. All of the items included in the reconciliations below are either (i) non-cash items or (ii) items that management does not consider in assessing the Company's on-going operating performance. The Company urges investors to carefully review the GAAP financial information included as part of the Company’s Form 10-K dated April 30, 2016 filed with the SEC on June 29, 2016, which includes consolidated financial statements for each of the three years for the period ended April 30, 2016 (Fiscal 2016, Fiscal 2015, and Fiscal 2014), the quarterly earnings release for the period ended July 30, 2016 included as part of the Company's Form 8-K dated September 8, 2016 and filed with the SEC on that date, and the Company's Quarterly Report on Form 10-Q for the period ended October 29, 2016 filed with the SEC on December 6, 2016. | |||||||
13 weeks ended | 39 weeks ended | |||||||
New stores (a) | $ | 34.2 | $ | 92.7 | ||||
Closed stores (a) | (8.0 | ) | (20.6 | ) | ||||
Comparable stores | (25.0 | ) | (53.5 | ) | ||||
Textbook rental deferral | 2.3 | 0.1 | ||||||
Other revenue (b) | 0.9 | 3.3 | ||||||
Other (c) | (1.2 | ) | (3.8 | ) | ||||
Total sales variance | $ | 3.2 | $ | 18.2 |
(a) | We added 36 new stores and closed 17 stores during the 39 weeks ended January 28, 2017, ending the period with a total of 770 stores. |
(b) | Other revenue includes Promoversity, LoudCloud, brand partnerships, shipping & handling and revenue from other programs. |
(c) | Other includes certain adjusting items related to return reserves and other deferred items. |
13 weeks ended | 39 weeks ended | |||||||||||||||||||||||||||
January 28, 2017 | January 30, 2016 | January 28, 2017 | January 30, 2016 | |||||||||||||||||||||||||
Textbooks | $ | (23.1 | ) | (6.1 | )% | $ | (21.4 | ) | (5.4 | )% | $ | (49.0 | ) | (4.6 | )% | $ | (49.3 | ) | (4.6 | )% | ||||||||
General Merchandise | (0.5 | ) | (0.5 | )% | 0.6 | 0.5 | % | (1.2 | ) | (0.3 | )% | 9.8 | 2.5 | % | ||||||||||||||
Trade Books | (1.2 | ) | (8.3 | )% | — | 0.3 | % | (2.7 | ) | (6.2 | )% | 0.5 | 1.1 | % | ||||||||||||||
Other | (0.2 | ) | (86.7 | )% | (1.3 | ) | (90.6 | )% | (0.6 | ) | (88.3 | )% | (2.0 | ) | (73.3 | )% | ||||||||||||
Total Comparable Store Sales | $ | (25.0 | ) | (4.9 | )% | $ | (22.1 | ) | (4.1 | )% | $ | (53.5 | ) | (3.6 | )% | $ | (41.0 | ) | (2.7 | )% |