x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 46-0599018 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
120 Mountain View Blvd., Basking Ridge, NJ | 07920 | |
(Address of Principal Executive Offices) | (Zip Code) |
Large accelerated filer | ¨ | Accelerated filer | x | ||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ | ||
Emerging Growth Company | ¨ |
Page No. | |||
13 weeks ended | 26 weeks ended | ||||||||||||||
October 27, 2018 | October 28, 2017 | October 27, 2018 | October 28, 2017 | ||||||||||||
Sales: | |||||||||||||||
Product sales and other | $ | 756,173 | $ | 820,071 | $ | 1,074,018 | $ | 1,155,040 | |||||||
Rental income | 58,593 | 66,790 | 78,232 | 87,532 | |||||||||||
Total sales | 814,766 | 886,861 | 1,152,250 | 1,242,572 | |||||||||||
Cost of sales: | |||||||||||||||
Product and other cost of sales | 568,971 | 630,176 | 827,723 | 907,854 | |||||||||||
Rental cost of sales | 35,035 | 39,985 | 47,157 | 52,818 | |||||||||||
Total cost of sales | 604,006 | 670,161 | 874,880 | 960,672 | |||||||||||
Gross profit | 210,760 | 216,700 | 277,370 | 281,900 | |||||||||||
Selling and administrative expenses | 115,323 | 115,290 | 214,467 | 215,187 | |||||||||||
Depreciation and amortization expense | 16,421 | 16,704 | 32,959 | 31,721 | |||||||||||
Restructuring and other charges | — | 193 | — | 5,429 | |||||||||||
Transaction costs | 537 | 1,257 | 537 | 1,846 | |||||||||||
Operating income | 78,479 | 83,256 | 29,407 | 27,717 | |||||||||||
Interest expense, net | 1,836 | 1,836 | 5,358 | 4,874 | |||||||||||
Income before income taxes | 76,643 | 81,420 | 24,049 | 22,843 | |||||||||||
Income tax expense | 16,946 | 33,025 | 2,974 | 9,231 | |||||||||||
Net income | $ | 59,697 | $ | 48,395 | $ | 21,075 | $ | 13,612 | |||||||
Earnings per share of common stock: | |||||||||||||||
Basic | $ | 1.26 | $ | 1.04 | $ | 0.45 | $ | 0.29 | |||||||
Diluted | $ | 1.25 | $ | 1.03 | $ | 0.44 | $ | 0.29 | |||||||
Weighted average shares of common stock outstanding: | |||||||||||||||
Basic | 47,184 | 46,705 | 47,050 | 46,611 | |||||||||||
Diluted | 47,824 | 47,006 | 47,689 | 47,144 |
October 27, 2018 | October 28, 2017 | April 28, 2018 | |||||||||
(unaudited) | (unaudited) | (audited) | |||||||||
ASSETS | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 20,048 | $ | 17,494 | $ | 16,126 | |||||
Receivables, net | 138,048 | 153,646 | 100,060 | ||||||||
Merchandise inventories, net | 505,943 | 506,728 | 443,559 | ||||||||
Textbook rental inventories | 70,599 | 78,062 | 47,779 | ||||||||
Prepaid expenses and other current assets | 16,554 | 22,198 | 11,847 | ||||||||
Total current assets | 751,192 | 778,128 | 619,371 | ||||||||
Property and equipment, net | 112,029 | 115,734 | 111,287 | ||||||||
Intangible assets, net | 213,886 | 229,498 | 219,129 | ||||||||
Goodwill | 53,982 | 362,412 | 49,282 | ||||||||
Other noncurrent assets | 41,632 | 41,469 | 40,142 | ||||||||
Total assets | $ | 1,172,721 | $ | 1,527,241 | $ | 1,039,211 | |||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
Current liabilities: | |||||||||||
Accounts payable | $ | 443,319 | $ | 458,833 | $ | 187,909 | |||||
Accrued liabilities | 170,037 | 184,283 | 125,556 | ||||||||
Short-term borrowings | — | — | 100,000 | ||||||||
Total current liabilities | 613,356 | 643,116 | 413,465 | ||||||||
Long-term deferred taxes, net | 7,906 | 16,187 | 2,106 | ||||||||
Other long-term liabilities | 59,419 | 96,294 | 59,277 | ||||||||
Long-term borrowings | — | 41,800 | 96,400 | ||||||||
Total liabilities | 680,681 | 797,397 | 571,248 | ||||||||
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, 51,026, 50,028 and 50,032 shares, respectively; outstanding, 47,561, 46,914 and 49,372 shares, respectively | 511 | 500 | 501 | ||||||||
Additional paid-in capital | 722,286 | 713,018 | 717,323 | ||||||||
(Accumulated deficit) Retained earnings | (199,128 | ) | 45,975 | (220,203 | ) | ||||||
Treasury stock, at cost | (31,629 | ) | (29,649 | ) | (29,658 | ) | |||||
Total stockholders' equity | 492,040 | 729,844 | 467,963 | ||||||||
Total liabilities and stockholders' equity | $ | 1,172,721 | $ | 1,527,241 | $ | 1,039,211 |
26 weeks ended | |||||||
October 27, 2018 | October 28, 2017 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 21,075 | $ | 13,612 | |||
Adjustments to reconcile net income to net cash flows from operating activities: | |||||||
Depreciation and amortization expense | 32,959 | 31,721 | |||||
Amortization of deferred financing costs | 751 | 751 | |||||
Deferred taxes | 5,800 | (684 | ) | ||||
Stock-based compensation expense | 4,973 | 4,153 | |||||
Changes in other long-term liabilities | (414 | ) | (426 | ) | |||
Changes in other operating assets and liabilities, net | 171,427 | 150,076 | |||||
Net cash flows provided by operating activities | 236,571 | 199,203 | |||||
Cash flows from investing activities: | |||||||
Purchases of property and equipment | (23,152 | ) | (22,422 | ) | |||
Acquisition of business, net of cash acquired | (10,000 | ) | (58,259 | ) | |||
Net increase in other noncurrent assets | (1,127 | ) | (601 | ) | |||
Net cash flows used in investing activities | (34,279 | ) | (81,282 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from borrowings under Credit Agreement | 119,900 | 225,400 | |||||
Repayments of borrowings under Credit Agreement | (316,300 | ) | (343,200 | ) | |||
Purchase of treasury shares | (1,971 | ) | (1,629 | ) | |||
Net cash flows used in financing activities | (198,371 | ) | (119,429 | ) | |||
Net increase (decrease) in cash, cash equivalents and restricted cash | 3,921 | (1,508 | ) | ||||
Cash, cash equivalents and restricted cash at beginning of period | 16,869 | 21,697 | |||||
Cash, cash equivalents and restricted cash at end of period | $ | 20,790 | $ | 20,189 | |||
Changes in other operating assets and liabilities, net: | |||||||
Receivables, net | $ | (37,988 | ) | $ | (67,256 | ) | |
Merchandise inventories | (62,384 | ) | (72,664 | ) | |||
Textbook rental inventories | (22,820 | ) | (25,236 | ) | |||
Prepaid expenses and other current assets | (4,708 | ) | (11,002 | ) | |||
Accounts payable and accrued liabilities | 299,327 | 326,234 | |||||
Changes in other operating assets and liabilities, net | $ | 171,427 | $ | 150,076 |
Additional | ||||||||||||||||||||||||||
Common Stock | Paid-In | Retained | Treasury Stock | Total | ||||||||||||||||||||||
Shares | Amount | Capital | Earnings | Shares | Amount | Equity | ||||||||||||||||||||
Balance at April 29, 2017 | 49,372 | $ | 494 | $ | 708,871 | $ | 32,363 | 2,855 | $ | (28,020 | ) | $ | 713,708 | |||||||||||||
Stock-based compensation expense | 4,153 | 4,153 | ||||||||||||||||||||||||
Vested equity awards | 656 | 6 | (6 | ) | — | |||||||||||||||||||||
Shares repurchased for tax withholdings for vested stock awards | 259 | (1,629 | ) | (1,629 | ) | |||||||||||||||||||||
Net income | 13,612 | 13,612 | ||||||||||||||||||||||||
Balance at October 28, 2017 | 50,028 | $ | 500 | $ | 713,018 | $ | 45,975 | 3,114 | $ | (29,649 | ) | $ | 729,844 | |||||||||||||
Additional | ||||||||||||||||||||||||||
Common Stock | Paid-In | Accumulated | Treasury Stock | Total | ||||||||||||||||||||||
Shares | Amount | Capital | Deficit | Shares | Amount | Equity | ||||||||||||||||||||
Balance at April 28, 2018 | 50,032 | $ | 501 | $ | 717,323 | $ | (220,203 | ) | 3,115 | $ | (29,658 | ) | $ | 467,963 | ||||||||||||
Stock-based compensation expense | 4,973 | 4,973 | ||||||||||||||||||||||||
Vested equity awards | 994 | 10 | (10 | ) | — | |||||||||||||||||||||
Shares repurchased for tax withholdings for vested stock awards | 350 | (1,971 | ) | (1,971 | ) | |||||||||||||||||||||
Net income | 21,075 | 21,075 | ||||||||||||||||||||||||
Balance at October 27, 2018 | 51,026 | $ | 511 | $ | 722,286 | $ | (199,128 | ) | 3,465 | $ | (31,629 | ) | $ | 492,040 | ||||||||||||
13 weeks ended | 26 weeks ended | |||||||||||||||
October 27, 2018 | October 28, 2017 | October 27, 2018 | October 28, 2017 | |||||||||||||
BNC | ||||||||||||||||
Retail Product Sales | $ | 634,587 | $ | 681,461 | $ | 851,733 | $ | 902,525 | ||||||||
Rental Income | 57,331 | 64,956 | 76,164 | 84,923 | ||||||||||||
Service and Other Revenue (a) | 10,952 | 10,884 | 20,148 | 19,830 | ||||||||||||
BNC Total Sales | $ | 702,870 | $ | 757,301 | $ | 948,045 | $ | 1,007,278 | ||||||||
MBS | ||||||||||||||||
Retail Product Sales | $ | 79,785 | $ | 85,491 | $ | 120,894 | $ | 131,998 | ||||||||
Wholesale Product Sales | 37,907 | 47,526 | 126,316 | 140,045 | ||||||||||||
Rental Income | 1,262 | 1,834 | 2,068 | 2,609 | ||||||||||||
MBS Total Sales | $ | 118,954 | $ | 134,851 | $ | 249,278 | $ | 274,652 | ||||||||
DSS Sales (b) | $ | 4,934 | $ | 4,486 | $ | 10,611 | $ | 4,486 | ||||||||
Eliminations (c) | $ | (11,992 | ) | $ | (9,777 | ) | $ | (55,684 | ) | $ | (43,844 | ) | ||||
Total Sales | $ | 814,766 | $ | 886,861 | $ | 1,152,250 | $ | 1,242,572 |
(a) | Service and other revenue primarily relates to brand partnerships and other service revenues. |
(b) | DSS sales primarily relate to direct-to-student subscription-based revenue. |
(c) | The sales eliminations represent the elimination of MBS sales to BNC and the elimination of BNC commissions earned from MBS. |
26 weeks ended | ||||
October 27, 2018 | ||||
Deferred revenue at the beginning of period | $ | 20,144 | ||
Additions to deferred revenue during the period | 116,649 | |||
Reductions to deferred revenue for revenue recognized during the period | (85,667 | ) | ||
Deferred revenue balance at the end of period | $ | 51,126 |
• | The sales eliminations represent the elimination of MBS sales to BNC and the elimination of BNC commissions earned from MBS. |
• | The cost of sales eliminations represent (i) the recognition of intercompany profit for BNC inventory that was purchased from MBS in a prior period that was subsequently sold to external customers during the current period, net of (ii) the elimination of intercompany profit for MBS inventory purchases by BNC that remain in ending inventory at the end of the current period. |
• | The gross margin elimination reflects the net impact of the sales eliminations and cost of sales eliminations. The gross margin elimination impact of $12,995 and $11,658 during the 13 weeks ended October 27, 2018 and October 28, 2017, respectively, primarily relates to (i) the recognition of intercompany profit for BNC inventory that was purchased from MBS in a prior period that was subsequently sold to external customers during the current period, net of (ii) the elimination of intercompany profit for MBS inventory purchases by BNC that remain in ending inventory at the end of the current period. |
13 weeks ended | 26 weeks ended | ||||||||||||||
October 27, 2018 | October 28, 2017 | October 27, 2018 | October 28, 2017 | ||||||||||||
Sales: | |||||||||||||||
BNC | $ | 702,870 | $ | 757,301 | $ | 948,045 | $ | 1,007,278 | |||||||
MBS | 118,954 | 134,851 | 249,278 | 274,652 | |||||||||||
DSS (a) | 4,934 | 4,486 | 10,611 | 4,486 | |||||||||||
Elimination | (11,992 | ) | (9,777 | ) | (55,684 | ) | (43,844 | ) | |||||||
Total Sales | $ | 814,766 | $ | 886,861 | $ | 1,152,250 | $ | 1,242,572 | |||||||
Gross Profit | |||||||||||||||
BNC | $ | 162,083 | $ | 167,523 | $ | 211,398 | $ | 216,747 | |||||||
MBS | 30,893 | 33,175 | 57,644 | 60,764 | |||||||||||
DSS (a) | 4,789 | 4,344 | 10,343 | 4,344 | |||||||||||
Elimination | 12,995 | 11,658 | (2,015 | ) | 45 | ||||||||||
Total Gross Profit | $ | 210,760 | $ | 216,700 | $ | 277,370 | $ | 281,900 | |||||||
Depreciation and Amortization | |||||||||||||||
BNC | $ | 12,897 | $ | 13,331 | $ | 26,152 | $ | 26,664 | |||||||
MBS | 1,569 | 1,618 | 3,099 | 3,253 | |||||||||||
DSS (a) | 1,917 | 1,709 | 3,626 | 1,709 | |||||||||||
Corporate Services | 38 | 46 | 82 | 95 | |||||||||||
Total Depreciation and Amortization | $ | 16,421 | $ | 16,704 | $ | 32,959 | $ | 31,721 | |||||||
Operating Income (Loss) | |||||||||||||||
BNC | $ | 55,561 | $ | 59,151 | $ | 12,606 | $ | 13,861 | |||||||
MBS | 16,990 | 18,228 | 30,352 | 32,106 | |||||||||||
DSS (a) | (1,015 | ) | (1,404 | ) | 51 | (1,627 | ) | ||||||||
Corporate Services (b) | (6,091 | ) | (4,377 | ) | (11,628 | ) | (16,668 | ) | |||||||
Elimination | 13,034 | 11,658 | (1,974 | ) | 45 | ||||||||||
Total Operating Income | $ | 78,479 | $ | 83,256 | $ | 29,407 | $ | 27,717 | |||||||
The following is a reconciliation of segment Operating Income to consolidated Income Before Income Taxes: | |||||||||||||||
Total Operating Income | $ | 78,479 | $ | 83,256 | $ | 29,407 | $ | 27,717 | |||||||
Interest Expense, net | (1,836 | ) | (1,836 | ) | (5,358 | ) | (4,874 | ) | |||||||
Income Before Income Taxes | $ | 76,643 | $ | 81,420 | $ | 24,049 | $ | 22,843 | |||||||
13 weeks ended | 26 weeks ended | ||||||||||||||
(shares in thousands) | October 27, 2018 | October 28, 2017 | October 27, 2018 | October 28, 2017 | |||||||||||
Numerator for basic earnings per share: | |||||||||||||||
Net income | $ | 59,697 | $ | 48,395 | $ | 21,075 | $ | 13,612 | |||||||
Less allocation of earnings to participating securities | (24 | ) | (16 | ) | (9 | ) | (4 | ) | |||||||
Net income available to common shareholders | $ | 59,673 | $ | 48,379 | $ | 21,066 | $ | 13,608 | |||||||
Numerator for diluted earnings per share: | |||||||||||||||
Net income available to common shareholders | $ | 59,673 | $ | 48,379 | $ | 21,066 | $ | 13,608 | |||||||
Allocation of earnings to participating securities | 24 | 16 | 9 | 4 | |||||||||||
Less diluted allocation of earnings to participating securities | (24 | ) | (16 | ) | (9 | ) | (4 | ) | |||||||
Net income available to common shareholders | $ | 59,673 | $ | 48,379 | $ | 21,066 | $ | 13,608 | |||||||
Denominator for basic earnings per share: | |||||||||||||||
Basic weighted average shares of Common Stock | 47,184 | 46,705 | 47,050 | 46,611 | |||||||||||
Denominator for diluted earnings per share: | |||||||||||||||
Basic weighted average shares of Common Stock | 47,184 | 46,705 | 47,050 | 46,611 | |||||||||||
Average dilutive restricted stock units | 463 | 162 | 516 | 389 | |||||||||||
Average dilutive performance shares | 42 | 113 | 38 | 127 | |||||||||||
Average dilutive restricted shares | 11 | 7 | 13 | 8 | |||||||||||
Average dilutive performance share units | 124 | 19 | 72 | 9 | |||||||||||
Diluted weighted average shares of Common Stock | 47,824 | 47,006 | 47,689 | 47,144 | |||||||||||
Earnings per share of Common Stock: | |||||||||||||||
Basic | $ | 1.26 | $ | 1.04 | $ | 0.45 | $ | 0.29 | |||||||
Diluted | $ | 1.25 | $ | 1.03 | $ | 0.44 | $ | 0.29 |
• | 385,171 performance share unit ("PSU") awards to employees that will vest based upon the achievement of pre-established performance goals related to absolute total shareholder returns ("TSR") determined by the Company's common stock price, DSS segment revenue and Company Adjusted EBITDA measured over a two year performance period (Fiscal 2019 - Fiscal 2020) with one additional year of time-based vesting. The number of PSU awards that will vest range from 0%-150% of the target award based on actual performance. |
• | 1,336,216 restricted stock units ("RSU") awards were granted to employees with a three year vesting period in accordance |
• | 107,530 RSU awards and 21,506 restricted stock ("RS") awards were granted to the current Board of Directors ("BOD") members for annual compensation with a one year vesting period in accordance with the Equity Incentive Plan. |
13 weeks ended | 26 weeks ended | ||||||||||||||
October 27, 2018 | October 28, 2017 | October 27, 2018 | October 28, 2017 | ||||||||||||
Restricted stock expense | $ | 20 | $ | 30 | $ | 50 | $ | 60 | |||||||
Restricted stock units expense (a) | 1,952 | 2,140 | 4,150 | 4,040 | |||||||||||
Performance shares expense (a) | 57 | (265 | ) | 114 | (333 | ) | |||||||||
Performance share units expense(b) | 603 | 268 | 659 | 386 | |||||||||||
Stock-based compensation expense | $ | 2,632 | $ | 2,173 | $ | 4,973 | $ | 4,153 |
• | Increased Use of Online and Digital Platforms as Companions or Alternatives to Printed Course Materials. Students and faculty can now choose from a wider variety of educational content and tools than ever before, delivered across both print and digital platforms. |
• | Distribution Network Evolving. The way course materials are distributed and consumed is changing significantly, a trend that is expected to continue. The market for course materials, including textbooks and supplemental materials, is intensely competitive and subject to rapid change. |
• | Disintermediation. We are experiencing growing competition from alternative media and alternative sources of textbooks and other course materials. In addition to the official physical or virtual campus bookstore, course materials are also sold through off-campus bookstores, e-commerce outlets, digital platform companies, publishers, including Cengage, Pearson and McGraw Hill, bypassing the bookstore distribution channel by selling or renting directly to students and educational institutions, and student-to-student transactions over the Internet. |
• | Supply Chain and Inventory. Since the demand for used textbooks has historically been greater than the available supply, our financial results are highly dependent upon MBS Wholesale’s ability to build its textbook inventory from suppliers in advance of the selling season. Some textbook publishers have begun to supply textbooks pursuant to consignment or rental programs which could impact used textbook supplies in the future. MBS was selected as a national distributor for rental textbooks offered through McGraw-Hill Education's and Pearson Education’s consignment rental program. |
• | Price Competition. In addition to the competition in the services we provide to our customers, our textbook and other course materials business faces significant price competition. Students purchase textbooks and other course materials from multiple providers, are highly price sensitive, and can easily shift spending from one provider or format to another. |
• | Competition. In addition to the competition we face from alternative distribution sources, we also have competition from other college bookstore operators, textbook wholesalers and educational content providers. Competitors that provide online bookstore solutions to colleges and universities not only compete with our physical bookstore operations, but also compete with MBS Direct's virtual stores. We also compete with other companies that offer college themed and other general merchandise. Our DSS segment faces competition from other digital student solutions providers. |
• | A Large Number of Traditional Campus Bookstores Have Yet to be Outsourced. |
• | Outsourcing Trends. We continue to see the trend towards outsourcing in the campus bookstore market, including virtual bookstores and online marketplace websites, and we also continue to see a variety of business models being pursued for the provision of textbooks and other course materials, such as inclusive access and publisher subscription models, and general merchandise. |
• | New and Existing Bookstore Contracts. We expect awards of new accounts resulting in new physical and virtual store openings will continue to be an important driver of future growth in our business. |
• | Overall Economic Environment, College Enrollment and Consumer Spending Patterns. Our business is affected by the overall economic environment, funding levels at colleges and universities, by changes in enrollments at colleges and universities, and spending on course materials and general merchandise. |
• | Economic Environment: BNC general merchandise sales are subject to short-term fluctuations driven by the broader retail environment. We expect general merchandise sales to continue to increase over the long term, as our product assortments continue to emphasize and reflect the changing consumer trends, and we evolve our presentation concepts and merchandising of products in stores and online. |
• | Enrollment Trends. The growth of our business depends on our ability to attract new students and to increase the level of engagement by our current student customers. We continue to see downward enrollment trends and shrinking resources from state and federal government for colleges and universities. Enrollment trends, specifically at community colleges, continue to decline, led primarily by an improved economy and a dip in the United States birth rate resulting in fewer students at the traditional 18-24 year old college age. However, online degree program enrollments continue to grow, even in the face of declining overall higher education enrollment, and consistent with projections from the National Center for Education Statistics, we expect undergraduate enrollment to increase in the long-term. |
13 weeks ended | 26 weeks ended | ||||||||||||||
Dollars in thousands | October 27, 2018 | October 28, 2017 | October 27, 2018 | October 28, 2017 | |||||||||||
Sales: | |||||||||||||||
Product sales and other | $ | 756,173 | $ | 820,071 | $ | 1,074,018 | $ | 1,155,040 | |||||||
Rental income | 58,593 | 66,790 | 78,232 | 87,532 | |||||||||||
Total sales | $ | 814,766 | $ | 886,861 | $ | 1,152,250 | $ | 1,242,572 | |||||||
Net income | $ | 59,697 | $ | 48,395 | $ | 21,075 | $ | 13,612 | |||||||
Adjusted Earnings (non-GAAP) (a) | $ | 60,095 | $ | 49,914 | $ | 21,473 | $ | 20,137 | |||||||
Adjusted EBITDA (non-GAAP) (a) | |||||||||||||||
BNC | $ | 68,458 | $ | 72,482 | $ | 38,758 | $ | 40,525 | |||||||
MBS | 18,559 | 20,871 | 33,451 | 38,632 | |||||||||||
DSS (b) | 1,402 | 2,168 | 4,177 | 1,945 | |||||||||||
Corporate Services | (6,016 | ) | (4,744 | ) | (11,509 | ) | (11,161 | ) | |||||||
Elimination | 13,034 | 11,658 | (1,974 | ) | 45 | ||||||||||
Total Adjusted EBITDA (non-GAAP) | $ | 95,437 | $ | 102,435 | $ | 62,903 | $ | 69,986 | |||||||
(a) | Adjusted Earnings and Adjusted EBITDA are a non-GAAP financial measures. See Adjusted Earnings (non-GAAP) and Adjusted EBITDA (non-GAAP) discussion below. |
(b) | On August 3, 2017, we acquired Student Brands, LLC. The condensed consolidated financial statements for the 13 and 26 weeks ended October 27, 2018 include the financial results of Student Brands in the DSS segment and the condensed consolidated financial statements for the 13 and 26 weeks ended October 28, 2017 include the financial results of Student Brands from the date of acquisition on August 3, 2017. |
13 weeks ended | 26 weeks ended | ||||||||||
October 27, 2018 | October 28, 2017 | October 27, 2018 | October 28, 2017 | ||||||||
Sales: | |||||||||||
Product sales and other | 92.8 | % | 92.5 | % | 93.2 | % | 93.0 | % | |||
Rental income | 7.2 | 7.5 | 6.8 | 7.0 | |||||||
Total sales | 100.0 | 100.0 | 100.0 | 100.0 | |||||||
Cost of sales: | |||||||||||
Product and other cost of sales (a) | 75.2 | 76.8 | 77.1 | 78.6 | |||||||
Rental cost of sales (a) | 59.8 | 59.9 | 60.3 | 60.3 | |||||||
Total cost of sales | 74.1 | 75.6 | 75.9 | 77.3 | |||||||
Gross margin | 25.9 | 24.4 | 24.1 | 22.7 | |||||||
Selling and administrative expenses | 14.2 | 13.0 | 18.6 | 17.3 | |||||||
Depreciation and amortization expense | 2.0 | 1.9 | 2.9 | 2.6 | |||||||
Restructuring and other charges | — | — | — | 0.4 | |||||||
Transaction costs | 0.1 | 0.1 | — | 0.1 | |||||||
Operating income | 9.6 | % | 9.4 | % | 2.6 | % | 2.3 | % |
(a) | Represents the percentage these costs bear to the related sales, instead of total sales. |
13 weeks ended | 26 weeks ended | ||||||||||||||||||||||
October 27, 2018 | October 28, 2017 | October 27, 2018 | October 28, 2017 | ||||||||||||||||||||
Number of Stores: | BNC | MBS Direct | BNC | MBS Direct | BNC | MBS Direct | BNC | MBS Direct | |||||||||||||||
Number of stores at beginning of period | 753 | 684 | 781 | 709 | 768 | 676 | 769 | 712 | |||||||||||||||
Opened | 21 | 9 | — | 8 | 34 | 26 | 24 | 13 | |||||||||||||||
Closed | 1 | 16 | 4 | 12 | 29 | 25 | 16 | 20 | |||||||||||||||
Number of stores at end of period | 773 | 677 | 777 | 705 | 773 | 677 | 777 | 705 |
13 weeks ended, October 27, 2018 (a) | |||||||||||||||||||||||
Dollars in thousands | BNC | MBS | DSS (a) | Corporate Services | Eliminations | Total | |||||||||||||||||
Sales: | |||||||||||||||||||||||
Product sales and other | $ | 645,539 | $ | 117,692 | $ | 4,934 | $ | — | $ | (11,992 | ) | $ | 756,173 | ||||||||||
Rental income | 57,331 | 1,262 | — | — | — | 58,593 | |||||||||||||||||
Total sales | 702,870 | 118,954 | 4,934 | — | (11,992 | ) | 814,766 | ||||||||||||||||
Cost of sales: | |||||||||||||||||||||||
Product and other cost of sales | 506,437 | 87,376 | 145 | — | (24,987 | ) | 568,971 | ||||||||||||||||
Rental cost of sales | 34,350 | 685 | — | — | — | 35,035 | |||||||||||||||||
Total cost of sales | 540,787 | 88,061 | 145 | — | (24,987 | ) | 604,006 | ||||||||||||||||
Gross profit | 162,083 | 30,893 | 4,789 | — | 12,995 | 210,760 | |||||||||||||||||
Selling and administrative expenses | 93,625 | 12,334 | 3,387 | 6,016 | (39 | ) | 115,323 | ||||||||||||||||
Depreciation and amortization expense | 12,897 | 1,569 | 1,917 | 38 | — | 16,421 | |||||||||||||||||
Sub-Total: | $ | 55,561 | $ | 16,990 | $ | (515 | ) | $ | (6,054 | ) | $ | 13,034 | 79,016 | ||||||||||
Restructuring and other charges | — | ||||||||||||||||||||||
Transaction costs | 537 | ||||||||||||||||||||||
Operating income | $ | 78,479 | |||||||||||||||||||||
13 weeks ended, October 28, 2017 (a) | |||||||||||||||||||||||
Dollars in thousands | BNC | MBS | DSS (a) | Corporate Services | Eliminations | Total | |||||||||||||||||
Sales: | |||||||||||||||||||||||
Product sales and other | $ | 692,345 | $ | 133,017 | $ | 4,486 | $ | — | $ | (9,777 | ) | $ | 820,071 | ||||||||||
Rental income | 64,956 | 1,834 | — | — | — | 66,790 | |||||||||||||||||
Total sales | 757,301 | 134,851 | 4,486 | — | (9,777 | ) | 886,861 | ||||||||||||||||
Cost of sales: | |||||||||||||||||||||||
Product and other cost of sales | 550,813 | 100,656 | 142 | — | (21,435 | ) | 630,176 | ||||||||||||||||
Rental cost of sales | 38,965 | 1,020 | — | — | — | 39,985 | |||||||||||||||||
Total cost of sales | 589,778 | 101,676 | 142 | — | (21,435 | ) | 670,161 | ||||||||||||||||
Gross profit | 167,523 | 33,175 | 4,344 | — | 11,658 | 216,700 | |||||||||||||||||
Selling and administrative expenses | 95,041 | 13,329 | 2,176 | 4,744 | — | 115,290 | |||||||||||||||||
Depreciation and amortization expense | 13,331 | 1,618 | 1,709 | 46 | — | 16,704 | |||||||||||||||||
Sub-Total: | $ | 59,151 | $ | 18,228 | $ | 459 | $ | (4,790 | ) | $ | 11,658 | 84,706 | |||||||||||
Restructuring and other charges | 193 | ||||||||||||||||||||||
Transaction costs | 1,257 | ||||||||||||||||||||||
Operating income | $ | 83,256 | |||||||||||||||||||||
26 weeks ended, October 27, 2018 (a) | |||||||||||||||||||||||
Dollars in thousands | BNC | MBS | DSS (a) | Corporate Services | Eliminations | Total | |||||||||||||||||
Sales: | |||||||||||||||||||||||
Product sales and other | $ | 871,881 | $ | 247,210 | $ | 10,611 | $ | — | $ | (55,684 | ) | $ | 1,074,018 | ||||||||||
Rental income | 76,164 | 2,068 | — | — | — | 78,232 | |||||||||||||||||
Total sales | 948,045 | 249,278 | 10,611 | — | (55,684 | ) | 1,152,250 | ||||||||||||||||
Cost of sales: | |||||||||||||||||||||||
Product and other cost of sales | 690,605 | 190,519 | 268 | — | (53,669 | ) | 827,723 | ||||||||||||||||
Rental cost of sales | 46,042 | 1,115 | — | — | 47,157 | ||||||||||||||||||
Total cost of sales | 736,647 | 191,634 | 268 | — | (53,669 | ) | 874,880 | ||||||||||||||||
Gross profit | 211,398 | 57,644 | 10,343 | — | (2,015 | ) | 277,370 | ||||||||||||||||
Selling and administrative expenses | 172,640 | 24,193 | 6,166 | 11,509 | (41 | ) | 214,467 | ||||||||||||||||
Depreciation and amortization expense | 26,152 | 3,099 | 3,626 | 82 | — | 32,959 | |||||||||||||||||
Sub-Total: | $ | 12,606 | $ | 30,352 | $ | 551 | $ | (11,591 | ) | $ | (1,974 | ) | 29,944 | ||||||||||
Restructuring and other charges | — | ||||||||||||||||||||||
Transaction costs | 537 | ||||||||||||||||||||||
Operating income | $ | 29,407 | |||||||||||||||||||||
26 weeks ended, October 28, 2017 (a) | |||||||||||||||||||||||
Dollars in thousands | BNC | MBS | DSS (a) | Corporate Services | Eliminations | Total | |||||||||||||||||
Sales: | |||||||||||||||||||||||
Product sales and other | $ | 922,355 | $ | 272,043 | $ | 4,486 | $ | — | $ | (43,844 | ) | $ | 1,155,040 | ||||||||||
Rental income | 84,923 | 2,609 | — | — | — | 87,532 | |||||||||||||||||
Total sales | 1,007,278 | 274,652 | 4,486 | — | (43,844 | ) | 1,242,572 | ||||||||||||||||
Cost of sales: | |||||||||||||||||||||||
Product and other cost of sales | 739,146 | 212,455 | 142 | — | (43,889 | ) | 907,854 | ||||||||||||||||
Rental cost of sales | 51,385 | 1,433 | — | — | — | 52,818 | |||||||||||||||||
Total cost of sales | 790,531 | 213,888 | 142 | — | (43,889 | ) | 960,672 | ||||||||||||||||
Gross profit | 216,747 | 60,764 | 4,344 | — | 45 | 281,900 | |||||||||||||||||
Selling and administrative expenses | 176,222 | 25,405 | 2,399 | 11,161 | — | 215,187 | |||||||||||||||||
Depreciation and amortization expense | 26,664 | 3,253 | 1,709 | 95 | — | 31,721 | |||||||||||||||||
Sub-Total: | $ | 13,861 | $ | 32,106 | $ | 236 | $ | (11,256 | ) | $ | 45 | 34,992 | |||||||||||
Restructuring and other charges | 5,429 | ||||||||||||||||||||||
Transaction costs | 1,846 | ||||||||||||||||||||||
Operating income | $ | 27,717 | |||||||||||||||||||||
(a) | On August 3, 2017, we acquired Student Brands, LLC. The condensed consolidated financial statements for the 13 and 26 weeks ended October 27, 2018 include the financial results of Student Brands in the DSS segment and the condensed consolidated financial statements for the 13 and 26 weeks ended October 28, 2017 include the financial results of Student Brands from the date of acquisition on August 3, 2017. |
13 weeks ended | 26 weeks ended | ||||||||||||||||||
Dollars in thousands | October 27, 2018 | October 28, 2017 | % | October 27, 2018 | October 28, 2017 | % | |||||||||||||
Product sales and other | $ | 756,173 | $ | 820,071 | (7.8)% | $ | 1,074,018 | $ | 1,155,040 | (7.0)% | |||||||||
Rental income | 58,593 | 66,790 | (12.3)% | 78,232 | 87,532 | (10.6)% | |||||||||||||
Total Sales | $ | 814,766 | $ | 886,861 | (8.1)% | $ | 1,152,250 | $ | 1,242,572 | (7.3)% |
Sales variances | 13 weeks ended | 26 weeks ended | ||||||||||||||
Dollars in millions | October 27, 2018 | October 28, 2017 | October 27, 2018 | October 28, 2017 | ||||||||||||
BNC Sales | ||||||||||||||||
New stores | $ | 18.4 | $ | 26.3 | $ | 25.1 | $ | 41.7 | ||||||||
Closed stores | (33.6 | ) | (5.2 | ) | (40.4 | ) | (7.5 | ) | ||||||||
Comparable stores | (41.6 | ) | (33.8 | ) | (46.5 | ) | (38.6 | ) | ||||||||
Textbook rental deferral | 3.8 | 2.3 | 3.6 | 3.6 | ||||||||||||
Service revenue (a) | (0.1 | ) | — | 0.3 | 1.9 | |||||||||||
Other (b) | (1.3 | ) | (2.9 | ) | (1.3 | ) | (3.7 | ) | ||||||||
BNC sales subtotal: | $ | (54.4 | ) | $ | (13.3 | ) | $ | (59.2 | ) | $ | (2.6 | ) | ||||
MBS Sales (c) | ||||||||||||||||
Wholesale | $ | (9.6 | ) | $ | 47.5 | $ | (13.7 | ) | $ | 140.0 | ||||||
Direct | (6.3 | ) | 87.4 | (11.7 | ) | 134.7 | ||||||||||
MBS sales subtotal: | $ | (15.9 | ) | $ | 134.9 | $ | (25.4 | ) | $ | 274.7 | ||||||
DSS Sales (d) | $ | 0.4 | $ | 4.5 | $ | 6.1 | $ | 4.5 | ||||||||
Eliminations (e) | $ | (2.2 | ) | $ | (9.9 | ) | $ | (11.8 | ) | $ | (43.9 | ) | ||||
Total sales variance: | $ | (72.1 | ) | $ | 116.2 | $ | (90.3 | ) | $ | 232.7 |
(a) | Service revenue includes Promoversity, brand partnerships, shipping and handling, LoudCloud digital content, software, and services, and revenue from other programs. |
(b) | Other includes inventory liquidation sales to third parties, and certain accounting adjusting items related to return reserves, agency sales and other deferred items. |
(c) | The variance for the MBS segment for the 13 and 26 weeks ended October 28, 2017 represents the sales activity for MBS Textbook Exchange, LLC ("MBS") which we acquired on February 27, 2017 (the fourth quarter of Fiscal 2017). |
(d) | DSS revenue includes Student Brands, LLC subscription-based writing services business, which we acquired on August 3, 2017. The condensed consolidated financial statements for the 13 and 26 weeks ended October 27, 2018 include the financial results of Student Brands in the DSS segment and the condensed consolidated financial statements for the 13 and 26 weeks ended October 28, 2017 include the financial results of Student Brands from the date of acquisition on August 3, 2017. |
(e) | Eliminates MBS sales to BNC and BNC commissions earned from MBS. See discussion of intercompany activities and eliminations below. |
Comparable Store Sales variances - BNC | 13 weeks ended | 26 weeks ended | ||||||||||||||||||||||||
Dollars in millions | October 27, 2018 | October 28, 2017 | October 27, 2018 | October 28, 2017 | ||||||||||||||||||||||
Textbooks (Course Materials) | $ | (44.2 | ) | (8.1 | )% | $ | (28.8 | ) | (5.0 | )% | $ | (48.7 | ) | (7.6)% | $ | (36.5 | ) | (5.5)% | ||||||||
General Merchandise | 3.2 | 1.8 | % | (3.4 | ) | (1.9 | )% | 4.4 | 1.5% | 0.2 | 0.1% | |||||||||||||||
Trade Books | (0.6 | ) | (4.7 | )% | (1.6 | ) | (11.2 | )% | (2.2 | ) | (8.8)% | (2.3 | ) | (8.5)% | ||||||||||||
Total Comparable Store Sales | $ | (41.6 | ) | (5.6 | )% | $ | (33.8 | ) | (4.4 | )% | $ | (46.5 | ) | (4.8)% | $ | (38.6 | ) | (3.9)% |
13 weeks ended | 26 weeks ended | ||||||||||||||||||||||
Dollars in thousands | October 27, 2018 | % of Related Sales | October 28, 2017 | % of Related Sales | October 27, 2018 | % of Related Sales | October 28, 2017 | % of Related Sales | |||||||||||||||
Product and other cost of sales | $ | 506,437 | 78.5% | $ | 550,813 | 79.6% | $ | 690,605 | 79.2% | $ | 739,146 | 80.1% | |||||||||||
Rental cost of sales | 34,350 | 59.9% | 38,965 | 60.0% | 46,042 | 60.5% | 51,385 | 60.5% | |||||||||||||||
Total Cost of Sales | $ | 540,787 | 76.9% | $ | 589,778 | 77.9% | $ | 736,647 | 77.7% | $ | 790,531 | 78.5% |
13 weeks ended | 26 weeks ended | ||||||||||||||||||||||
Dollars in thousands | October 27, 2018 | % of Related Sales | October 28, 2017 | % of Related Sales | October 27, 2018 | % of Related Sales | October 28, 2017 | % of Related Sales | |||||||||||||||
Product and other gross margin | $ | 139,102 | 21.5% | $ | 141,532 | 20.4% | $ | 181,276 | 20.8% | $ | 183,209 | 19.9% | |||||||||||
Rental gross margin | 22,981 | 40.1% | 25,991 | 40.0% | 30,122 | 39.5% | 33,538 | 39.5% | |||||||||||||||
Gross Margin | $ | 162,083 | 23.1% | $ | 167,523 | 22.1% | $ | 211,398 | 22.3% | $ | 216,747 | 21.5% |
• | Product and other gross margin increased (110 basis points), driven primarily by higher margin rates (90 basis points) due to lower markdowns compared to the prior year, including the benefits realized from transferring underutilized inventory to MBS, and a favorable sales mix (75 basis points), partially offset by higher costs related to our college and university contracts (55 basis points) resulting from contract renewals and new store contracts. |
• | Rental gross margin increased (10 basis points), driven primarily by favorable rental mix (65 basis points), partially offset by lower rental margin rates (30 basis points) and higher costs related to our college and university contracts (25 basis points) resulting from contract renewals and new store contracts. |
• | Product and other gross margin increased (90 basis points), driven primarily by higher margin rates (90 basis points) due to lower markdowns compared to the prior year, including the benefits realized from transferring underutilized inventory |
• | Rental gross margin remained unchanged at 39.5%, driven primarily by favorable rental mix (30 basis points) and higher rental margin rates (10 basis points), offset by higher costs related to our college and university contracts (40 basis points) resulting from contract renewals and new store contracts. |
13 weeks ended | 26 weeks ended | ||||||||||||||||||||||
Dollars in thousands | October 27, 2018 | % of Related Sales | October 28, 2017 | % of Related Sales | October 27, 2018 | % of Related Sales | October 28, 2017 | % of Related Sales | |||||||||||||||
Product and other cost of sales | $ | 87,376 | 74.2% | $ | 100,656 | 75.7% | $ | 190,519 | 77.1% | $ | 212,455 | 78.1% | |||||||||||
Rental cost of sales | 685 | 54.2% | 1,020 | 55.7% | 1,115 | 53.9% | 1,433 | 54.9% | |||||||||||||||
Total Cost of Sales | $ | 88,061 | 74.0% | $ | 101,676 | 75.4% | $ | 191,634 | 76.9% | $ | 213,888 | 77.9% |
13 weeks ended | 26 weeks ended | ||||||||||||||||||||||
Dollars in thousands | October 27, 2018 | % of Related Sales | October 28, 2017 | % of Related Sales | October 27, 2018 | % of Related Sales | October 28, 2017 | % of Related Sales | |||||||||||||||
Product and other gross margin | $ | 30,316 | 25.8% | $ | 32,361 | 24.3% | $ | 56,691 | 22.9% | $ | 59,588 | 21.9% | |||||||||||
Rental gross margin | 577 | 45.8% | 814 | 44.3% | 953 | 46.1% | 1,176 | 45.0% | |||||||||||||||
Gross Margin | $ | 30,893 | 26.0% | $ | 33,175 | 24.6% | $ | 57,644 | 23.1% | $ | 60,764 | 22.1% |
13 weeks ended | 26 weeks ended | ||||||||||||||||||||||
Dollars in thousands | October 27, 2018 | % of Sales | October 28, 2017 | % of Sales | October 27, 2018 | % of Sales | October 28, 2017 | % of Sales | |||||||||||||||
Total Selling and Administrative Expenses | $ | 115,323 | 14.2% | $ | 115,290 | 13.0% | $ | 214,467 | 18.6% | $ | 215,187 | 17.3% |
13 weeks ended | 26 weeks ended | ||||||||||||||||||||||
Dollars in thousands | October 27, 2018 | % of Sales | October 28, 2017 | % of Sales | October 27, 2018 | % of Sales | October 28, 2017 | % of Sales | |||||||||||||||
Total Depreciation and Amortization Expense | $ | 16,421 | 2.0% | $ | 16,704 | 1.9% | $ | 32,959 | 2.9% | $ | 31,721 | 2.6% |
13 weeks ended | 26 weeks ended | ||||||||||||||||||||||
Dollars in thousands | October 27, 2018 | % of Sales | October 28, 2017 | % of Sales | October 27, 2018 | % of Sales | October 28, 2017 | % of Sales | |||||||||||||||
Total Operating Income | $ | 78,479 | 9.6% | $ | 83,256 | 9.4% | $ | 29,407 | 2.6% | $ | 27,717 | 2.3% |
13 weeks ended | 26 weeks ended | ||||||||||||||
Dollars in thousands | October 27, 2018 | October 28, 2017 | October 27, 2018 | October 28, 2017 | |||||||||||
Interest Expense, Net | $ | 1,836 | $ | 1,836 | $ | 5,358 | $ | 4,874 |
13 weeks ended | 26 weeks ended | ||||||||||||||||||||||
Dollars in thousands | October 27, 2018 | Effective Rate | October 28, 2017 | Effective Rate | October 27, 2018 | Effective Rate | October 28, 2017 | Effective Rate | |||||||||||||||
Income Tax Expense | $ | 16,946 | 22.1% | $ | 33,025 | 40.6% | $ | 2,974 | 12.4% | $ | 9,231 | 40.4% |
13 weeks ended | 26 weeks ended | ||||||||||||||
Dollars in thousands | October 27, 2018 | October 28, 2017 | October 27, 2018 | October 28, 2017 | |||||||||||
Net income | $ | 59,697 | $ | 48,395 | $ | 21,075 | $ | 13,612 |
13 weeks ended | 26 weeks ended | ||||||||||||||
Dollars in thousands | October 27, 2018 | October 28, 2017 | October 27, 2018 | October 28, 2017 | |||||||||||
Net income | $ | 59,697 | $ | 48,395 | $ | 21,075 | $ | 13,612 | |||||||
Reconciling items, after-tax (below) | 398 | 1,519 | 398 | 6,525 | |||||||||||
Adjusted Earnings (non-GAAP) | $ | 60,095 | $ | 49,914 | $ | 21,473 | $ | 20,137 | |||||||
Reconciling items, pre-tax | |||||||||||||||
Inventory valuation amortization (MBS) (non-cash) (a) | $ | — | $ | 1,025 | $ | — | $ | 3,273 | |||||||
Restructuring and other charges (a) | — | 193 | — | 5,429 | |||||||||||
Transaction costs (a) | 537 | 1,257 | 537 | 1,846 | |||||||||||
Reconciling items, pre-tax | 537 | 2,475 | 537 | 10,548 | |||||||||||
Less: Pro forma income tax impact (b) | 139 | 956 | 139 | 4,023 | |||||||||||
Reconciling items, after-tax | $ | 398 | $ | 1,519 | $ | 398 | $ | 6,525 |
(a) | See Management Discussion and Analysis - Results of Operations discussion above. |
(b) | Represents the income tax effects of the non-GAAP items. |
13 weeks ended | 26 weeks ended | ||||||||||||||
Dollars in thousands | October 27, 2018 | October 28, 2017 | October 27, 2018 | October 28, 2017 | |||||||||||
Net income | $ | 59,697 | $ | 48,395 | $ | 21,075 | $ | 13,612 | |||||||
Add: | |||||||||||||||
Depreciation and amortization expense | 16,421 | 16,704 | 32,959 | 31,721 | |||||||||||
Interest expense, net | 1,836 | 1,836 | 5,358 | 4,874 | |||||||||||
Income tax expense | 16,946 | 33,025 | 2,974 | 9,231 | |||||||||||
Inventory valuation amortization (MBS) (non-cash) (a) | — | 1,025 | — | 3,273 | |||||||||||
Restructuring and other charges (a) | — | 193 | — | 5,429 | |||||||||||
Transaction costs (a) | 537 | 1,257 | 537 | 1,846 | |||||||||||
Adjusted EBITDA (non-GAAP) (a) | $ | 95,437 | $ | 102,435 | $ | 62,903 | $ | 69,986 |
(a) | See Management Discussion and Analysis - Results of Operations discussion above. |
Adjusted EBITDA - by Segment | 13 weeks ended, October 27, 2018 | |||||||||||||||||||||||
Dollars in thousands | BNC | MBS | DSS | Corporate Services | Elimination (a) | Total | ||||||||||||||||||
Sales | $ | 702,870 | $ | 118,954 | $ | 4,934 | $ | — | $ | (11,992 | ) | $ | 814,766 | |||||||||||
Cost of sales | 540,787 | 88,061 | 145 | — | (24,987 | ) | 604,006 | |||||||||||||||||
Gross profit | 162,083 | 30,893 | 4,789 | — | 12,995 | 210,760 | ||||||||||||||||||
Selling and administrative expenses | 93,625 | 12,334 | 3,387 | 6,016 | (39 | ) | 115,323 | |||||||||||||||||
Adjusted EBITDA (non-GAAP) | $ | 68,458 | $ | 18,559 | $ | 1,402 | $ | (6,016 | ) | $ | 13,034 | $ | 95,437 |
Adjusted EBITDA - by Segment | 13 weeks ended, October 28, 2017 | |||||||||||||||||||||||
Dollars in thousands | BNC | MBS | DSS | Corporate Services | Elimination (a) | Total | ||||||||||||||||||
Sales | $ | 757,301 | $ | 134,851 | $ | 4,486 | $ | — | $ | (9,777 | ) | $ | 886,861 | |||||||||||
Cost of sales (MBS excludes $1,025 related to inventory fair value amortization) (a) | 589,778 | 100,651 | 142 | — | (21,435 | ) | 669,136 | |||||||||||||||||
Gross profit | 167,523 | 34,200 | 4,344 | — | 11,658 | 217,725 | ||||||||||||||||||
Selling and administrative expenses | 95,041 | 13,329 | 2,176 | 4,744 | — | 115,290 | ||||||||||||||||||
Adjusted EBITDA (non-GAAP) | $ | 72,482 | $ | 20,871 | $ | 2,168 | $ | (4,744 | ) | $ | 11,658 | $ | 102,435 |
Adjusted EBITDA - by Segment | 26 weeks ended, October 27, 2018 | |||||||||||||||||||||||
Dollars in thousands | BNC | MBS | DSS | Corporate Services | Elimination (a) | Total | ||||||||||||||||||
Sales | $ | 948,045 | $ | 249,278 | $ | 10,611 | $ | — | $ | (55,684 | ) | $ | 1,152,250 | |||||||||||
Cost of sales | 736,647 | 191,634 | 268 | — | (53,669 | ) | 874,880 | |||||||||||||||||
Gross profit | 211,398 | 57,644 | 10,343 | — | (2,015 | ) | 277,370 | |||||||||||||||||
Selling and administrative expenses | 172,640 | 24,193 | 6,166 | 11,509 | (41 | ) | 214,467 | |||||||||||||||||
Adjusted EBITDA (non-GAAP) | $ | 38,758 | $ | 33,451 | $ | 4,177 | $ | (11,509 | ) | $ | (1,974 | ) | $ | 62,903 |
Adjusted EBITDA - by Segment | 26 weeks ended, October 28, 2017 | |||||||||||||||||||||||
Dollars in thousands | BNC | MBS | DSS | Corporate Services | Elimination (a) | Total | ||||||||||||||||||
Sales | $ | 1,007,278 | $ | 274,652 | $ | 4,486 | $ | — | $ | (43,844 | ) | $ | 1,242,572 | |||||||||||
Cost of sales (MBS excludes $3,273 related to inventory fair value amortization) (a) | 790,531 | 210,615 | 142 | — | (43,889 | ) | 957,399 | |||||||||||||||||
Gross profit | 216,747 | 64,037 | 4,344 | — | 45 | 285,173 | ||||||||||||||||||
Selling and administrative expenses | 176,222 | 25,405 | 2,399 | 11,161 | — | 215,187 | ||||||||||||||||||
Adjusted EBITDA (non-GAAP) | $ | 40,525 | $ | 38,632 | $ | 1,945 | $ | (11,161 | ) | $ | 45 | $ | 69,986 |
26 weeks ended | ||||||||
Dollars in thousands | October 27, 2018 | October 28, 2017 | ||||||
Cash, cash equivalents, and restricted cash at beginning of period | $ | 16,869 | $ | 21,697 | ||||
Net cash flows provided by operating activities | 236,571 | 199,203 | ||||||
Net cash flows used in investing activities | (34,279 | ) | (81,282 | ) | ||||
Net cash flows used in financing activities | (198,371 | ) | (119,429 | ) | ||||
Cash, cash equivalents, and restricted cash at end of period | $ | 20,790 | $ | 20,189 |
• | general competitive conditions, including actions our competitors and content providers may take to grow their businesses; |
• | a decline in college enrollment or decreased funding available for students; |
• | decisions by colleges and universities to outsource their physical and/or online bookstore operations or change the operation of their bookstores; |
• | implementation of our digital strategy may not result in the expected growth in our digital sales and/or profitability; |
• | risk that digital sales growth does not exceed the rate of investment spend; |
• | the performance of our online, digital and other initiatives, integration of and deployment of, additional products and services including new digital channels, and enhancements to higher education digital products, and the inability to achieve the expected cost savings; |
• | the risk of price reduction or change in format of course materials by publishers, which could negatively impact revenues and margin; |
• | the general economic environment and consumer spending patterns; |
• | decreased consumer demand for our products, low growth or declining sales; |
• | the strategic objectives, successful integration, anticipated synergies, and/or other expected potential benefits of various acquisitions, including MBS Textbook Exchange, LLC and Student Brands, LLC, may not be fully realized or may take longer than expected; |
• | the integration of the operations of various acquisitions, including MBS Textbook Exchange, LLC and Student Brands, LLC, into our own may also increase the risk of our internal controls being found ineffective; |
• | changes to purchase or rental terms, payment terms, return policies, the discount or margin on products or other terms with our suppliers; |
• | our ability to successfully implement our strategic initiatives including our ability to identify, compete for and execute upon additional acquisitions and strategic investments; |
• | risks associated with operation or performance of MBS Textbook Exchange, LLC’s point-of-sales systems that are sold to college bookstore customers; |
• | technological changes; |
• | risks associated with counterfeit and piracy of digital and print materials; |
• | our international operations could result in additional risks; |
• | our ability to attract and retain employees; |
• | risks associated with data privacy, information security and intellectual property; |
• | trends and challenges to our business and in the locations in which we have stores; |
• | non-renewal of managed bookstore, physical and/or online store contracts and higher-than-anticipated store closings; |
• | disruptions to our information technology systems, infrastructure and data due to computer malware, viruses, hacking and phishing attacks, resulting in harm to our business and results of operations; |
• | disruption of or interference with third party web service providers and our own proprietary technology; |
• | work stoppages or increases in labor costs; |
• | possible increases in shipping rates or interruptions in shipping service; |
• | product shortages, including risks associated with merchandise sourced indirectly from outside the United States; |
• | changes in domestic and international laws or regulations, including U.S. tax reform, changes in tax rates, laws and regulations, as well as related guidance; |
• | enactment of laws which may restrict or prohibit our use of emails or similar marketing activities; |
• | the amount of our indebtedness and ability to comply with covenants applicable to any future debt financing; |
• | our ability to satisfy future capital and liquidity requirements; |
• | our ability to access the credit and capital markets at the times and in the amounts needed and on acceptable terms; |
• | adverse results from litigation, governmental investigations, tax-related proceedings, or audits; |
• | changes in accounting standards; and |
• | the other risks and uncertainties detailed in the section titled “Risk Factors” in Part I - Item 1A in our Annual Report on Form 10-K for the year ended April 28, 2018. |
Period | Total Number of Shares Purchased | Average Price Paid per Share (a) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs | |||||||||
July 29, 2018 - August 25, 2018 | — | $ | — | — | $ | 26,669,324 | |||||||
August 26, 2018 - September 29, 2018 | — | $ | — | — | $ | 26,669,324 | |||||||
September 30, 2018 - October 27, 2018 | — | $ | — | — | $ | 26,669,324 | |||||||
— | $ | — | — |
(a) | This amount represents the average price paid per common share. This price includes a per share commission paid for all repurchases. |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
BARNES & NOBLE EDUCATION, INC. | |||
(Registrant) | |||
By: | /S/ BARRY BROVER | ||
Barry Brover | |||
Chief Financial Officer | |||
(principal financial officer) | |||
By: | /S/ SEEMA PAUL | ||
Seema Paul | |||
Chief Accounting Officer | |||
(principal accounting officer) |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
1. | I have reviewed this report on Form 10-Q for the quarterly period ended October 27, 2018 of Barnes & Noble Education, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
By: | /s/ Michael P. Huseby | |||
Michael P. Huseby | ||||
Chairman and Chief Executive Officer | ||||
Barnes & Noble Education, Inc. |
1. | I have reviewed this report on Form 10-Q for the quarterly period ended October 27, 2018 of Barnes & Noble Education, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
By: | /s/ Barry Brover | |||
Barry Brover | ||||
Chief Financial Officer | ||||
Barnes & Noble Education, Inc. |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Michael P. Huseby | ||
Michael P. Huseby | ||
Chairman and Chief Executive Officer Barnes & Noble Education, Inc. | ||
December 4, 2018 |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Barry Brover | ||
Barry Brover | ||
Chief Financial Officer Barnes & Noble Education, Inc. | ||
December 4, 2018 |
Document and Entity Information - shares |
6 Months Ended | |
---|---|---|
Oct. 27, 2018 |
Nov. 16, 2018 |
|
Document Information [Line Items] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Oct. 27, 2018 | |
Document Fiscal Year Focus | 2019 | |
Document Fiscal Period Focus | Q2 | |
Trading Symbol | BNED | |
Entity Registrant Name | Barnes & Noble Education, Inc. | |
Entity Central Index Key | 0001634117 | |
Current Fiscal Year End Date | --04-30 | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 47,560,662 |
Consolidated Statements of Operations and Comprehensive Loss - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Oct. 27, 2018 |
Oct. 28, 2017 |
Oct. 27, 2018 |
Oct. 28, 2017 |
|
Sales: | ||||
Product sales and other | $ 756,173 | $ 820,071 | $ 1,074,018 | $ 1,155,040 |
Rental income | 58,593 | 66,790 | 78,232 | 87,532 |
Total sales | 814,766 | 886,861 | 1,152,250 | 1,242,572 |
Product and other cost of sales | 568,971 | 630,176 | 827,723 | 907,854 |
Rental cost of sales | 35,035 | 39,985 | 47,157 | 52,818 |
Total cost of sales | 604,006 | 670,161 | 874,880 | 960,672 |
Gross profit | 210,760 | 216,700 | 277,370 | 281,900 |
Selling and administrative expenses | 115,323 | 115,290 | 214,467 | 215,187 |
Depreciation and amortization expense | 16,421 | 16,704 | 32,959 | 31,721 |
Restructuring and other charges | 0 | 193 | 0 | 5,429 |
Transaction costs | 537 | 1,257 | 537 | 1,846 |
Operating (loss) income | 78,479 | 83,256 | 29,407 | 27,717 |
Interest expense, net | 1,836 | 1,836 | 5,358 | 4,874 |
Income (loss) before taxes | 76,643 | 81,420 | 24,049 | 22,843 |
Income tax expense (benefit) | 16,946 | 33,025 | 2,974 | 9,231 |
Net (loss) income | $ 59,697 | $ 48,395 | $ 21,075 | $ 13,612 |
(Loss) Earnings per share of common stock | ||||
Basic | $ 1.26 | $ 1.04 | $ 0.45 | $ 0.29 |
Diluted | $ 1.25 | $ 1.03 | $ 0.44 | $ 0.29 |
Weighted average common shares outstanding | ||||
Basic | 47,184 | 46,705 | 47,050 | 46,611 |
Diluted | 47,824 | 47,006 | 47,689 | 47,144 |
Organization (Notes) |
6 Months Ended |
---|---|
Oct. 27, 2018 | |
Organization | Note 1. Organization Description of Business Barnes & Noble Education, Inc. (“BNED”) is one of the largest contract operators of physical and virtual bookstores for higher education and K-12 institutions across the United States, one of the largest textbook wholesalers, and a leading provider of digital education services. Through its Barnes & Noble College (“BNC”) and MBS Textbook Exchange (“MBS”) subsidiaries, Barnes & Noble Education operates 1,450 physical and virtual bookstores and serves more than 6 million students, delivering essential educational content and tools within a dynamic retail environment. Additionally, through our Digital Student Solutions businesses, we offer direct-to-student products and services to help students study more effectively and improve academic performance. The strengths of our business includes our ability to compete by developing new products and solutions to meet market needs, our large footprint with direct access to students and faculty, our well-established, deep relationships with partners and stable, long-term contracts, and our well-recognized brands. We expect to continue to grow our business by introducing scalable and advanced digital solutions focused largely on the student, increasing market share with new accounts, and expanding our strategic opportunities through acquisitions and partnerships. Effective in the fourth quarter of Fiscal 2018, we have three reportable segments: BNC, MBS, and Digital Student Solutions ("DSS"), as described in Note 6. Segment Reporting. Prior to the fourth quarter of Fiscal 2018, BNC and MBS were our only reportable segments. For additional information related to the strategy and growth drivers for our business, see Part I - Item 1. Business - Overview in our Annual Report on Form 10-K for the year ended April 28, 2018. |
Summary of Significant Accounting Policies (Notes) |
6 Months Ended |
---|---|
Oct. 27, 2018 | |
Summary of Significant Accounting Policies | Note 2. Summary of Significant Accounting Policies Basis of Presentation and Consolidation Our condensed consolidated financial statements reflect our condensed consolidated financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States (“GAAP”). In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements of the Company contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly its consolidated financial position and the results of its operations and cash flows for the periods reported. These condensed consolidated financial statements are condensed and therefore do not include all of the information and footnotes required by GAAP. All material intercompany accounts and transactions have been eliminated in consolidation. On August 3, 2017, we acquired Student Brands, LLC ("Student Brands"). The condensed consolidated financial statements for the 13 and 26 weeks ended October 27, 2018 include the financial results of Student Brands in the DSS segment and the condensed consolidated financial statements for the 13 and 26 weeks ended October 28, 2017 include the financial results of Student Brands in the DSS segment from the acquisition date on August 3, 2017. On August 21, 2018, we acquired the assets of PaperRater.com ("PaperRater"). The condensed consolidated financial statements for the 13 and 26 weeks ended October 27, 2018 include the financial results of PaperRater in the DSS segment from the date of acquisition on August 21, 2018 and the condensed consolidated financial statements for the 13 and 26 weeks ended October 28, 2017 exclude the financial results of PaperRater. See Note 4. Acquisitions for additional information. Our business is highly seasonal. Our quarterly results also may fluctuate depending on the timing of the start of the various schools' semesters, as well as shifts in fiscal calendar dates. These shifts in timing may affect the comparability of our results across periods. Our fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of April. Due to the seasonal nature of the business, the results of operations for the 13 and 26 weeks ended October 27, 2018 are not indicative of the results expected for the 52 weeks ending April 27, 2019 (Fiscal 2019). For certain of our retail operations (BNC and MBS Direct), sales are generally highest in the second and third fiscal quarters, when students purchase and rent textbooks and other course materials, and lowest in the first and fourth fiscal quarters. Sales attributable to our MBS Wholesale business are generally highest in our first and third quarter, as it sells textbooks and other course materials for retail distribution. Our Digital Student Solutions' sales and operating profit are realized relatively consistently throughout the year. Use of Estimates In preparing financial statements in conformity with GAAP, we are required to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Merchandise Inventories Merchandise inventories, which consist of finished goods, are stated at the lower of cost or market. Market value of our inventory, which is all purchased finished goods, is determined based on its estimated net realizable value, which is generally the selling price less normally predictable costs of disposal and transportation. Reserves for non-returnable inventory are based on our history of liquidating non-returnable inventory. Cost is determined primarily by the retail inventory method for our BNC segment and last-in first out, or “LIFO”, method for our MBS segment. Our textbook inventories, for BNC and MBS, and trade book inventories are valued using the LIFO method and the related reserve was not material to the recorded amount of our inventories. For the BNC segment, we also estimate and accrue shortage for the period between the last physical count of inventory and the balance sheet date. Shortage rates are estimated and accrued based on historical rates and can be affected by changes in merchandise mix and changes in actual shortage trends. Textbook Rental Inventories Physical textbooks out on rent are categorized as textbook rental inventories. At the time a rental transaction is consummated, the book is removed from merchandise inventories and moved to textbook rental inventories at cost. The cost of the book is amortized down to its estimated residual value over the rental period. The related amortization expense is included in cost of goods sold. At the end of the rental period, upon return, the book is removed from textbook rental inventories and recorded in merchandise inventories at its amortized cost. Revenue Recognition and Deferred Revenue Product sales and rentals The majority of our revenue relates to the sales of products through our bookstore locations, including virtual bookstores, and our bookstore affiliated ecommerce websites, and contains a single performance obligation. Revenue from sales of our products is recognized at the point in time when control of the products is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for the products. For additional information, see Note 5. Revenue. Retail product revenue is recognized when the customer takes physical possession of our products, which occurs either at the point of sale for products purchased at physical locations or upon receipt of our products by our customers for products ordered through our websites and virtual bookstores. Wholesale product revenue is recognized upon shipment of physical textbooks at which point title passes and risk of loss is transferred to the customer. Additional revenue is recognized for shipping charges billed to customers and shipping costs are accounted for as fulfillment costs within cost of goods sold. Revenue from the rental of physical textbooks, which contains a single performance obligation, is deferred and recognized over the rental period based on the passage of time commencing at the point of sale, when control of the product transfers to the customer. Rental periods are typically for a single semester and are always less than one year in duration. We offer a buyout option to allow the purchase of a rented physical textbook at the end of the rental period if the customer desires to do so. We record the buyout purchase when the customer exercises and pays the buyout option price which is determined at the time of the buyout. In these instances, we accelerate any remaining deferred rental revenue at the point of sale. Revenue from the rental of digital textbooks, which contains a single performance obligation, is recognized at the point of sale. A software feature is embedded within the content of our digital textbooks, such that upon expiration of the rental term the customer is no longer able to access the content. While the digital rental allows the customer to access digital content for a fixed period of time, once the digital content is delivered to the customer, our performance obligation is complete. We estimate returns based on an analysis of historical experience. A provision for anticipated merchandise returns is provided through a reduction of sales and cost of goods sold in the period that the related sales are recorded. For sales and rentals involving third-party products, we evaluate whether we are acting as a principal or an agent. Our determination is based on our evaluation of whether we control the specified goods or services prior to transferring them to the customer. There are significant judgments involved in determining whether we control the specified goods or services prior to transferring them to the customer including whether we have the ability to direct the use of the good or service and obtain substantially all of the remaining benefits from the good or service. For those transactions where we are the principal, we record revenue on a gross basis, and for those transactions where we are an agent to a third-party, we record revenue on a net basis. We do not have gift card or customer loyalty programs. We do not treat any promotional offers as expenses. Sales tax collected from our customers is excluded from reported revenues. Our payment terms are generally 30 days and do not extend beyond one year. Service and other revenue Service and other revenue primarily relates to direct-to-student subscription-based writing service revenues and partnership marketing services which includes promotional activities and advertisements within our physical bookstores and web properties performed on behalf of third-party customers. Subscription-based revenue, which contains a single performance obligation, is deferred and recognized based on the passage of time over the subscription period commencing at the point of sale, when control of the service transfers to the customer. The majority of subscriptions sold are one month in duration. Partnership marketing agreements often include multiple performance obligations which are individually negotiated with our customers. For these arrangements that contain distinct performance obligations, we allocate the transaction price based on the relative standalone selling price method by comparing the standalone selling price (“SSP”) of each distinct performance obligation to the total value of the contract. The revenue is recognized as each performance obligation is satisfied, typically at a point in time for partnership marketing service and overtime for advertising efforts as measured based upon the passage of time for contracts that are based on a stated period of time or the number of impressions delivered for contracts with a fixed number of impressions. Cost of Sales Our cost of sales primarily include costs such as merchandise costs, textbook rental amortization, warehouse costs related to inventory management and order fulfillment, insurance, certain payroll costs, and management service agreement costs, including rent expense, related to our college and university contracts and other facility related expenses. Selling and Administrative Expenses Our selling and administrative expenses consist primarily of store payroll and store operating expenses. Selling and administrative expenses also include stock-based compensation and general office expenses, such as merchandising, field support, finance, employee relations, benefits, training, and information technology for store operations, as well as operating costs related to our subscription-based services. Evaluation of Goodwill and Other Long-Lived Assets As of October 27, 2018, we had $0, $49,282 and $4,700 of goodwill on our condensed consolidated balance sheet related to our BNC, MBS and DSS reporting units, respectively. In accordance with ASC 350-10, Intangibles - Goodwill and Other, we complete our annual goodwill impairment test as of the first day of the third quarter of each fiscal year, or whenever events or changes in circumstances indicate that the carrying amount of the reporting unit exceeds its fair value. Our other long-lived assets include property and equipment and amortizable intangibles. As of October 27, 2018, we had $112,029 and $213,886 of property and equipment and amortizable intangible assets, net of depreciation and amortization, respectively, on our condensed consolidated balance sheet. We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets. Income Taxes As of October 27, 2018, other long-term liabilities includes $40,425 related to the long-term tax payable associated with the LIFO reserve. The LIFO reserve is impacted by changes in the consumer price index ("CPI") and is dependent on the inventory levels at the end of our tax year (on or about January 31st) which is in the middle of our second largest selling cycle. At the end of the most recent tax year, inventory levels within our BNC segment declined as compared to the prior year resulting in approximately $13,369 of the income taxes associated with the LIFO reserve becoming currently payable. Given recent trends relating to the pricing and rental of textbooks, management believes that an additional portion of the remaining long-term tax payable associated with the LIFO reserve could be payable within the next twelve months. We are unable to predict future trends for CPI and inventory levels, therefore it is difficult to project with reasonable certainty how much of this liability will become payable within the next twelve months. Reclassifications Our condensed consolidated financial statements reflect the following reclassifications for consistency with the current year presentation: 1) Cost of Sales expenses primarily related to facility costs and insurance related to corporate services have been reclassified to Selling and Administrative Expenses; and 2) For our digital rental products, we have reclassified Rental Income to Product Sales and Other, and have reclassified Rental Cost of Sales to Product and Other Cost of Sales, with no impact to Gross Margin. Digital rental revenue and digital rental cost of sales are recognized at the time of delivery and are not deferred over the rental period. |
Recent Accounting Pronouncements (Notes) |
6 Months Ended |
---|---|
Oct. 27, 2018 | |
Recent Accounting Pronouncements | Note 3. Recent Accounting Pronouncements In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15"), which requires an entity (customer) in a hosting arrangement that is a service contract to follow the guidance to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The ASU requires upfront implementation costs incurred in a cloud computing arrangement (or hosting arrangement) that is a service contract to be amortized to hosting expense over the term of the arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. We are required to adopt this standard in the first quarter of Fiscal 2021 and early adoption is permitted. The guidance may be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We are currently evaluating this standard to determine the impact of adoption on our condensed consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"), which requires reporting entities to recognize lease assets and lease liabilities on the balance sheet for substantially all lease arrangements. We are required to adopt this standard in the first quarter of Fiscal 2020 and early adoption is permitted. The guidance will be applied on a modified retrospective basis beginning with the earliest period presented. Although we have not yet completed our evaluation of the guidance, or quantified its impact, we believe the most significant impact will be the recognition of right of use assets and liabilities on our condensed consolidated balance sheet. We expect our lease obligations designated as operating leases will be reported on the consolidated balance sheets upon adoption. We are currently in the process of collecting and validating lease data. In addition, we are assessing practical expedients and policy elections offered by the standard, and are evaluating processes and internal controls to meet the accounting, reporting and disclosure requirements. |
Acquisitions (Notes) |
6 Months Ended |
---|---|
Oct. 27, 2018 | |
Business Combinations [Abstract] | |
Business Combination Disclosure [Text Block] | Note 4. Acquisitions On August 21, 2018, we acquired the assets of PaperRater.com ("PaperRater"), a leading website that offers students a suite of writing services aimed at improving multiple facets of writing. PaperRater's services include plagiarism detection, grammar feedback, and an AI-based writing score predictor, and are highly complementary to Student Brands' existing writing service offerings. PaperRater adds millions of pieces of content, from essays and dissertations to personal narratives and speeches, to our growing digital content library. We completed the purchase for cash consideration of $10,000, and the transaction was funded from cash on-hand and availability under our existing Credit Agreement. The preliminary purchase price was allocated primarily as follows: $5,300 intangible assets (primarily content with an estimated useful life of 5 years) and $4,700 goodwill. This acquisition is not material to our condensed consolidated financial statements and therefore, disclosure of pro forma financial information has not been presented. The results of operations reflect the period of ownership of the acquired business. |
Revenue (Notes) |
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Revenue from Contract with Customer [Text Block] | Note 5. Revenue In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. New disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers are also required. We have analyzed the impacts of the guidance across all of our revenue streams and have adopted the standard using the modified retrospective method effective with the first quarter of Fiscal 2019. Financial results for reporting periods beginning after April 28, 2018 are presented in accordance with Topic 606, while comparative period information continues to reflect our historic accounting under the accounting standards in effect for those periods. There was no cumulative change to retained earnings as a result of adopting the guidance. Along with the additional disclosure requirements required by the new standard, we reclassified the product return asset of $8,846, and $2,610 from Merchandise Inventories, Net to Prepaid Expenses and Other Current Assets on the condensed consolidated balance sheets for the periods ended October 28, 2017 and April 28, 2018, respectively. See Note 2. Summary of Significant Accounting Pronouncements for additional information related to our revenue recognition policies and Note 6. Segment Reporting for a description of each segments product and service offerings. Disaggregation of Revenue The following table disaggregates the revenue associated with our major product and service offerings.
Contract Assets and Contract Liabilities Contract assets represent the sale of goods or services to a customer before we have the right to obtain consideration from the customer. Contract assets consist of unbilled amounts at the reporting date and are transferred to accounts receivable when the rights become unconditional. Contract assets (Unbilled Receivables) were $0 as of both October 27, 2018 and April 28, 2018 on our condensed consolidated balance sheets. Contract liabilities represent an obligation to transfer goods or services to a customer for which we have received consideration and consists of our deferred revenue liability (Deferred Revenue). Deferred revenue primarily consists of advanced payments from customers related to textbook rental and subscription-based performance obligations that have not yet been satisfied, as well as unsatisfied performance obligations associated with partnership marketing services. Deferred revenue is recognized ratably over the terms of the related rental or subscription periods, or when the contracted services are provided to our partnership marketing customers. Deferred revenue of $51,126, $56,269, and $20,144 is recorded within Accrued Liabilities on our condensed consolidated balance sheets for the periods ended October 27, 2018, October 28, 2017 and April 28, 2018, respectively. The following table presents changes in contract liabilities during the six months ended October 27, 2018:
As of October 27, 2018, we expect to recognize $50,894 of the deferred revenue balance within in the next 12 months. |
Segment Reporting (Notes) |
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Segment Reporting | Note 6. Segment Reporting Prior to the fourth quarter of Fiscal 2018, we had two reportable segments: BNC and MBS. In connection with our focus on developing digital solutions, during the fourth quarter of Fiscal 2018, the Company realigned its business into the following three reportable segments: BNC, MBS and DSS. Additionally, unallocated shared-service costs, which include various corporate level expenses and other governance functions, are presented as “Corporate Services”. We identified our segments in accordance with the way our business is managed (focusing on the financial information distributed) and the manner in which our chief operating decision maker allocates resources and assesses financial performance. The following summarizes the three segments, with additional information in each respective subsequent segment discussion. BNC The BNC Segment is comprised of the operations of BNC which operates 773 physical campus bookstores, the majority of which also have school-branded e-commerce sites operated by BNC and which offers students access to affordable course materials and affinity products, including emblematic apparel and gifts. BNC also offers its First Day™ inclusive access program, in which course materials, including e-content, are offered at a reduced price through a course materials fee, and delivered to students digitally on or before the first day of class. Additionally, the BNC segment offers a suite of digital content, software, and services to colleges and universities, through our LoudCloud platform, such as predictive analytics, a variety of open educational resources courseware, and a competency-based learning platform. MBS The MBS Segment is comprised of MBS's two highly integrated businesses: MBS Direct which operates 677 virtual bookstores for college and university campuses, and K-12 schools, and MBS Wholesale which is one of the largest textbook wholesalers in the country. MBS Wholesale's business centrally sources and sells new and used textbooks to more than 3,500 physical college bookstores, including BNC’s 773 campus bookstores. MBS Wholesale sells hardware and a software suite of applications that provides inventory management and point-of-sale solutions to over 400 college bookstores. DSS The Digital Student Solutions ("DSS") Segment includes direct-to-student products and services to help students study more effectively and improve academic performance. The DSS segment is comprised of the operations of Student Brands, a leading direct-to-student subscription-based writing services business, and Bartleby Textbook Solutions. The DSS segment also includes tutoring and test prep services offered through our partnership with The Princeton Review. In August 2018, we launched Bartleby Textbook Solutions, our first internally developed product within DSS, on bartleby.com. We expect Bartleby Textbook Solutions to become a central offering in our developing ecosystem of direct-to-student digital products and services, accessible anytime and anywhere, both within our managed bookstore footprint and nationally to students. Also in August 2018, we further expanded Student Brands' writing services via an acquisition of PaperRater, a leading website that offers students a suite of writing services aimed at improving multiple facets of writing. PaperRater's services include plagiarism detection, grammar feedback, and an AI-based writing score predictor, and are highly complementary to Student Brands' existing writing service offerings. We currently offer these digital products and services directly to students, increasingly leveraging our BNC and MBS bookstore footprint. For additional information about the BNC, MBS and DSS segment operations, see Part I - Item 1. Business in our Annual Report on Form 10-K for the year ended April 28, 2018. Corporate Services Corporate Services represent unallocated shared-service costs which include corporate level expenses and other governance functions, including executive functions, such as accounting, legal, treasury, information technology, and human resources. Intercompany Eliminations All material intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements. The eliminations are primarily related to the following intercompany activities:
Summarized financial information for our reportable segments is reported below:
(a) On August 3, 2017, we acquired Student Brands, LLC, a leading direct-to-student subscription-based writing services business. The condensed consolidated financial statements for the 13 and 26 weeks ended October 27, 2018 include the financial results of Student Brands in the DSS segment, and the condensed consolidated financial statements for the 13 and 26 weeks ended October 28, 2017 include the financial results of Student Brands from the date of acquisition on August 3, 2017. On August 21, 2018, we acquired the assets of PaperRater.com, a leading website that offers students a suite of writing services aimed at improving multiple facets of writing. PaperRater’s services include plagiarism detection, grammar feedback, and an AI-based writing score predictor, and are highly complementary to Student Brands’ existing writing service offerings. The condensed consolidated financial statements for the 13 and 26 weeks ended October 27, 2018 include the financial results of PaperRater in the DSS segment from the date of acquisition and the condensed consolidated financial statements for the 13 and 26 weeks ended October 28, 2017 exclude the financial results of PaperRater. (b) During the 26 weeks ended October 28, 2017, we recognized restructuring and other charges totaling approximately $5,361 related to the CEO transition. For additional information, refer to Note 10. Supplementary Information - Restructuring and Other Charges. |
Equity and Earnings Per Share (Notes) |
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Net Earnings (Loss) Per Share | Note 7. Equity and Earnings Per Share Equity Share Repurchases On December 14, 2015, our Board of Directors authorized a stock repurchase program of up to $50,000, in the aggregate, of our outstanding Common Stock. The stock repurchase program is carried out at the direction of management (which may include a plan under Rule 10b5-1 of the Securities Exchange Act of 1934). The stock repurchase program may be suspended, terminated, or modified at any time. Any repurchased shares will be held as treasury stock and will be available for general corporate purposes. During the 26 weeks ended October 27, 2018, we did not repurchase shares of our Common Stock under the program and as of October 27, 2018, approximately $26,669 remains available under the stock repurchase program. During the 26 weeks ended October 27, 2018, we repurchased 349,660 shares of our Common Stock in connection with employee tax withholding obligations for vested stock awards. Earnings Per Share Basic EPS is computed based upon the weighted average number of common shares outstanding for the year. Diluted EPS is computed based upon the weighted average number of common shares outstanding for the year plus the dilutive effect of common stock equivalents using the treasury stock method and the average market price of our common stock for the year. We include participating securities (unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents) in the computation of EPS pursuant to the two-class method. Our participating securities consist solely of unvested restricted stock awards, which have contractual participation rights equivalent to those of stockholders of unrestricted common stock. The two-class method of computing earnings per share is an allocation method that calculates earnings per share for common stock and participating securities. During periods of net loss, no effect is given to the participating securities because they do not share in the losses of the Company. During the 13 and 26 weeks ended October 27, 2018 average shares of 472,748 and 422,776 were excluded from the diluted earnings per share calculation as their inclusion would have been antidilutive, respectively. During the 13 and 26 weeks ended October 28, 2017 average shares of 918,177 and 505,496 were excluded from the diluted earnings per share calculation as their inclusion would have been antidilutive, respectively. The following is a reconciliation of the basic and diluted loss per share calculation:
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Fair Values of Financial Instruments (Notes) |
6 Months Ended |
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Oct. 27, 2018 | |
Fair Values of Financial Instruments | Note 8. Fair Values of Financial Instruments In accordance with ASC No. 820, Fair Value Measurements and Disclosures, the fair value of an asset is considered to be the price at which the asset could be sold in an orderly transaction between unrelated knowledgeable and willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Assets and liabilities recorded at fair value are measured using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1—Observable inputs that reflect quoted prices in active markets Level 2—Inputs other than quoted prices in active markets that are either directly or indirectly observable Level 3—Unobservable inputs in which little or no market data exists, therefore requiring us to develop our own assumptions Our financial instruments include cash and cash equivalents, receivables, accrued liabilities and accounts payable. The fair values of cash and cash equivalents, receivables, accrued liabilities and accounts payable approximates their carrying values because of the short-term nature of these instruments, which are all considered Level 1. The fair value of short-term and long-term debt approximates its carrying value. |
Credit Facility (Notes) |
6 Months Ended |
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Oct. 27, 2018 | |
Credit Facility | Note 9. Credit Facility On August 3, 2015, we and certain of our subsidiaries, entered into a credit agreement (the “Credit Agreement”) under which the lenders committed to provide a five-year asset-backed revolving credit facility in an aggregate committed principal amount of $400,000 (the “Credit Facility”). The Company has the option to request an increase in commitments under the Credit Facility of up to $100,000 subject to certain restrictions. On February 27, 2017, in connection with the acquisition of MBS, we amended the Credit Agreement with our current lenders to add a new $100,000 incremental first in, last out seasonal loan facility (the “FILO Facility”) increasing the maximum availability under the Credit Agreement to $500,000. For additional information including interest terms and covenant requirements related to the Credit Facility, refer to Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity in our Annual Report on Form 10-K for the year ended April 28, 2018. During the 26 weeks ended October 27, 2018, we borrowed $119,900 and repaid $316,300 under the Credit Agreement. There were no outstanding borrowings under the Credit Facility or FILO Facility as of October 27, 2018. As of October 27, 2018, we have issued $4,759 in letters of credit under the Credit Facility. During the 26 weeks ended October 28, 2017, we borrowed $225,400 and repaid $343,200 under the Credit Agreement. The net total outstanding borrowings of $41,800 as of October 28, 2017 is comprised of outstanding borrowings of $41,800 and $0 under the Credit Facility and FILO Facility, respectively. |
Supplementary Information (Notes) |
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Oct. 27, 2018 | |
Supplementary info [Abstract] | |
Supplementary Information [Text Block] | Note 10. Supplementary Information Restructuring and other charges On July 19, 2017, Mr. Max J. Roberts resigned as Chief Executive Officer of the Company and Mr. Michael P. Huseby was appointed to the position of Chief Executive Officer and Chairman of the Board, both effective as of September 19, 2017. Pursuant to the terms of the Retirement Letter Agreement, Mr. Roberts received an aggregate payment of approximately $4,424, comprised of salary, bonus and benefits. In addition, the Company paid Mr. Roberts and Mr. Huseby a one-time cash transition payment of approximately $562 and $250, respectively, at the time of the transition. During the 26 weeks ended October 28, 2017, we recognized expenses totaling approximately $5,361, which is comprised of the severance and transition payments. For additional information, see the Form 8-K dated July 19, 2017, filed with the SEC on July 20, 2017. |
Employees Benefit Plan (Notes) |
6 Months Ended |
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Oct. 27, 2018 | |
Employees' Defined Contribution Plan | Note 11. Employee Benefit Plans We sponsor defined contribution plans for the benefit of substantially all of the employees of BNC and DSS. MBS maintains a profit sharing plan covering substantially all full-time employees of MBS. For all plans, we are responsible to fund the employer contributions directly. Total employee benefit expense for these plans was $1,384 and $1,766 during the 13 weeks ended October 27, 2018 and October 28, 2017, respectively and $3,469 and $3,765 during the 26 weeks ended October 27, 2018 and October 28, 2017, respectively. |
Stock-Based Compensation Stock-Based Compensation (Notes) |
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Disclosure of Compensation Related Costs, Share-based Payments [Text Block] | Note 12. Stock-Based Compensation We recognize compensation expense for awards ratably over the requisite service period of the award, which is generally three years. We recognize compensation expense based on the number of awards expected to vest using an estimated average forfeiture rate. We calculate the fair value of stock-based awards based on the closing price on the date the award was granted. During the 26 weeks ended October 27, 2018, we granted the following awards:
We recognized stock-based compensation expense for equity-based awards in selling and administrative expenses as follows:
(a) The stock-based compensation expense for the 13 and 26 weeks ended October 28, 2017 for the restricted stock units reflect a forfeiture adjustment for unvested shares related to the CEO transition. See Note 10. Supplementary Information - Restructuring and Other Charges for additional information. (b) The stock-based compensation expense for performance shares and performance share units reflect a catch-up adjustment for a change in expected level of achievement of the respective grants. Total unrecognized compensation cost related to unvested awards as of October 27, 2018 was $17,942 and is expected to be recognized over a weighted-average period of 2.2 years. Approximately $2,498 of the unrecognized compensation cost is related to performance shares and performance share units, which is subject to attaining the stated performance metrics. |
Income Taxes Income Taxes (Notes) |
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Oct. 27, 2018 | |
Income Tax Disclosure [Abstract] | |
Income Tax Disclosure [Text Block] | Note 13. Income Taxes We recorded an income tax expense of $16,946 on a pre-tax income of $76,643 during the 13 weeks ended October 27, 2018, which represented an effective income tax rate of 22.1% and an income tax expense of $33,025 on pre-tax income of $81,420 during the 13 weeks ended October 28, 2017, which represented an effective income tax rate of 40.6%. We recorded an income tax expense of $2,974 on pre-tax income of $24,049 during the 26 weeks ended October 27, 2018, which represented an effective income tax rate of 12.4% and an income tax expense of $9,231 on pre-tax income of $22,843 during the 26 weeks ended October 28, 2017, which represented an effective income tax rate of 40.4%. The effective tax rate for the 13 and 26 weeks ended October 27, 2018 is significantly lower as compared to the comparable prior year period due to the tax benefit of U.S. Tax Reform, partially offset by permanent differences. Impact of U.S. Tax Reform The Tax Cuts and Jobs Act (the "Act") was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21% and requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, among other provisions. As of October 27, 2018, we had not completed the accounting for the tax effects of enactment of the Act; however, as described below, we have made a reasonable estimate of the effects on existing deferred tax balances and the one-time transition tax in accordance with SAB 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act” (SAB 118). These amounts are provisional and subject to change within the measurement period proscribed by SAB 118 which is not to extend beyond one year from the enactment date. The most significant impact of the legislation for the Company was a $20,425 reduction of the value of our net deferred (which represents future tax liabilities) and long-term tax liabilities as a result of lowering the U.S. corporate income tax rate from 35% to 21%, which was recorded in Fiscal 2018. During the second quarter of Fiscal 2019, we recorded an additional measurement period adjustment to further reduce our net deferred tax liability by $3,815 as a result of accelerating certain deductions as permitted by the U.S. tax code. This measurement period adjustment reduced the Company's effective tax rate by 5.0% and 16.0% during the 13 and 26 weeks ended October 27, 2018, respectively. We have provisionally recorded a liability associated with the one-time transition tax. This amount is not material. All amounts associated with the Act recognized as of October 27, 2018 are provisional. We expect to complete the accounting for the impacts of the Act in the third quarter of Fiscal 2019. |
Legal Proceedings (Notes) |
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Oct. 27, 2018 | |
Legal Proceedings | Note 14. Legal Proceedings We are involved in a variety of claims, suits, investigations and proceedings that arise from time to time in the ordinary course of our business, including actions with respect to contracts, intellectual property, taxation, employment, benefits, personal injuries and other matters. The results of these proceedings in the ordinary course of business are not expected to have a material adverse effect on our condensed consolidated financial position, results of operations, or cash flows. |
Summary of Significant Accounting Policies (Policies) |
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Reclassification, Policy [Policy Text Block] | Reclassifications Our condensed consolidated financial statements reflect the following reclassifications for consistency with the current year presentation: 1) Cost of Sales expenses primarily related to facility costs and insurance related to corporate services have been reclassified to Selling and Administrative Expenses; and 2) For our digital rental products, we have reclassified Rental Income to Product Sales and Other, and have reclassified Rental Cost of Sales to Product and Other Cost of Sales, with no impact to Gross Margin. Digital rental revenue and digital rental cost of sales are recognized at the time of delivery and are not deferred over the rental period. |
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Income Tax, Policy [Policy Text Block] | Income Taxes As of October 27, 2018, other long-term liabilities includes $40,425 related to the long-term tax payable associated with the LIFO reserve. The LIFO reserve is impacted by changes in the consumer price index ("CPI") and is dependent on the inventory levels at the end of our tax year (on or about January 31st) which is in the middle of our second largest selling cycle. At the end of the most recent tax year, inventory levels within our BNC segment declined as compared to the prior year resulting in approximately $13,369 of the income taxes associated with the LIFO reserve becoming currently payable. Given recent trends relating to the pricing and rental of textbooks, management believes that an additional portion of the remaining long-term tax payable associated with the LIFO reserve could be payable within the next twelve months. We are unable to predict future trends for CPI and inventory levels, therefore it is difficult to project with reasonable certainty how much of this liability will become payable within the next twelve months. |
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Basis of Presentation | Basis of Presentation and Consolidation Our condensed consolidated financial statements reflect our condensed consolidated financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States (“GAAP”). In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements of the Company contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly its consolidated financial position and the results of its operations and cash flows for the periods reported. These condensed consolidated financial statements are condensed and therefore do not include all of the information and footnotes required by GAAP. All material intercompany accounts and transactions have been eliminated in consolidation. On August 3, 2017, we acquired Student Brands, LLC ("Student Brands"). The condensed consolidated financial statements for the 13 and 26 weeks ended October 27, 2018 include the financial results of Student Brands in the DSS segment and the condensed consolidated financial statements for the 13 and 26 weeks ended October 28, 2017 include the financial results of Student Brands in the DSS segment from the acquisition date on August 3, 2017. On August 21, 2018, we acquired the assets of PaperRater.com ("PaperRater"). The condensed consolidated financial statements for the 13 and 26 weeks ended October 27, 2018 include the financial results of PaperRater in the DSS segment from the date of acquisition on August 21, 2018 and the condensed consolidated financial statements for the 13 and 26 weeks ended October 28, 2017 exclude the financial results of PaperRater. See Note 4. Acquisitions for additional information. Our business is highly seasonal. Our quarterly results also may fluctuate depending on the timing of the start of the various schools' semesters, as well as shifts in fiscal calendar dates. These shifts in timing may affect the comparability of our results across periods. Our fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of April. Due to the seasonal nature of the business, the results of operations for the 13 and 26 weeks ended October 27, 2018 are not indicative of the results expected for the 52 weeks ending April 27, 2019 (Fiscal 2019). For certain of our retail operations (BNC and MBS Direct), sales are generally highest in the second and third fiscal quarters, when students purchase and rent textbooks and other course materials, and lowest in the first and fourth fiscal quarters. Sales attributable to our MBS Wholesale business are generally highest in our first and third quarter, as it sells textbooks and other course materials for retail distribution. Our Digital Student Solutions' sales and operating profit are realized relatively consistently throughout the year. |
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Use of Estimates | Use of Estimates In preparing financial statements in conformity with GAAP, we are required to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. |
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Merchandise Inventories | Merchandise Inventories Merchandise inventories, which consist of finished goods, are stated at the lower of cost or market. Market value of our inventory, which is all purchased finished goods, is determined based on its estimated net realizable value, which is generally the selling price less normally predictable costs of disposal and transportation. Reserves for non-returnable inventory are based on our history of liquidating non-returnable inventory. Cost is determined primarily by the retail inventory method for our BNC segment and last-in first out, or “LIFO”, method for our MBS segment. Our textbook inventories, for BNC and MBS, and trade book inventories are valued using the LIFO method and the related reserve was not material to the recorded amount of our inventories. For the BNC segment, we also estimate and accrue shortage for the period between the last physical count of inventory and the balance sheet date. Shortage rates are estimated and accrued based on historical rates and can be affected by changes in merchandise mix and changes in actual shortage trends. |
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Textbook Rentals Inventories | Textbook Rental Inventories Physical textbooks out on rent are categorized as textbook rental inventories. At the time a rental transaction is consummated, the book is removed from merchandise inventories and moved to textbook rental inventories at cost. The cost of the book is amortized down to its estimated residual value over the rental period. The related amortization expense is included in cost of goods sold. At the end of the rental period, upon return, the book is removed from textbook rental inventories and recorded in merchandise inventories at its amortized cost. |
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Revenue Recognition | Revenue Recognition and Deferred Revenue Product sales and rentals The majority of our revenue relates to the sales of products through our bookstore locations, including virtual bookstores, and our bookstore affiliated ecommerce websites, and contains a single performance obligation. Revenue from sales of our products is recognized at the point in time when control of the products is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for the products. For additional information, see Note 5. Revenue. Retail product revenue is recognized when the customer takes physical possession of our products, which occurs either at the point of sale for products purchased at physical locations or upon receipt of our products by our customers for products ordered through our websites and virtual bookstores. Wholesale product revenue is recognized upon shipment of physical textbooks at which point title passes and risk of loss is transferred to the customer. Additional revenue is recognized for shipping charges billed to customers and shipping costs are accounted for as fulfillment costs within cost of goods sold. Revenue from the rental of physical textbooks, which contains a single performance obligation, is deferred and recognized over the rental period based on the passage of time commencing at the point of sale, when control of the product transfers to the customer. Rental periods are typically for a single semester and are always less than one year in duration. We offer a buyout option to allow the purchase of a rented physical textbook at the end of the rental period if the customer desires to do so. We record the buyout purchase when the customer exercises and pays the buyout option price which is determined at the time of the buyout. In these instances, we accelerate any remaining deferred rental revenue at the point of sale. Revenue from the rental of digital textbooks, which contains a single performance obligation, is recognized at the point of sale. A software feature is embedded within the content of our digital textbooks, such that upon expiration of the rental term the customer is no longer able to access the content. While the digital rental allows the customer to access digital content for a fixed period of time, once the digital content is delivered to the customer, our performance obligation is complete. We estimate returns based on an analysis of historical experience. A provision for anticipated merchandise returns is provided through a reduction of sales and cost of goods sold in the period that the related sales are recorded. For sales and rentals involving third-party products, we evaluate whether we are acting as a principal or an agent. Our determination is based on our evaluation of whether we control the specified goods or services prior to transferring them to the customer. There are significant judgments involved in determining whether we control the specified goods or services prior to transferring them to the customer including whether we have the ability to direct the use of the good or service and obtain substantially all of the remaining benefits from the good or service. For those transactions where we are the principal, we record revenue on a gross basis, and for those transactions where we are an agent to a third-party, we record revenue on a net basis. We do not have gift card or customer loyalty programs. We do not treat any promotional offers as expenses. Sales tax collected from our customers is excluded from reported revenues. Our payment terms are generally 30 days and do not extend beyond one year. Service and other revenue Service and other revenue primarily relates to direct-to-student subscription-based writing service revenues and partnership marketing services which includes promotional activities and advertisements within our physical bookstores and web properties performed on behalf of third-party customers. Subscription-based revenue, which contains a single performance obligation, is deferred and recognized based on the passage of time over the subscription period commencing at the point of sale, when control of the service transfers to the customer. The majority of subscriptions sold are one month in duration. Partnership marketing agreements often include multiple performance obligations which are individually negotiated with our customers. For these arrangements that contain distinct performance obligations, we allocate the transaction price based on the relative standalone selling price method by comparing the standalone selling price (“SSP”) of each distinct performance obligation to the total value of the contract. The revenue is recognized as each performance obligation is satisfied, typically at a point in time for partnership marketing service and overtime for advertising efforts as measured based upon the passage of time for contracts that are based on a stated period of time or the number of impressions delivered for contracts with a fixed number of impressions. |
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Cost of Sales, Policy [Policy Text Block] | Cost of Sales Our cost of sales primarily include costs such as merchandise costs, textbook rental amortization, warehouse costs related to inventory management and order fulfillment, insurance, certain payroll costs, and management service agreement costs, including rent expense, related to our college and university contracts and other facility related expenses. |
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Selling, General and Administrative Expenses, Policy [Policy Text Block] | Selling and Administrative Expenses Our selling and administrative expenses consist primarily of store payroll and store operating expenses. Selling and administrative expenses also include stock-based compensation and general office expenses, such as merchandising, field support, finance, employee relations, benefits, training, and information technology for store operations, as well as operating costs related to our subscription-based services. |
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Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block] | Evaluation of Goodwill and Other Long-Lived Assets As of October 27, 2018, we had $0, $49,282 and $4,700 of goodwill on our condensed consolidated balance sheet related to our BNC, MBS and DSS reporting units, respectively. In accordance with ASC 350-10, Intangibles - Goodwill and Other, we complete our annual goodwill impairment test as of the first day of the third quarter of each fiscal year, or whenever events or changes in circumstances indicate that the carrying amount of the reporting unit exceeds its fair value. |
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Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block] | Our other long-lived assets include property and equipment and amortizable intangibles. As of October 27, 2018, we had $112,029 and $213,886 of property and equipment and amortizable intangible assets, net of depreciation and amortization, respectively, on our condensed consolidated balance sheet. We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets. |
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Consolidation, Subsidiaries or Other Investments, Consolidated Entities, Policy [Policy Text Block] | Intercompany Eliminations All material intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements. The eliminations are primarily related to the following intercompany activities:
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Share Repurchase [Policy Text Block] | Share Repurchases On December 14, 2015, our Board of Directors authorized a stock repurchase program of up to $50,000, in the aggregate, of our outstanding Common Stock. The stock repurchase program is carried out at the direction of management (which may include a plan under Rule 10b5-1 of the Securities Exchange Act of 1934). The stock repurchase program may be suspended, terminated, or modified at any time. Any repurchased shares will be held as treasury stock and will be available for general corporate purposes. |
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Fair Values of Financial Instruments | In accordance with ASC No. 820, Fair Value Measurements and Disclosures, the fair value of an asset is considered to be the price at which the asset could be sold in an orderly transaction between unrelated knowledgeable and willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Assets and liabilities recorded at fair value are measured using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1—Observable inputs that reflect quoted prices in active markets Level 2—Inputs other than quoted prices in active markets that are either directly or indirectly observable Level 3—Unobservable inputs in which little or no market data exists, therefore requiring us to develop our own assumptions Our financial instruments include cash and cash equivalents, receivables, accrued liabilities and accounts payable. The fair values of cash and cash equivalents, receivables, accrued liabilities and accounts payable approximates their carrying values because of the short-term nature of these instruments, which are all considered Level 1. The fair value of short-term and long-term debt approximates its carrying value. |
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Net Earnings (Loss) Per Share | Earnings Per Share Basic EPS is computed based upon the weighted average number of common shares outstanding for the year. Diluted EPS is computed based upon the weighted average number of common shares outstanding for the year plus the dilutive effect of common stock equivalents using the treasury stock method and the average market price of our common stock for the year. We include participating securities (unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents) in the computation of EPS pursuant to the two-class method. Our participating securities consist solely of unvested restricted stock awards, which have contractual participation rights equivalent to those of stockholders of unrestricted common stock. The two-class method of computing earnings per share is an allocation method that calculates earnings per share for common stock and participating securities. During periods of net loss, no effect is given to the participating securities because they do not share in the losses of the Company. |
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Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block] | We recognize compensation expense for awards ratably over the requisite service period of the award, which is generally three years. We recognize compensation expense based on the number of awards expected to vest using an estimated average forfeiture rate. We calculate the fair value of stock-based awards based on the closing price on the date the award was granted. |
Revenue (Tables) |
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Disaggregation of Revenue [Table Text Block] | Disaggregation of Revenue The following table disaggregates the revenue associated with our major product and service offerings.
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Contract with Customer, Asset and Liability [Table Text Block] | The following table presents changes in contract liabilities during the six months ended October 27, 2018:
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Segment Reporting Segment Reporting (Tables) |
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Schedule of Segment Reporting Information, by Segment [Table Text Block] | Summarized financial information for our reportable segments is reported below:
(a) On August 3, 2017, we acquired Student Brands, LLC, a leading direct-to-student subscription-based writing services business. The condensed consolidated financial statements for the 13 and 26 weeks ended October 27, 2018 include the financial results of Student Brands in the DSS segment, and the condensed consolidated financial statements for the 13 and 26 weeks ended October 28, 2017 include the financial results of Student Brands from the date of acquisition on August 3, 2017. On August 21, 2018, we acquired the assets of PaperRater.com, a leading website that offers students a suite of writing services aimed at improving multiple facets of writing. PaperRater’s services include plagiarism detection, grammar feedback, and an AI-based writing score predictor, and are highly complementary to Student Brands’ existing writing service offerings. The condensed consolidated financial statements for the 13 and 26 weeks ended October 27, 2018 include the financial results of PaperRater in the DSS segment from the date of acquisition and the condensed consolidated financial statements for the 13 and 26 weeks ended October 28, 2017 exclude the financial results of PaperRater. (b) During the 26 weeks ended October 28, 2017, we recognized restructuring and other charges totaling approximately $5,361 related to the CEO transition. For additional information, refer to Note 10. Supplementary Information - Restructuring and Other Charges. |
Net Earnings (Loss) Per Share (Tables) |
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Reconciliation of Basic and Diluted Loss Per Share | The following is a reconciliation of the basic and diluted loss per share calculation:
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Stock-Based Compensation Stock-Based Compensation (Tables) |
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Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Table Text Block] | We recognized stock-based compensation expense for equity-based awards in selling and administrative expenses as follows:
(a) The stock-based compensation expense for the 13 and 26 weeks ended October 28, 2017 for the restricted stock units reflect a forfeiture adjustment for unvested shares related to the CEO transition. See Note 10. Supplementary Information - Restructuring and Other Charges for additional information. (b) The stock-based compensation expense for performance shares and performance share units reflect a catch-up adjustment for a change in expected level of achievement of the respective grants. |
Organization - Additional Information (Detail) Person in Millions |
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Store
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Organization Consolidation And Presentation Of Financial Statements [Line Items] | |
Number of Stores | Store | 1,450 |
Number of students covered to build relationships and derive sales | Person | 6 |
Summary of Significant Accounting Policies Summary of Significant Accounting Policies (Details) - USD ($) $ in Thousands |
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Goodwill | $ 53,982 | $ 49,282 | $ 362,412 |
Property, Plant and Equipment, Net | 112,029 | 111,287 | 115,734 |
Intangible Assets, Net (Excluding Goodwill) | 213,886 | 219,129 | 229,498 |
Liabilities, Current | 613,356 | $ 413,465 | $ 643,116 |
Deferred Tax Asset Current [Member] | |||
Liabilities, Noncurrent | 40,425 | ||
Liabilities, Current | 13,369 | ||
MBS [Member] | |||
Goodwill | 49,282 | ||
BNC [Member] | |||
Goodwill | 0 | ||
DSS [Member] | |||
Goodwill | $ 4,700 |
Acquisitions (Details) $ in Thousands |
6 Months Ended |
---|---|
Oct. 27, 2018
USD ($)
| |
Business Combinations [Abstract] | |
Business Combination, Consideration Transferred | $ 10,000 |
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles | $ 5,300 |
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life | 5 years |
Goodwill, Acquired During Period | $ 4,700 |
Credit Facility - Additional Information (Details) - USD ($) $ in Thousands |
6 Months Ended | |||||
---|---|---|---|---|---|---|
Oct. 27, 2018 |
Oct. 28, 2017 |
Apr. 28, 2018 |
Jan. 27, 2018 |
Feb. 27, 2017 |
Aug. 03, 2015 |
|
Line of Credit Facility [Line Items] | ||||||
Line Of Credit Potential Increase Amount | $ 100,000 | |||||
Proceeds from Lines of Credit | $ 119,900 | $ 225,400 | ||||
Repayments of Lines of Credit | 316,300 | 343,200 | ||||
Loans Payable to Bank | 0 | 41,800 | ||||
Letters of Credit Outstanding, Amount | 4,759 | |||||
Long-term Line of Credit, Noncurrent | 0 | 41,800 | $ 96,400 | |||
Short-term Debt | $ 0 | $ 0 | $ 100,000 | |||
Revolving Credit Facility [Member] | ||||||
Line of Credit Facility [Line Items] | ||||||
Line of Credit Facility, Maximum Borrowing Capacity | $ 400,000 | |||||
New Credit Facility [Member] | ||||||
Line of Credit Facility [Line Items] | ||||||
Line of Credit Facility, Maximum Borrowing Capacity | $ 500,000 | |||||
FILO [Member] | ||||||
Line of Credit Facility [Line Items] | ||||||
Line of Credit Facility, Maximum Borrowing Capacity | $ 100,000 |
Supplementary Information (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended |
---|---|---|
Jul. 29, 2017 |
Oct. 28, 2017 |
|
Deferred Compensation Arrangement with Individual, Compensation Expense | $ 5,361 | |
Max Roberts [Member] | ||
Deferred Compensation Arrangement with Individual, Compensation Expense | $ 4,424 | |
Michael Huseby [Member] | ||
Deferred Compensation Arrangement with Individual, Compensation Expense | 250 | |
Max Roberts [Member] | ||
Deferred Compensation Arrangement with Individual, Compensation Expense | $ 562 |
Employees Benefit Plans - Additional Information (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Oct. 27, 2018 |
Oct. 28, 2017 |
Oct. 27, 2018 |
Oct. 28, 2017 |
|
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items] | ||||
Company contributions, employee benefit expenses | $ 1,384 | $ 1,766 | $ 3,469 | $ 3,765 |
Income Taxes Income Taxes (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Oct. 27, 2018 |
Oct. 28, 2017 |
Oct. 27, 2018 |
Oct. 28, 2017 |
|
Income Tax Disclosure [Abstract] | ||||
Income Tax Expense (Benefit) | $ 16,946 | $ 33,025 | $ 2,974 | $ 9,231 |
Income (Loss) from Continuing Operations before Equity Method Investments, Income Taxes, Noncontrolling Interest | $ 76,643 | $ 81,420 | $ 24,049 | $ 22,843 |
Effective Income Tax Rate Reconciliation, Percent | 22.10% | 40.60% | 12.40% | 40.40% |
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent | 35.00% | |||
Effective Income Tax Rate Reconciliation, Change in Enacted Tax Rate, Percent | 21.00% | |||
Effective Income Tax Rate Reconciliation, Change in Enacted Tax Rate, Amount | $ 3,815 | $ 20,425 | ||
Effective Income Tax Rate Reconciliation, Other Adjustments, Percent | 5.00% | 16.00% |
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