Barnes & noble education reports second quarter 2018 financial results
Basking ridge, n.j.--(business wire)--barnes & noble education, inc. (nyse: bned), a leading provider of educational products and services solutions for higher education and k-12 institutions, today reported sales and earnings for the second quarter for fiscal year 2018. the company has two reportable segments: barnes & noble college booksellers, llc (“bnc”) and mbs textbook exchange, llc (“mbs”). financial highlights for the second quarter 2018 and fiscal year to date 2018: consolidated sales of $886.9 million increased 15.1%, as compared to the prior year period; year to date consolidated sales of $1,242.6 million increased 23.0% as compared to the prior year period. consolidated second quarter gaap net income of $48.4 million, as compared to $29.3 million in the prior year period; year to date gaap net income of $13.6 million, as compared to $1.4 million in the prior year period. consolidated second quarter non-gaap adjusted ebitda of $102.4 million, an increase of $32.0 million, as compared to the prior year period; year to date non-gaap adjusted ebitda of $70.0 million, an increase of $36.1 million, as compared to the prior year period. consolidated second quarter non-gaap adjusted earnings of $49.9 million, as compared to $29.7 million in the prior year period; year to date non-gaap adjusted earnings of $20.1 million, as compared to $3.8 million in the prior year period. operational highlights for the second quarter 2018: expanded reach of bned courseware, offering open educational resources (“oer”) content to approximately 13,000 students at community colleges, four-year public universities and four-year private universities. continued to recognize benefits from the mbs integration, as mbs contributed $134.9 million in sales and $19.2 million of adjusted ebitda in the second quarter of fiscal year 2018. completed the acquisition of student brands, llc, a leading direct-to-student subscription-based writing services business, on august 3, 2017 for $57.4 million. student brands contributed $4.5 million in sales and $2.4 million of adjusted ebitda to bnc’s results in the second quarter of fiscal year 2018. renewed partnership with target corporation to promote its brand and college essentials to bned customer base for the fall of 2018. “our substantially increased financial results in the second quarter reflect the contributions of our recent acquisitions of mbs and student brands. while both of these teams continue to perform financially, we are even more encouraged by their respective potential contributions to bned’s longer term competitive position,” said michael p. huseby, chairman and chief executive officer, barnes & noble education. “given our evolving industry, we remain focused on transforming our business to become a leading aggregator and distributor of both physical and digital educational content, and on developing expanded direct-to-student digital services that we can offer both in and outside of our managed stores footprint. with the addition of student brands and our recently announced partnership with the princeton review, we are building what we plan to offer as a full suite of such services.” second quarter 2018 and year to date results results for the 13 and 26 weeks of fiscal 2018 and fiscal 2017 are as follows: 13 weeks 13 weeks 26 weeks 26 weeks 2018 2017 non-gaap(1) $102.4 $70.4 $70.0 $33.9 consolidated second quarter sales of $886.9 million increased $116.2 million, or 15.1%, as compared to the prior year period. this increase was primarily attributable to the contributions from the mbs and student brands acquisitions, net new stores opened at bnc, partially offset by the impact from declining comparable store sales at bnc. comparable store sales at bnc decreased 4.4% for the quarter representing approximately $33.8 million in revenue. the decrease is primarily attributable to textbook sales, which were down 5.0% compared with a decrease of 3.7% in the prior year period and a decrease in general merchandise sales of 1.9% compared with a decrease of 1.3% in the prior year period. second quarter net income was $48.4 million, or $1.03 per diluted share, compared to net income of $29.3 million, or $0.63 per diluted share, in the prior year period. the current year’s fiscal quarter has 47.0 million diluted shares outstanding, while the prior year period had 46.6 million diluted shares outstanding. the company reported non-gaap adjusted earnings of $49.9 million during the quarter, compared with $29.7 million in the prior year period. the company’s adjusted ebitda was $102.4 million for the quarter, as compared to $70.4 million in the prior year period, an increase due primarily to the contributions from the mbs and student brands acquisitions, partially offset by the impact from lower comparable store sales at bnc. as a result of the acquisition of mbs on february 27, 2017 and the acquisition of student brands on august 3, 2017, the condensed consolidated financial statements for the 13 weeks and 26 weeks ended october 28, 2017 include the financial results of mbs and student brands. all material intercompany accounts and transactions have been eliminated in consolidation. the condensed consolidated financial statements for the 13 weeks and 26 weeks ended october 28, 2016 do not include any financial results of mbs and student brands. outlook for fiscal year 2018, the company expects sales at bnc to be relatively flat, while bnc comparable store sales are projected to decline in the low-to mid-single digit percentage point range year over year. in addition, the company expects consolidated sales to be in the range of $2.25 billion to $2.35 billion before intercompany eliminations. the company expects bned’s consolidated adjusted ebitda to be in a range of $105 million to $120 million. capital expenditures are expected to be approximately $50 million, an increase from fiscal 2017 due to new store growth at bnc. conference call a conference call with barnes & noble education, inc. senior management will be webcast at 10:00 a.m. eastern time on tuesday, december 5, 2017 and can be accessed at the barnes & noble education corporate website at www.bned.com. barnes & noble education expects to report fiscal 2018 third quarter results on or about march 6, 2018. about barnes & noble education, inc. barnes & noble education, inc. (nyse: bned), a leading provider of educational products and services solutions for higher education and k-12 institutions, enhances the academic and social purpose of educational institutions. through its barnes & noble college and mbs subsidiaries, barnes & noble education operates 1,483 physical and virtual bookstores and serves more than 6 million students and faculty, and offers a suite of digital software, content and services including direct-to-student study tools. the company also operates one of the largest textbook wholesale distribution channels in the united states. barnes & noble education acts as a strategic partner to drive student success, provide value and support to students and faculty, and create loyalty and improve retention, while supporting the financial goals of our college and university partners. bned companies include: barnes & noble college booksellers, llc, mbs textbook exchange, llc, bned loudcloud, llc, student brands, llc, and promoversity, llc. general information on barnes & noble education may be obtained by visiting the company's corporate website: www.bned.com. forward-looking statements this press release contains certain “forward-looking statements” within the meaning of the private securities litigation reform act of 1995 and information relating to us and our business that are based on the beliefs of our management as well as assumptions made by and information currently available to our management. when used in this communication, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “will,” “forecasts,” “projections,” and similar expressions, as they relate to us or our management, identify forward-looking statements. moreover, we operate in a very competitive and rapidly changing environment. new risks emerge from time to time. it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. in light of these risks, uncertainties and assumptions, the future events and trends discussed in this press release may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. such statements reflect our current views with respect to future events, the outcome of which is subject to certain risks, including, among others: 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; the general economic environment and consumer spending patterns; decreased consumer demand for our products, low growth or declining sales; our ability to continue to successfully integrate the operations of mbs textbook exchange, llc into our company; the strategic objectives, anticipated synergies, and/or other expected potential benefits of various acquisitions may not be fully realized or may take longer than expected; the integration of mbs textbook exchange, llc’s operations into our own may also increase the risk of our internal controls being found ineffective; risks associated with operation or performance of mbs textbook exchange, llc’s point-of-sales systems that are sold to college bookstore customers; 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 higher education digital products, and the inability to achieve the expected cost savings; our ability to successfully implement our strategic initiatives including our ability to identify, compete for and execute upon additional acquisitions and strategic investments; 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; the risk of price reduction or change in format of course materials by publishers, which could negatively impact revenues and margin; changes to purchase or rental general terms, payment terms, return policies, the discount or margin on products or other terms with our suppliers; 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, obsolete or excessive inventory; product shortages, including risks associated with merchandise sourced indirectly from outside the united states; changes in law or regulation; 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 or 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 29, 2017. should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described as anticipated, believed, estimated, expected, intended or planned. subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements in this paragraph. we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this press release. explanatory note effective with the acquisition of mbs textbook exchange, llc ("mbs") on february 27, 2017, we determined that we have two reportable segments: barnes & noble college booksellers, llc ("bnc") and mbs, whereas bnc was previously our only reportable segment prior to the acquisition. the condensed consolidated financial statements for the 13 and 26 weeks ended october 28, 2017 include the financial results of mbs and all material intercompany accounts and transactions have been eliminated in consolidation. the condensed consolidated financial statements for the 13 and 26 weeks ended october 29, 2016 exclude the financial results of mbs. bnc operates 777 physical campus bookstores, the majority of which also have school-branded e-commerce sites operated by bnc, and bnc also includes our digital operations. mbs operates 706 virtual bookstores and is the largest contract operator of virtual bookstores for college and university campuses, and private/parochial k-12 schools. mbs is also one of the largest textbook wholesalers in the country. mbs's wholesale business centrally sources and sells new and used textbooks to more than 3,700 physical college bookstores, including bnc’s 777 campus bookstores. on august 3, 2017, we acquired student brands, llc ("student brands"), a leading direct-to-student subscription-based writing services business. the condensed consolidated financial statements for the 13 and 26 weeks ended october 28, 2017 include the financial results of student brands in the bnc segment from the date of acquisition and all material intercompany accounts and transactions have been eliminated in consolidation, the condensed consolidated financial statements for the 13 and 26 weeks ended october 29, 2016 exclude the financial results of student brands. barnes & noble education, inc. and subsidiaries condensed consolidated statements of operations (in thousands, except per share data) (unaudited) barnes & noble education, inc. and subsidiaries condensed consolidated balance sheets (in thousands, except per share data) (unaudited) common stock, $0.01 par value; authorized, 200,000 shares; issued, 50,028 and 48,972 shares, respectively; outstanding, 46,914 and 46,276 shares, respectively barnes & noble education, inc. and subsidiaries earnings per share (in thousands, except per share data) (unaudited) barnes & noble education, inc. and subsidiaries segment information (in thousands, except percentages) (unaudited) segment information (a) october 28,2017 october 29,2016 october 28,2017 october 29,2016 percentage of segment sales october 28,2017 october 29,2016 october 28,2017 october 29,2016 (a) effective with the acquisition of mbs textbook exchange, llc ("mbs") on february 27, 2017, we determined that we have two reportable segments: barnes & noble college booksellers, llc ("bnc") and mbs, whereas bnc was previously our only reportable segment prior the acquisition. for more information, see the explanatory note. (b) excludes $1,025 and $3,273 of incremental cost of sales related to inventory fair value amortization for the 13 and 26 weeks ended october 28, 2017, respectively. (c) for additional information, see note (a) in the non-gaap disclosure information of this press release. barnes & noble education, inc. and subsidiaries consolidated non-gaap information (in thousands) (unaudited) october 28,2017 october 29,2016 october 28,2017 october 29,2016 october 28,2017 october 29,2016 october 28,2017 october 29,2016 (a) for the 13 and 26 weeks ended october 28, 2017, gross margin includes $1.0 million and $3.3 million of incremental cost of sales related to amortization of the mbs inventory fair value adjustment of $3.7 million recorded as of the acquisition date, february 27, 2017. the non-cash fair value inventory adjustment for mbs was recognized over six months from the date of acquisition and was allocated based on monthly sales. (b) 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 $4.4 million, comprised of salary, bonus and benefits. in addition, the company paid mr. roberts and mr. huseby a one-time cash transition payment of approximately $0.5 million and $0.3 million, respectively, at the time of the transition. during the 26 weeks ended october 28, 2017, we recognized restructuring and other charges of approximately $5.4 million, which is comprised of the termination and transition payments. for additional information, see form 8-k dated july 19, 2017, filed with the sec on july 20, 2017. (c) transaction costs are costs incurred for business development and acquisitions. (d) represents the income tax effects of the non-gaap items. barnes & noble education, inc. and subsidiaries sales information (unaudited) total sales the components of the sales variances for the 13 and 26 week periods are as follows: october 28,2017 october 29,2016 october 28,2017 october 29,2016 mbs total sales subtotal: textbook rental deferral bnc total sales subtotal: total sales variance comparable sales - barnes & noble college comparable store sales variances by category for the 13 and 26 and week periods are as follows: effective for the first quarter of fiscal 2017, comparable store sales includes sales from stores that have been open for an entire fiscal year period, does not include sales from closed stores for all periods presented, and digital agency sales are included on a gross basis. we believe the current comparable store sales calculation method better reflects the manner in which management views comparable sales, as well as the seasonal nature of our business. prior year comparable store sales have been updated to exclude store inventory sales to mbs, which are reflected as intercompany inventory transfers since the acquisition.
