Barnes & Noble Education’s Losses Widen on Restructuring Costs

Bookseller delivers robust sales and comp store sales

Source: Company's Website
Source: Company’s Website

Barnes & Noble Education Inc. (NYSE: BNED), one of the largest contract bookstore operators on college and university campuses across the U.S., announced its Q4 FY16 and full year FY16 financial results on June 28th, 2016. Formed in August 2015 by the spinoff from Barnes & Noble Inc. (NYSE: BKS), the Company is a leading provider of digital education services. Through its Barnes & Noble College subsidiary, the Company serves more than 5 million college students and their faculty through its 751 stores on campuses nationwide, and delivers educational content and tools through its digital platforms LoudCloud and Yuzu®. Read more about the Barnes & Noble Education’s financial results below.

Q4 FY16 operational highlights

Barnes & Noble Education’s Q4 FY16 sales grew by a solid 7.6% to $294.8 million as compared to the prior year period. Comparable store sales increased 4.5% during the quarter under review due to late school openings and students buying course materials later in the semester.

The Company’s adjusted EBITDA was higher at $19.0 million during Q4 FY16, compared to $13.2 million in the prior year period, due to increased sales and expense leveraging.

During Q4 FY16, the Company recorded restructuring costs of $8.3 million related to the transition of its Yuzu eTextbook platform to the VitalSource platform, including the closure of its facilities in Mountain View, California, and Redmond, Washington. These restructuring costs caused the Company’s GAAP net loss to widen to $2.8 million, or $(0.06) per diluted share, compared to net loss of $0.3 million, or $(0.01) per diluted share, in the prior year period.

The Company had 47.2 million diluted shares outstanding in Q4 FY16, while the prior year period had 39.9 million shares outstanding. On the brighter side, the Company reported non-GAAP adjusted earnings of $3.3 million during the quarter under review, compared with net loss of $0.3 million in the prior-year period.

FY16 operational highlights

Barnes & Noble Education’s FY16 sales grew 2% to $1,808.0 million, an increase of $35.0 million compared to the prior year. Comparable store sales decreased 1.9% for FY16 because of enrollment declines at two-year community colleges. The 1.9% decline in comparable store sales was approximately $31 million of revenue, of which $28 million is attributable to two-year community colleges.

During FY16, the Company recorded $8.8 million of restructuring charges and $12.0 million of impairment charges related to its digital businesses. As a result, adjusted EBITDA fell to $80.5 million in FY16 as compared to $84.1 million in the prior year.

The impairment and restructuring charges mentioned above hurt GAAP net income, which plunged to $0.1 million from $19.1 million in the previous year. Non-GAAP adjusted earnings also came in lower at $15.5 million, compared to $19.1 million for the prior year.

Store count

Barnes & Noble Education opened 39 new stores with estimated annual sales of $64 million, bringing the total store count to 751.

Acquisitions and tie-ups

During FY16, the Company acquired LoudCloud, a digital platform and analytics provider for the higher education, for-profit, and K-12 markets. The acquisition enables the Company to provide digital content and learning materials to supplement its textbooks and course materials.

Barnes & Noble Education also entered into a long-term agreement and completed transition to VitalSource to outsource the Yuzu® eTextbook reading platform. The agreement allows the Company to reduce digital expenses, while providing students with access to a comprehensive catalog of digital study materials.

Share repurchase

In Q4 FY16, the Company’s stock dilution was due to the issuance of additional shares of Barnes & Noble’s common stock in connection with the previously disclosed Series J preferred shares by Barnes & Noble in July 2015, before Barnes & Noble Education’s separation from Barnes & Noble. The issuance of these shares in Q4 FY16 was partially offset by 865,427 shares that were repurchased by Barnes & Noble Education for $8.5 million. In the full year FY16, the Company purchased 1,715,269 shares for $16.6 million.

Guidance

For FY17, the Company predicts sales to grow by 2.0% to 4.0%, and comparable store sales to remain flat to 2.0% lower than the prior year. The Company plans to open 32 new stores in FY17, with estimated annual sales of approximately $110 million. Adjusted EBITDA is expected to increase by about 12%, and capital expenditures are predicted to come in at about $50 million.

Stock Performance

B2Barnes & Noble Education’s stock stood at $10.15, up 2.01%, at the close on Thursday, June 30th, 2016, having vacillated between an intraday low of $9.86 and a high of $10.15during the session. The stock’s trading volume was at 535,314 for the day. The Company’s market cap was at $481.11 million as of Thursday’s close.

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