Barnes & Noble Education’s Sales Spurred by New Stores

Comp sales fell 2.9% and represented approximately $22.4 million in revenue

b1Barnes & Noble Education Inc. (NYSE: BNED), one of the largest contract bookstore operators on college and university campuses in the U.S., announced its Q2 FY17 financial results on December 06th, 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 771 stores on campuses nationwide, and delivers educational content and tools through its digital platforms LoudCloud and Yuzu. b2Read more about the Barnes & Noble Education’s financial results below.

Q2 FY17 financial highlights

Barnes & Noble Education’s Q2 FY17 sales grew 2%, or $14.8 million, to $770.7 million as compared to the prior year’s same period, mainly because of new store growth. Comparable store sales decreased 2.9% during the reporting quarter and represented approximately $22.4 million in revenue. The decrease was mainly due to lower textbook sales, which fell 3.3% compared to a decrease of 4.2% in the prior year same period and a decrease in general merchandise sales of 1.3% compared with an increase of 1.3% in the prior year’s comparable period.

Despite revenue growth, the Company’s gross profit slumped to $171.5 million from $175.1 million in the year-ago same period. Gross profit as a percentage of net sales also fell to 22.3% from 23.2% in Q2 FY16.

Higher costs pulled down operating income to $56.7 million from $59.5 million in the year-ago comparable period. Operating income as a percentage of net sales slumped to 7.4% from 7.9% during the reporting quarter. Finally, higher income tax expenses pulled down Q2 FY17 net income to $29.3 million, or $0.63 per diluted share, compared to net income of $33.4 million, or $0.69 per diluted share, in the prior year’s same period. Adjusted earnings during the reporting quarter came in slightly higher at $29.7 million compared to $33.4 million in Q2 FY16. The Company’s adjusted EBITDA was $70.4 million for Q2 FY17 compared to $72.7 million in Q2 FY16, due primarily to lower comparable store sales.

For H1 FY17, the Company’s net sales grew 1.5% to $1,009.9 million compared to $994.8 million in the prior year same period. However, net income plunged to $1.4 million compared to $6.5 million in Q2 FY16 owing to higher restructuring costs.

Other highlights

Store count: Barnes & Noble Education added 34 new stores and closed 14 stores as of October 29th, 2016, ending the quarter with a total of 771 stores. The Company expects to open 2 additional stores in H2 FY17, bringing the total estimated annual sales of new stores to $118 million.

Restructuring: In FY16, the Company implemented a plan to restructure its digital operations and announced a reduction in staff and closure of the facilities in Mountain View, California, and Redmond, Washington, which support the Yuzu eTextbook platform. The Company recorded restructuring costs of $8.8 million in FY16 comprised of employee-related costs (including severance and retention) and facility exit costs. For the period ended October 29th, 2016, the Company recorded $1.8 million in additional restructuring costs primarily for employee related costs (including severance and retention). The majority of the restructuring related to employee matters was completed in Q1 FY17.

Price matching program: To offset lower textbook and general merchandise sales on its campus stores, Barnes & Noble Education rolled out a price matching program in over 400 stores across the US. This resulted in more student engagement and helped mitigate the impact of the anticipated negative enrollment trends in higher education. As schools continue to outsource bookstore operations, Barnes & Noble Education remains well-positioned to deepen its partnerships and expand market share through our complete offering of affordable, accessible textbooks and course materials, including its recently launched digital courseware and analytic solutions.

Launch of courseware: The Company launched Barnes & Noble Education courseware, making it easier for faculty to use Open Educational Resources (OER) and helping to ensure access to the most affordable course materials for students. Offering includes 10 digital general education courses through campus bookstores and the LoudCloud platform.

Guidance for FY17

For FY17, Barnes & Noble Education forecasts sales to grow 3% to 4%, while comparable store sales are expected to decrease by 2% to 3% compared to the prior year same period. The Company expects adjusted EBITDA to increase in the mid-single digits on a percentage basis compared to the prior year. Capital expenditure is forecast to be approximately $40 million for the year.

Stock Performance

b3Barnes & Noble Education’s stock stood at $12.00, gaining 0.08%, at the close on Monday, December 12th, 2016, having vacillated between an intraday low of $11.62 and a high of $12.06 during the session. The stock’s trading volume was at 234,632 for the day. The Company’s market cap was at $534.84 million as of Monday’s close.

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