Barnes & Noble Education, Inc. Q3 FY2022 earnings call

Management Statement and Operational Highlights

• COVID Impact: The Omicron variant negatively impacted results during the spring rush period, with some campuses conducting classes remotely or delaying start dates. Teams adapted by pivoting to virtual learning needs but operating in a suboptimal environment.
• Growth Initiatives:
  • First Day Complete: 76 stores with an estimated 380,000 undergraduate students benefited. Plans to launch for additional campuses in fall 2022.
  • Fanatics/Lids Partnership: General merchandise comparable sales grew 59%. Benefits include an unparalleled merchandise assortment, best-in-class omnichannel experience, and supply chain benefits.
  • DSS Business: Bartleby suite grew 36%, with a new partnership with Delgado Community College.
  • New Business: On track for ~$130 million gross new business wins, including Notre Dame, which will begin operating their campus bookstore system next week.
• Operational Flexibility: Adapted to virtual learning, showcasing the value of digital and physical assets to help schools and students adapt to changes.

Segment Performance

• Retail Segment: Total sales decreased $12.9 million or 3.3% compared to the prior year. On a gross comparable store basis, retail sales increased 8.4%. Textbook sales declined due to lower enrollments, fewer international students, and delayed spring semester start dates. However, First Day Complete and First Day by course revenue grew 64% to $76.1 million. General merchandise sales grew 59.1% due to the partnership with Fanatics/Lids.
• Wholesale Segment: Net sales decreased $2.4 million or 6.1% to $37 million primarily due to COVID-19 related supply constraints and a shift in buying patterns from physical textbooks to digital products.
• DSS Segment: Revenue grew 31% to $9.4 million. Bartleby revenue grew approximately 36% year-over-year, with over 285,000 Bartleby growth subscribers year-to-date, representing a 34% year-over-year growth.

Guidance

• Fiscal 2022 is expected to have positive non-GAAP adjusted EBITDA.
• For fiscal 2023, non-GAAP adjusted EBITDA is expected to be lower than pre-COVID levels due to inflation, supply chain issues, and other pandemic-related impacts. More specifics will be provided when reporting year-end earnings in June.

Risks

• COVID Variants: Ongoing impact on campus operations, enrollments, and business efficiency.
• Inflation: Affecting freight costs, labor, and pricing strategies.
• Supply Chain: Challenges in wholesale due to lack of supply and expensive freight costs.
• Enrollment Declines: Impacting revenue from textbook and course material sales.

Question and Answer

• Q: About Fanatics/Lids impact on comp store sales and e-commerce uplift **A: Jon Shar mentioned that general merchandise comp store sales grew 59%, with transition to more sites in the fourth quarter and significant impact on sales going forward.
• Q: Fiscal 2023 EBITDA guide and factors affecting it **A: Mike Huseby discussed a lower jumping off point due to COVID, inflation, and wholesale challenges, but expressed optimism about FDC growth and new business like Notre Dame.
• Q: Bartleby partnership with Delgado Community College **A: David Nenke talked about Delgado's focus on student outcomes, LMS integration, and bundling with First Day Complete.