Barnes & Noble Education, Inc. Q4 FY2022 earnings call

Management Statement and Operational Highlights

• Pandemic Impact: Fall and spring semesters disrupted by virus variants; higher ed enrollment declined 4.7% spring 2022, undergraduate student body 9.4% smaller than pre-pandemic; course material sales diminished due to fewer materials adopted.
• Strategic Initiatives: Expanding inclusive access (First Day by Course/Complete), growing general merchandise via Fanatics/Lids partnership, scaling digital solutions.
• Inclusive Access Success: First Day Complete grew to 76 stores, revenue over 5x to $106 million; 112 stores committed for fall term with ~547,000 undergrad enrollment. Course material sales increased 6.6% in fiscal 2022 due to inclusive access.
• General Merchandise Growth: Gross comparable general merchandise sales up 76% in fiscal 2022, logo and emblematic sales up 85% from Fanatics/Lids partnership.
• DSS Growth: CSS revenue up over 30%, Bartleby and Student Brands growing; launched institutional product, signed Delgado Community College as first partner.

Segment Performance

• Retail:
  • Fiscal 2022 4th quarter retail sales were $260.8 million vs $222.8 million in the prior year. Gross comparable store sales increased 32.6%, with textbook sales up over 150% to $35.1 million due to First Day offerings and general merchandise up 63.2% from Fanatics/Lids partnership. Full year retail sales increased $97.5 million, with First Day by Course and First Day Complete revenue growing 91% to $234 million.
• Wholesale: Fiscal 2022 wholesale revenue declined 32%, EBITDA dropped to $3.8 million from $18.6 million prior year, impacted by supply constraints, lower enrollments, and transition to digital course materials.
• DSS (MBS and CSS): CSS revenue grew over 30% in fiscal 2022, with Bartleby revenue up 40% to $13 million and Student Brands up 25% to $22 million. DSS sales increased 15.6% to $9.7 million in Q4.

Guidance

• Fiscal 2023 Expectations: Retail expected to improve significantly; wholesale pressured by inventory constraints and inflation; DSS expected to grow revenue while investing. Consolidated adjusted EBITDA expected $30 million to $40 million.
• Future Focus: Continue growing inclusive access, expand general merchandise via Fanatics/Lids, scale digital business to drive earnings growth.

Risks

• Pandemic Residuals: Continued impact of virus variants on campus operations and student behavior.
• Wholesale Challenges: Inventory constraints, inflationary pressures on wages/freight, and lower demand due to enrollments and digital transition.
• Enrollment Declines: Long-term enrollment declines affecting course material sales and wholesale performance.

Question and Answer

• Q: On First Day and First Day Complete conversion and pricing A: Jonathan Shar discussed that conversion of stores to First Day Complete is ongoing, with trends showing stores transitioning from First Day by Course; pricing is customized based on credit hours, book list mix, and annual adjustments with partners.
• Q: Guidance and EBITDA comparison to pre-COVID A: Michael Huseby explained that wholesale EBITDA declined significantly from pre-pandemic levels (from $35M in 2019 to $3.5M in 2022), and focus is on retail improvement, DSS growth, and managing inflation impacts in guidance.
• Q: New business and capital allocation A: Michael Huseby and Jonathan Shar noted prioritization of First Day Complete and Fanatics/Lids partnership, careful capital allocation, and continued demand for new business due to differentiated product offerings, with focus on digitally responsible expansion.