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, today reported sales and earnings for the first quarter for fiscal year 2019, which ended on July 28, 2018. Barnes & Noble Education is a highly seasonal business, and the first quarter has historically been a period of low sales activity for the Company.

The Company has three reportable segments: Barnes & Noble College Booksellers, LLC (“BNC”), MBS Textbook Exchange, LLC (“MBS”), and Digital Student Solutions (“DSS”). All material intercompany accounts and transactions have been eliminated in consolidation.

Financial highlights for the first quarter 2019:

• Consolidated first quarter sales of $337.5 million decreased 5.1%, as compared to the prior year period.
• Consolidated first quarter GAAP net loss of $(38.6) million, as compared to net loss of $(34.8) million in the prior year period. Consolidated first quarter non-GAAP Adjusted Earnings of $(38.6) million, as compared to $(29.8) million in the prior year period.
• Consolidated first quarter non-GAAP Adjusted EBITDA of $(32.5) million, flat as compared to the prior year period.

Operational highlights for the first quarter 2019:

• Completed development of Bartleby, an online student success hub comprised of two products that support better learning: Bartleby Textbook Solutions and Bartleby Writing. Bartleby Textbook Solutions is the first internally developed digital solution in the Company’s DSS segment, and another important step in its ongoing digital transformation.
• Launched next generation First Day™ inclusive access solution, completing implementations on approximately 100 campuses for the upcoming Fall semester in the Company’s BNC segment.
• Began the implementation of McGraw-Hill Education and Pearson’s rental programs, as contemplated by previously announced agreements in the Company’s MBS segment.
• Began to realize meaningful synergies between Student Brands subscription-based web properties and college bookstore footprint in the Company’s DSS segment. StudyMode, a Student Brands website that helps students improve their writing performance, was offered through more than 150 BNC e-commerce sites during the quarter, allowing students to add a StudyMode subscription to their cart at point of purchase on their bookstore website. The StudyMode subscription offering will be expanded to the majority of the Company’s BNC and MBS e-commerce sites for the Fall semester.

Michael P. Huseby, Chairman and Chief Executive Officer, Barnes & Noble Education said:

“We are pleased with the strides that have been made across all areas of Barnes & Noble Education this quarter, especially within our DSS segment. In addition to leveraging our large store footprint to directly offer student access to StudyMode, we also took an important first step in the internal development of digital solutions for our DSS segment with the launch of Bartleby, our student success hub. Our teams have worked relentlessly throughout this quarter to develop Bartleby Textbook Solutions, the centerpiece of Bartleby, and we are pleased to deliver a new pathway for learning that is available to students anytime, anywhere.

We are making the appropriate investments and taking the necessary actions for BNED to effectively compete and deliver on our company purpose—serving all who work to elevate their lives through education. Our strategy to transform BNC and MBS to better serve the changing needs of our partners while innovating scalable, high margin DSS offerings is well underway. Our MBS and Student Brands acquisitions continue to provide us with substantial operating cash flow to help fund this transformation. We remain focused on the strong execution of our strategy and leveraging our new digital platform and product offerings to deliver substantial value for our customers, employees and shareholders.”

The first quarter 2019 financial results include Student Brands, LLC for the entire period and the first quarter 2018 financial results exclude Student Brands as it was acquired on August 3, 2017 (the second quarter of fiscal year 2018).(1) These non-GAAP financial measures have been reconciled in the attached schedules to the most directly comparable GAAP measure as required under SEC rules regarding the use of non-GAAP financial measures.

Consolidated Results

Consolidated first quarter sales of $337.5 million decreased $18.2 million, or 5.1%, as compared to the prior year period. These sales decreases were primarily attributable to declines at MBS and BNC, partially offset by the addition of the Student Brands business in the second quarter of fiscal year 2018.

The Company’s non-GAAP Adjusted EBITDA was flat at $(32.5) million for the quarter, as compared to the prior year period. The contributions from DSS, lower Corporate Services expenses and improved results at BNC are offset by the decreases at MBS and a higher intercompany profit elimination between BNC and MBS. This elimination is expected to be recognized in the second quarter of fiscal year 2019 as BNC sells through the inventory which was purchased from MBS.

BNC Results

BNC sales in the seasonally low first quarter decreased by $4.8 million, or 1.9%, as compared to the prior year period. Comparable store sales at BNC decreased 2.2% for the quarter representing approximately $4.9 million in revenue.

BNC non-GAAP Adjusted EBITDA for the quarter improved by $2.3 million to $(29.7) million, as compared to $(32.0) million in the prior year period. Higher gross margins and decreases in selling and administrative expenses exceeded the impact of the comparable store sales decline.

MBS Results

MBS total sales of $130.3 million for the quarter decreased by $9.5 million, or 6.8%, as compared to $139.8 million in the prior year period.

MBS Wholesale net sales of $88.4 million for the quarter decreased by $4.1 million, or 4.4%, as compared to $92.5 million during the prior year period. MBS Wholesale gross sales increased, but were offset by increased return reserves. MBS Direct sales of $41.9 million for the quarter decreased by $5.4 million, or 11.4%, as compared to $47.3 million in the prior year period. The decrease was primarily due to the timing of shipments for Fall Rush and lower K-12 sales.

MBS non-GAAP Adjusted EBITDA for the quarter was $14.9 million for the quarter, as compared to $17.8 million in the prior year period. This decrease was primarily driven by lower sales and lower gross margins, partially offset by lower selling and administrative expenses.

DSS Results

DSS sales of $5.7 million for the quarter reflects the operating results of Student Brands, which generates sales through subscriptions to its digital properties.

DSS non-GAAP Adjusted EBITDA was $2.8 million for the quarter, reflecting earnings of Student Brands, offset by investments in the development of the Company’s new Bartleby product offering, Bartleby Textbook Solutions. Quarterly comparisons are not relevant, as Student Brands was acquired subsequent to the end of the first quarter of fiscal year 2018.

Other

Expenses for Corporate Services, which includes unallocated shared-service costs, such as various corporate level expenses and other governance functions, were $5.5 million for the quarter as compared to $6.4 million in the prior period.

Intercompany gross margin eliminations of $(15.0) million reflected in Adjusted EBITDA, compared to $(11.6) million in the prior year period, is higher due to an increase in inter-segment sales from MBS to BNC. Such profit is expected to be recognized in the second quarter as BNC sells through the inventory which was purchased from MBS.

Outlook

For fiscal year 2019, the Company continues to expect consolidated sales to be in the range of $2.2 billion to $2.3 billion before intercompany eliminations. This guidance reflects the current expected comparable store sales decline at BNC to be in the mid-single digit percentage point range year over year. The Company currently expects consolidated fiscal year 2019 Adjusted EBITDA to be relatively comparable to fiscal year 2018, in a range of $110 million to $125 million, reflecting the expected comparable store sales decline at BNC and the increasing costs associated with developing new DSS and other digital offerings. Capital expenditures are currently expected to be approximately $60 million, increasing over fiscal year 2018 primarily due to the Company's anticipated investments in digital content required to develop and offer new DSS products.

ABOUT BARNES & NOBLE EDUCATION, INC.

Barnes & Noble Education, Inc. (NYSE: BNED) is a leading provider of higher education and K-12 educational products and solutions. Through its Barnes & Noble College and MBS Textbook Exchange segments, Barnes & Noble Education operates 1,437 physical and virtual bookstores across the U.S., serving more than 6 million students and faculty. Through its Digital Student Solutions segment, the Company offers a suite of digital software, content and services including direct-to-student study tools, serving approximately 100,000 subscribers in more than 15 countries and receiving more than 20 million unique monthly visitors to its sites. The Company also operates one of the largest textbook wholesale distribution channels in the United States. For more information please visit www.bned.com.