Unless the context otherwise indicates, references to "we," "us," "our" and "the Company" refer toBarnes & Noble Education, Inc. or "BNED", aDelaware corporation. References to "Barnes & Noble College " or "BNC" refer to our subsidiaryBarnes & Noble College Booksellers, LLC . References to "MBS" refer to our subsidiaryMBS Textbook Exchange, LLC .
Overview
Description of Business
Barnes & Noble Education, Inc. ("BNED") is one of the largest contract operators of physical and virtual bookstores for college and university campuses and K-12 institutions acrossthe United States . We are also one of the largest textbook wholesalers, inventory management hardware and software providers, and a leading provider of digital education solutions. We operate 1,441 physical, virtual, and custom bookstores and serve more than 6 million students, delivering essential educational content and tools within a dynamic omnichannel retail environment. Additionally, we offer direct-to-student products and services to help students study more effectively and improve academic performance. The strengths of our business include our ability to compete by developing new products and solutions to meet market needs, our large operating footprint with direct access to students and faculty, our well-established, deep relationships with academic partners and stable, long-term contracts and our well-recognized brands. We expect to continue to introduce scalable and advanced digital solutions focused largely on the student, expand our e-commerce capabilities and accelerate such capabilities through our merchandising partnership withFanatics Retail Group Fulfillment, LLC, Inc. ("Fanatics") andFanatics Lids College, Inc. ("FLC") (collectively referred to herein as the "FLC Partnership "), increase market share with new accounts, and expand our strategic opportunities through acquisitions and partnerships. We expect gross general merchandise sales to increase over the long term, as our product assortments continue to emphasize and reflect changing consumer trends, and we evolve our presentation concepts and merchandising of products in stores and online, which we expect to be further enhanced and accelerated through theFLC Partnership . Through this partnership, we receive unparalleled product assortment, e-commerce capabilities and powerful digital marketing tools to drive increased value for customers and accelerate growth of our logo and emblematic general merchandise business. We believe the Barnes & Noble brand (licensed from our former parent) along with our subsidiary brands, BNC and MBS, are synonymous with innovation in bookselling and campus retailing, and are widely recognized and respected brands inthe United States . Our large college footprint, reputation, and credibility in the marketplace not only support our marketing efforts to universities, students, and faculty, but are also important to our relationship with leading publishers who rely on us as one of their primary distribution channels, and for being a trusted source for students in our direct-to-student digital solutions business.
For additional information related to our business, see Part I – Item 1. Business in our Annual Report on Form 10-K for the fiscal year ended
First Day Inclusive Access Programs
We provide product and service offerings designed to address the most pressing
issues in higher education, including equitable access, enhanced convenience and
improved affordability through innovative course material delivery models
designed to drive improved student experiences and outcomes. We offer our BNC
First Day® inclusive access programs, consisting of First Day and First Day
Complete, in which course materials, including both physical and digital
content, are offered at a reduced price through a course fee or included in
tuition, and delivered to students on or before the first day of class.
•Through First Day, digital course materials are adopted by a faculty member for
a single course, and students receive their materials through their learning
management system.
•First Day Complete is adopted by an institution and includes all classes,
providing students both physical and digital materials. The First Day Complete
model drives substantially greater unit sell-through for the bookstore.
Offering courseware sales through our inclusive access First Day and First Day
Complete models is a key, and increasingly important strategic initiative of
ours to meet the market demands of substantially reduced pricing to students, as
well as the opportunity to improve student outcomes, while, at the same time,
increasing our market share, revenue and relative gross profits of courseware
sales given the higher volumes of units sold in such models as compared to
historical sales models that rely on individual student marketing and sales. We
expect these programs to allow us to ultimately reverse historical long-term
trends in courseware revenue declines, which has been observed at those schools
where such programs have been adopted.
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Partnership with Fanatics and FLC
InDecember 2020 , we entered into theFLC Partnership . Through this partnership, we receive unparalleled product assortment, e-commerce capabilities and powerful digital marketing tools to drive increased value for customers and accelerate growth of our general merchandise business. Fanatics' cutting-edge e-commerce and technology expertise offers our campus stores expanded product selection, a world-class online and mobile experience, and a progressive direct-to-consumer platform. Coupled with Lids (FLC's parent company), the leading standalone brick and mortar retailer focused exclusively on licensed fan and alumni products, our campus stores have improved access to trend and sales performance data on licensees, product styles, and design treatments. We maintain our relationships with campus partners and remain responsible for staffing and managing the day-to-day operations of our campus bookstores. We also work closely with our campus partners to ensure that each campus store maintains unique aspects of in-store merchandising, including localized product assortments and specific styles and designs that reflect each campus's brand. We leverage Fanatics' e-commerce technology and expertise for the operational management of the emblematic merchandise and gift sections of our campus store websites. FLC manages in-store assortment planning and merchandising of emblematic apparel, headwear, and gift products for our partner campus stores. InDecember 2020 ,Fanatics, Inc. andLids Holdings, Inc. jointly made a strategic equity investment in BNED. OnApril 4, 2021 , as contemplated by theFLC Partnership's merchandising agreement, we sold our logo and emblematic general merchandise inventory to FLC, which was finalized during the first quarter of Fiscal 2022. As contemplated by theFLC Partnership's e-commerce agreement, we began to transition certain of our e-commerce sites to Fanatics e-commerce sites for logo and emblematic products during the first quarter of Fiscal 2022. As the logo and emblematic general merchandise sales are fulfilled by FLC and Fanatics, we recognize commission revenue earned for these sales on a net basis in our condensed consolidated financial statements, as compared to the recognition of logo and emblematic general merchandise sales on a gross basis in the prior year. For additional information, see Item 1. Financial Statements - Note 2. Summary of Significant Accounting Policies - Merchandise Inventories.
COVID-19 Business Impact
Our business experienced an unprecedented and significant negative impact as a result of COVID-19 related campus store closures. Beginning inMarch 2020 , colleges and universities nationwide began to close their campuses in light of safety concerns and as a result of local and state issued stay-at-home orders. By mid-March, during our Fiscal 2020 fourth quarter, we closed the majority of our physical campus stores to protect the health and safety of our customers and employees. While our campus stores were closed, we continued to serve institutions and students through our campus websites, providing free shipping on all orders and an expanded digital content offering to provide immediate access to course materials to students at our campuses that closed due to COVID-19. We developed and implemented plans to safely reopen our campus stores based on national, state and local guidelines, as well as the campus policies set by the school administration. Despite the introduction of COVID-19 vaccines, the pandemic remains highly volatile and continues to evolve. We cannot accurately predict the duration or extent of the impact of the COVID-19 virus, including variants, on enrollments, campus activities, university budgets, athletics and other areas that directly affect our business operations. Although most four year schools returned to a traditional on-campus environment for learning in the Fall semester, as well as hosted traditional on campus sporting activities , there is still uncertainty about the duration and extent of the impact of the COVID-19 pandemic, including on enrollments at community colleges and by international students, the continuation of remote and hybrid class offerings, and its effect on our ability to source products, including textbooks and general merchandise offerings. As we entered the Spring rush period in earlyJanuary 2022 , we continued to experience the ongoing effects of COVID-19 with the surge of the Omicron variant further impacting students return to campus and on-campus activities. In early January, while the majority of schools brought students back to campus, some schools chose to conduct classes virtually for the beginning of the semester, while other schools chose to delay their start dates (and some schools both delayed the start of the semester and started classes virtually), thus reducing and/or delaying sales later into the quarter or shifting some sales to our fourth quarter. We will continue to assess our operations and will continue to consider the guidance of local governments and our campus partners to determine how to operate our bookstores in the safest manner for our employees and customers. If economic conditions caused by the pandemic do not recover as currently estimated by management or market factors currently in place change, there could be a further impact on our results of operations, financial condition and cash flows from operations. For additional information, see Part I - Item 1. Business in our Annual Report on Form 10-K for the fiscal year endedMay 1, 2021 . Segments
We have three reportable segments: Retail, Wholesale and DSS. Additionally, unallocated shared-service costs, which include various corporate level expenses and other governance functions, continue to be presented as “Corporate Services”.
We identify our segments in accordance with the way our business is managed (focusing on the financial information
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distributed) and the manner in which our chief operating decision maker allocates resources and assesses financial performance. The following summarizes the three segments. For additional information about each segment's operations, see Part I - Item 1. Business in our Annual Report on Form 10-K for the fiscal year endedMay 1, 2021 . Retail Segment The Retail Segment operates 1,441 college, university, and K-12 school bookstores, comprised of 799 physical bookstores and 642 virtual bookstores. Our bookstores typically operate under agreements with the college, university, or K-12 schools to be the official bookstore and the exclusive seller of course materials and supplies, including physical and digital products. The majority of the physical campus bookstores have school-branded e-commerce sites which we operate independently or along with our merchant partners, and which offer students access to affordable course materials and affinity products, including emblematic apparel and gifts. The Retail Segment also offers inclusive access programs, in which course materials are offered at a reduced price through a fee charged by the institution or included in tuition, and delivered to students on or before the first day of class. Additionally, the Retail Segment offers a suite of digital content and services to colleges and universities, including a variety of open educational resource-based courseware.
Wholesale Segment
The Wholesale Segment is comprised of our wholesale textbook business and is one of the largest textbook wholesalers in the country. The Wholesale Segment centrally sources, sells, and distributes new and used textbooks to approximately 3,100 physical bookstores (including our Retail Segment's 799 physical bookstores) and sources and distributes new and used textbooks to our 642 virtual bookstores. Additionally, the Wholesale Segment sells hardware and a software suite of applications that provides inventory management and point-of-sale solutions to approximately 400 college bookstores.
DSS Segment
The Digital Student Solutions ("DSS") Segment includes direct-to-student
products and services to assist students to study more effectively and improve
academic performance. The DSS Segment is comprised of the operations of Student
Brands, LLC , a leading direct-to-student subscription-based writing services
business, and bartleby®, a direct-to-student subscription-based offering
providing textbook solutions, expert questions and answers, writing and
tutoring.
Corporate Services represents unallocated shared-service costs which include
corporate level expenses and other governance functions, including executive
functions, such as accounting, legal, treasury, information technology, and
human resources.
Seasonality
Our business is highly seasonal. Our quarterly results also may fluctuate depending on the timing of the start of the various schools' semesters, as well as shifts in our fiscal calendar dates. These shifts in timing may affect the comparability of our results across periods. Our fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of April. For our retail operations, sales are generally highest in the second and third fiscal quarters, when students generally purchase and rent textbooks and other course materials, and lowest in the first and fourth fiscal quarters. Sales attributable to our wholesale business are generally highest in our first, second and third quarter, as it sells textbooks and other course materials for retail distribution. For our DSS segment, or direct-to-student business, sales and operating profit are realized relatively consistently throughout the year.
Trends, Competition and Other Business Conditions Affecting Our Business
The market for educational materials is undergoing distinguished change. As tuition and other costs rise, colleges and universities face increasing pressure to attract and retain students and provide them with innovative, affordable educational content and tools that support their educational development. Current trends, competition and other factors affecting our business include:
•Overall Economic Environment, College Enrollment and Consumer Spending Patterns. Our business is affected by the impact of the COVID-19 pandemic, the overall economic environment, funding levels at colleges and universities, by changes in enrollments at colleges and universities, and spending on course materials and general merchandise. •Impact of the COVID-19 Pandemic: The COVID-19 pandemic has materially and adversely impacted certain segments of theU.S. economy, with legislative and regulatory responses including unprecedented monetary and fiscal policy actions across all sectors, and there is significant uncertainty as to timing of stabilization and recovery, including the ability to gain adequate herd-immunity levels through vaccine programs and their resilience to future virus variants. Many colleges and K-12 schools were required to cease in-person classes in an attempt to limit the spread of the COVID-19 virus and ensure the safety of their students. Although many academic institutions have reopened, some are providing alternatives to traditional in-person instruction, including online and hybrid learning options and 25
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significantly reduced classroom sizes. Additionally, our business, like many others have been affected by the challenging labor market and the ability to recruit employees.
•Economic Environment: Retail general merchandise sales are subject to short-term fluctuations driven by the broader retail environment and other economic factors, such as interest rate fluctuations and inflationary considerations. The broader macro-economic global supply chain issues has impacted our ability to source school supplies and general merchandise sold in our campus bookstores, including technology-related products and emblematic clothing.
•Enrollment Trends: The growth of our business depends on our ability to attract new customers and to increase the level of engagement by our current student customers. We continue to see downward enrollment trends. Enrollment trends, specifically at community colleges, generally correlate with changes in the economy and unemployment factors, e.g. low unemployment tends to lead to low enrollment and higher unemployment rates tend to lead to higher enrollment trends, as students generally enroll to obtain skills that are in demand in the workforce. Enrollment trends have been negatively impacted overall by COVID-19 concerns at physical campuses. A significant reduction inU.S. economic activity and increased unemployment could lead to decreased enrollment and consumer spending. Additionally, enrollment trends are impacted by the dip inthe United States birth rate resulting in fewer students at the traditional 18-24 year-old college age. Online degree program enrollments continue to grow, even in the face of declining overall higher education enrollment. •Increased Use of Online and Digital Platforms as Companions or Alternatives to Printed Course Materials. Students and faculty can now choose from a wider variety of educational content and tools than ever before, delivered across both print and digital platforms. •Increasing Costs Associated with Defending Against Security Breaches and Other Data Loss, Including Cyber-Attacks. We are increasingly dependent upon information technology systems, infrastructure and data. Cyber-attacks are increasing in their frequency, sophistication and intensity, and have become increasingly difficult to detect. We continue to invest in data protection and information technology to prevent or minimize these risks and, to date, we have not experienced any material service interruptions and are not aware of any material breaches. •Distribution Network Evolving. The way course materials are distributed and consumed is changing significantly, a trend that is expected to continue. The market for course materials, including textbooks and supplemental materials, is intensely competitive and subject to rapid change. •Disintermediation. We are experiencing growing competition from alternative media and alternative sources of textbooks and other course materials. In addition to the official physical or virtual campus bookstore, course materials are also sold through off-campus bookstores, e-commerce outlets, digital platform companies, publishers, including Cengage, Pearson and McGraw Hill, bypassing the bookstore distribution channel by selling or renting directly to students and educational institutions, and student-to-student transactions over the Internet. •Supply Chain and Inventory. Since the demand for used textbooks has historically been greater than the available supply, our financial results are highly dependent upon Wholesale's ability to build its textbook inventory from suppliers in advance of the selling season. Recently, the impact of fewer students on campus due to COVID-19 has significantly impacted our on-campus buyback programs which supplies Wholesale's used textbook inventory for future selling periods. Some textbook publishers have begun to supply textbooks pursuant to consignment or rental programs which could impact used textbook supplies in the future. Additionally, Wholesale is a national distributor for rental textbooks offered throughMcGraw-Hill Education's and Pearson Education's consignment rental program, both of which are relatively nascent. The broader macro-economic global supply chain issues may also impact our ability to source school supplies and general merchandise sold in our campus bookstores, including technology-related products and emblematic clothing. •Price Competition. In addition to the competition in the services we provide to our customers, our textbook and other course materials business faces significant price competition. Students purchase textbooks and other course materials from multiple providers, are highly price sensitive, and can easily shift spending from one provider or format to another.
•A Large Number of Traditional Campus Bookstores Have Yet to be Outsourced.
•Outsourcing Trends. We continue to see the trend towards outsourcing in the campus bookstore market and also continue to see a variety of business models being pursued for the provision of course materials (such as inclusive access programs and publisher subscription models) and general merchandise.
•New and Existing Bookstore Contracts. We expect awards of new accounts resulting in new physical and virtual store openings will continue to be an important driver of future growth in our business. We also expect that certain less
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profitable or essential bookstores we operate may close. Such stores could be included in contracts for stores we operate that may be deemed non-essential; and such stores could be operated by others or independently by schools. The scope of any such store closures remains uncertain, although we are not aware, at this time, of any significant volume of stores which we operate that are likely to close or have informed us of upcoming closures.
For additional discussion of our trends and other factors affecting our business, see Part I – Item 1. Business in our Annual Report on Form 10-K for the year ended
Elements of Results of Operations
Our condensed consolidated financial statements reflect our consolidated financial position, results of operations and cash flows in conformity with accounting principles generally accepted in
Our sales are primarily derived from the sale of course materials, which include new, used and digital textbooks, and at college and university bookstores which we operate, we sell high margin general merchandise, including emblematic apparel and gifts, trade books, computer products, school and dorm supplies, convenience and café items and graduation products. Our rental income is primarily derived from the rental of physical textbooks. We also derive revenue from other sources, such as sales of inventory management, hardware and point-of-sale software, direct-to-student subscription-based services, and other services. Our cost of sales primarily includes costs such as merchandise costs, textbook rental amortization, content development cost amortization, warehouse costs related to inventory management and order fulfillment, insurance, certain payroll costs, and management service agreement costs, including rent expense, related to our college and university contracts and other facility related expenses. Our selling and administrative expenses consist primarily of store payroll and store operating expenses. Selling and administrative expenses also include long-term incentive plan compensation expense and general office expenses, such as merchandising, procurement, field support, finance and accounting, and operating costs related to our direct-to-student subscription-based services business. Shared-service costs such as human resources, legal, treasury, information technology, and various other corporate level expenses and other governance functions, are not allocated to any specific reporting segment and are recorded in Corporate Services as discussed in the Overview - Segments discussion above.
Results of Operations – Summary
13 weeks ended 39 weeks ended
January 29, January 30, January 29, January 30,
Dollars in thousands 2022 2021 2022 2021
Sales:
Product sales and other $ 377,713 $ 373,502 $ 1,182,812 $ 1,118,544
Rental income 25,085 38,111 87,757 92,568
Total sales $ 402,798 $ 411,613 $ 1,270,569 $ 1,211,112
Net loss $ (36,801) $ (48,289) $ (58,619) $ (87,426)
Adjusted Earnings (non-GAAP) (a)
Adjusted EBITDA by Segment (non-GAAP) (a) Retail$ (15,386) $ (22,222) $ 4,436 $ (44,538) Wholesale 4,163 6,322 11,810 25,856 DSS 1,476 1,005 3,975 3,358 Corporate Services (5,154) (6,491) (19,407) (17,236) Elimination 1,800 604 556 (1,704)
Total Adjusted EBITDA (non-GAAP)
(a) Adjusted Earnings, Adjusted EBITDA, and Adjusted EBITDA by Segment are non-GAAP financial measures. See Use of Non-GAAP Measures discussion below.
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Table of Contents The following table sets forth, for the periods indicated, the percentage relationship that certain items bear to total sales:
13 weeks ended 39 weeks ended
January 29, January 30, January 29, January 30,
2022 2021 2022 2021
Sales:
Product sales and other 93.8 % 90.7 % 93.1 % 92.4 %
Rental income 6.2 9.3 6.9 7.6
Total sales 100.0 100.0 100.0 100.0
Cost of sales (exclusive of depreciation and
amortization expense):
Product and other cost of sales (a) 78.8 84.5 78.2 83.5
Rental cost of sales (a) 72.3 66.6 60.5 65.4
Total cost of sales 78.4 82.8 77.0 82.1
Gross margin 21.6 17.2 23.0 17.9
Selling and administrative expenses 25.2 22.5 23.3 21.0
Depreciation and amortization expense 3.0 3.2 2.9 3.3
Impairment loss (non-cash) 1.6 6.7 0.5 2.3
Restructuring and other charges - 0.4 0.3 0.9
Operating loss (8.2) % (15.6) % (4.0) % (9.6) %
(a)Represents the percentage these costs bear to the related sales, instead of total sales.
Results of Operations – 13 and 39 weeks ended
13 weeks ended
Corporate Dollars in thousands Retail Wholesale DSS Services Eliminations Total Sales: Product sales and other$ 349,655 $ 37,039 $ 9,430 $ -$ (18,411) $ 377,713 Rental income 25,085 - - - - 25,085 Total sales 374,740 37,039 9,430 - (18,411) 402,798 Cost of sales (exclusive of depreciation and amortization expense): Product and other cost of sales 287,435 28,935 1,498 - (20,175) 297,693 Rental cost of sales 18,144 - - - - 18,144 Total cost of sales 305,579 28,935 1,498 - (20,175) 315,837 Gross profit 69,161 8,104 7,932 - 1,764 86,961 Selling and administrative expenses 84,626 3,941 7,775 5,154 (36) 101,460 Depreciation and amortization expense 8,939 1,396 1,826 18 - 12,179 Sub-Total: (24,404) 2,767 (1,669) (5,172) 1,800 (26,678) Impairment loss (non-cash) 6,411 - - - - 6,411 Restructuring and other charges 30 - - 16 - 46 Operating (loss) income$ (30,845) $ 2,767 $ (1,669) $ (5,188) $ 1,800 $ (33,135) 28
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13 weeks ended
Corporate Dollars in thousands Retail Wholesale DSS Services Eliminations Total Sales: Product sales and other$ 349,558 $ 39,465 $ 7,206 $ -$ (22,727) $ 373,502 Rental income 38,111 - - - - 38,111 Total sales 387,669 39,465 7,206 - (22,727) 411,613 Cost of sales (exclusive of depreciation and amortization expense): Product and other cost of sales 308,752 28,807 1,324 - (23,276) 315,607 Rental cost of sales 25,394 - - - - 25,394 Total cost of sales 334,146 28,807 1,324 - (23,276) 341,001 Gross profit 53,523 10,658 5,882 - 549 70,612 Selling and administrative expenses 75,921 4,336 6,015 6,491 (55) 92,708 Depreciation and amortization expense 9,806 1,614 1,863 24 - 13,307 Sub-Total: (32,204) 4,708 (1,996) (6,515) 604 (35,403) Impairment loss (non-cash) 27,630 - - - - 27,630 Restructuring and other charges 162 - 571 936 - 1,669 Operating (loss) income$ (59,996) $ 4,708 $ (2,567) $ (7,451) $ 604$ (64,702) 39 weeks ended January 29, 2022 Corporate Dollars in thousands Retail Wholesale DSS Services Eliminations Total Sales: Product sales and other$ 1,106,404 $ 103,192 $ 26,012 $ -$ (52,796) $ 1,182,812 Rental income 87,757 - - - - 87,757 Total sales 1,194,161 103,192 26,012 - (52,796) 1,270,569 Cost of sales (exclusive of depreciation and amortization expense): Product and other cost of sales 894,936 79,063 4,144 - (53,219) 924,924 Rental cost of sales 53,096 - - - - 53,096 Total cost of sales 948,032 79,063 4,144 - (53,219) 978,020 Gross profit 246,129 24,129 21,868 - 423 292,549 Selling and administrative expenses 242,477 12,319 21,527 19,407 (133) 295,597 Depreciation and amortization expense 27,015 4,060 5,627 53 - 36,755 Sub-Total: (23,363) 7,750 (5,286) (19,460) 556 (39,803) Impairment loss (non-cash) 6,411 - - - - 6,411 Restructuring and other charges 2,831 - - 954 - 3,785 Operating (loss) income$ (32,605) $ 7,750 $ (5,286) $ (20,414) $ 556$ (49,999) 29
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39 weeks ended January 30, 2021
Corporate
Dollars in thousands Retail Wholesale DSS Services Eliminations Total
Sales:
Product sales and other $ 1,030,391 $ 156,146 $ 19,025 $ - $ (87,018) $ 1,118,544
Rental income 92,568 - - - - 92,568
Total sales 1,122,959 156,146 19,025 - (87,018) 1,211,112
Cost of sales (exclusive of
depreciation and amortization
expense):
Product and other cost of sales 897,283 118,017 3,735 - (85,188) 933,847
Rental cost of sales 60,506 - - - - 60,506
Total cost of sales 957,789 118,017 3,735 - (85,188) 994,353
Gross profit 165,170 38,129 15,290 - (1,830) 216,759
Selling and administrative expenses 210,286 12,273 15,054 17,236 (126) 254,723
Depreciation and amortization
expense 30,361 4,231 5,883 88 - 40,563
Sub-Total: (75,477) 21,625 (5,647) (17,324) (1,704) (78,527)
Impairment loss (non-cash) 27,630 - - - - 27,630
Restructuring and other charges 4,633 - 571 5,523 - 10,727
Operating (loss) income $ (107,740) $ 21,625 $ (6,218) $ (22,847) $ (1,704) $ (116,884)
Sales
The following table summarizes our sales for the 13 and 39 weeks ended
13 weeks ended 39 weeks ended
January 29, January 30,
Dollars in thousands 2022 2021 % January 29, 2022 January 30, 2021 %
Product sales and other $ 377,713 $ 373,502 1.1% $ 1,182,812 $ 1,118,544 5.7%
Rental income 25,085 38,111 (34.2)% 87,757 92,568 (5.2)%
Total Sales $ 402,798 $ 411,613 (2.1)% $ 1,270,569 $ 1,211,112 4.9%
Sales decreased by $8.8 million , or 2.1%, to $402.8 million during the 13 weeks
ended January 29, 2022 from $411.6 million during the 13 weeks ended January 30,
2021 . The decrease is related to lower course material sales primarily due to
lower enrollments, primarily at community colleges and by international
students, and the continuation of remote and hybrid class offerings in response
to the latest COVID variant. The decrease in sales is also due to lower logo and
emblematic sales as they are reflected in sales on a net basis in our condensed
consolidated financial statements, as compared to the recognition of logo and
emblematic sales on a gross basis in the periods prior to April 4, 2021 . For
additional information, see Retail Sales discussion below.
Sales increased by $59.5 million , or 4.9%, to $1,270.6 million during the 39
weeks ended January 29, 2022 from $1,211.1 million during the 39 weeks ended
January 30, 2021 . The sales increase is primarily related to the impact from
re-opening stores that had temporarily closed due to the COVID-19 pandemic in
the prior year. The increase is offset by lower sales primarily due to lower
enrollments, primarily at community colleges and by international students, the
continuation of remote and hybrid class offerings and lower logo and emblematic
sales as they are reflected in sales on a net basis in our condensed
consolidated financial statements, as compared to the recognition of logo and
emblematic sales on a gross basis in the periods prior to April 4, 2021 . For
additional information, see Retail Sales discussion below.
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The components of the variances for the 13 and 39 week periods are reflected in
the table below.
Sales variances 13 weeks ended 39 weeks ended
Dollars in millions January 29, 2022 January 30, 2021 January 29, 2022 January 30, 2021
Retail Sales
New stores $ 17.3 $ 17.3 $ 53.9 $ 52.7
Closed stores (7.4) (8.3) (28.7) (32.2)
Comparable stores (a) (10.2) (83.3) 57.2 (384.0)
Textbook rental deferral (11.5) 1.6 (8.1) 11.7
Service revenue (b) (2.1) 1.8 (2.0) (1.9)
Other (c) 1.0 0.6 (1.1) 2.2
Retail sales subtotal: $ (12.9) $ (70.3) $ 71.2 $ (351.5)
Wholesale Sales $ (2.4) $ (27.5) $ (53.0) $ (23.4)
DSS Sales $ 2.2 $ 0.8 $ 7.0 $ 2.0
Eliminations (d) $ 4.3 $ 6.3 $ 34.3 $ (10.2)
Total sales variance: $ (8.8) $ (90.7) $ 59.5 $ (383.1)
(a) In December 2020 , we entered into merchandising partnership with Fanatics
Retail Group Fulfillment, LLC, Inc. ("Fanatics") and Fanatics Lids College, Inc.
("FLC") (collectively referred to herein as the "FLC Partnership "). Effective
April 4, 2021 , as contemplated by the FLC Partnership's merchandising agreement
and e-commerce agreement, we began to transition the fulfillment of logo and
emblematic general merchandise sales to FLC and Fanatics. As the logo and
emblematic general merchandise sales are fulfilled by FLC and Fanatics, we
recognize commission revenue earned for these sales on a net basis in our
condensed consolidated financial statements, as compared to the recognition of
logo and emblematic sales on a gross basis in the periods prior to April 4,
2021 . For Retail Gross Comparable Store Sales details, see below.
(b) Service revenue includes brand partnerships, shipping and handling, and revenue from other programs.
(c) Other includes inventory liquidation sales to third parties, marketplace sales and certain accounting adjusting items related to return reserves, and other deferred items.
(d) Eliminates Wholesale sales and service fees to Retail and Retail commissions earned from Wholesale. See discussion of intercompany activities and eliminations below.
Retail Retail sales decreased by$12.9 million , or 3.3%, to$374.7 million during the 13 weeks endedJanuary 29, 2022 from$387.7 million during the 13 weeks endedJanuary 30, 2021 . Retail sales increased by$71.2 million , or 6.3%, to$1,194.2 million during the 39 weeks endedJanuary 29, 2022 from$1,123.0 million during the 39 weeks endedJanuary 30, 2021 .
Retail added 82 new stores and closed 58 stores during the 39 weeks ended
13 weeks ended 39 weeks ended
January 29, 2022 January 30, 2021 January 29, 2022 January 30, 2021
Number of Stores: Physical Virtual Physical Virtual Physical Virtual Physical Virtual
Number of stores at beginning of
period 794 651 769 671 769 648 772 647
Opened 6 - - 7 47 35 30 58
Closed 1 9 4 2 17 41 37 29
Number of stores at end of period 799 642 765 676 799 642 765 676
Product and other sales and Rental income are impacted by comparable store
sales, the growth of First Day Complete, new store openings and store closings,
as well as the impact from the COVID-19 pandemic. Sales were impacted by overall
enrollment declines in higher education. Although most four year schools
returned to a traditional on-campus environment for learning in the Fall
semester, as well as hosted traditional on campus sporting activities, there is
still uncertainty about the duration and extent of the impact of the COVID-19
pandemic, including on enrollments at community colleges and by international
students, and the continuation of remote and hybrid class offerings. While many
conferences resumed their sport activities, other on campus events, such as
Parent's Weekends or Alumni events, continue to be either eliminated or severely
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restricted, which further impacted the company's general merchandise business. As we entered the Spring rush period in earlyJanuary 2022 , we continued to experience the ongoing effects of COVID-19 with the surge of the Omicron variant further impacting students return to campus and on-campus activities. In early January, while the majority of schools brought students back to campus, some schools chose to conduct classes virtually for the beginning of the semester, while other schools chose to delay their start dates (and some schools both delayed the start of the semester and started classes virtually), thus reducing and/or delaying sales later into the quarter or shifting some sales to our fourth quarter. Product and other sales for Retail for the 13 weeks endedJanuary 29, 2022 remained flat at$349.6 million during the 13 weeks endedJanuary 30, 2021 . Rental income for Retail for the 13 weeks endedJanuary 29, 2022 decreased by$13.0 million , or 34.2% to$25.1 million from$38.1 million during the 13 weeks endedJanuary 30, 2021 . During the 13 weeks endedJanuary 29, 2022 , course material sales and rentals were impacted by lower enrollments, primarily at community colleges and by international students, and the continuation of remote and hybrid class offerings, which was somewhat mitigated by the growth of First Day Complete. Product and other sales for Retail for the 39 weeks endedJanuary 29, 2022 increased by$76.0 million , or 7.4% to$1,106.4 million from$1,030.4 million during the 39 weeks endedJanuary 30, 2021 . Rental income for Retail for the 39 weeks endedJanuary 29, 2022 decreased by$4.8 million , or 5.2% to$87.8 million from$92.6 million during the 39 weeks endedJanuary 30, 2021 . The overall Retail sales increase is primarily related to the impact from re-opening stores that had temporarily closed due to the COVID-19 pandemic in the prior year. Course material sales were also impacted by to lower enrollments, primarily at community colleges and by international students, and the continuation of remote and hybrid class offerings. During the 13 weeks endedJanuary 29, 2022 ,Retail Gross Comparable Store textbook sales decreased by 4.0%, as compared to an 8.1% decline a year ago. During the 39 weeks endedJanuary 29, 2022 ,Retail Gross Comparable Store textbook sales increased by 2.0%, as compared to a 14.3% decline a year ago, when the majority of our stores had temporarily closed due to the COVID-19 pandemic. See Retail Gross Comparable Store Sales discussion below. Course material declines were mitigated by the growth of First Day (our inclusive access program), digital and eTextbook revenue increases, due to a shift to lower cost options and more affordable solutions, including digital offerings. For the 2022 Spring term, First Day Complete was offered through 76 campus bookstores compared to 14 campus bookstores in the prior year, at schools with over 380,000 in total undergraduate enrollment, up from approximately 62,000 in total undergraduate enrollment in the 2021 Spring term. Revenue for both of our First Day models increased to$76.1 million during the third quarter of Fiscal 2022, as compared to$46.4 million in the prior year period. Revenue for both of our First Day models increased to$199.2 million during Fiscal 2022, as compared to$108.9 million in the prior year period. During the 13 and 39 weeks endedJanuary 29, 2022 , logo and emblematic sales are reflected in sales on a net basis in our condensed consolidated financial statements, as compared to the recognition of logo and emblematic sales on a gross basis in the prior year period. See Retail Gross Comparable Store Sales discussion below. During the 13 weeks endedJanuary 29, 2022 ,Retail Gross Comparable Store general merchandise sales increased by 59.1%, as compared to a 45.8% decline a year ago. During the 39 weeks endedJanuary 29, 2022 ,Retail Gross Comparable Store general merchandise sales increased by 82.0%, as compared to a 54.9% decline a year ago. Both results during both periods benefited greatly from the return to an on campus learning experience and the resumption of many activities and events. Sales for general merchandise, including on-campus cafe and convenience products, and trade merchandise have increased compared to the prior year, when sales were impacted by the temporary store closings due to the COVID-19 pandemic. However, general merchandise sales are still impacted by fewer students returning to campus, as many schools implemented a remote or hybrid learning model and curtailed on-campus classes and activities.
Retail Gross Comparable Store Sales
To supplement the Total Sales table presented above, the Company uses Retail Gross Comparable Store Sales as a key performance indicator. Retail Gross Comparable Store Sales includes sales from physical and virtual stores that have been open for an entire fiscal year period and does not include sales from permanently closed stores for all periods presented. For Retail Gross Comparable Store Sales, sales for logo and emblematic general merchandise fulfilled by FLC, Fanatics and digital agency sales are included on a gross basis for consistent year-over-year comparison. EffectiveApril 4, 2021 , as contemplated by theFLC Partnership's merchandising agreement and e-commerce agreement, we began to transition the fulfillment of logo and emblematic general merchandise sales to FLC and Fanatics. As the logo and emblematic general merchandise sales are fulfilled by FLC and Fanatics, we recognize commission revenue earned for these sales on a net basis in our condensed consolidated financial statements, as compared to the recognition of logo and emblematic sales on a gross basis in the periods prior toApril 4, 2021 . We believe the current Retail Gross Comparable Store Sales calculation method reflects management's view that such comparable store sales are an important measure of the growth in sales when evaluating how established stores have performed over time. We present this metric as additional useful information about the Company's operational and financial performance and to allow greater transparency with respect to important metrics used by management for operating and financial decision- 32
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making. Retail Gross Comparable Store Sales are also referred to as "same-store" sales by others within the retail industry and the method of calculating comparable store sales varies across the retail industry. As a result, our calculation of comparable store sales is not necessarily comparable to similarly titled measures reported by other companies and is intended only as supplemental information and is not a substitute for net sales presented in accordance with GAAP.
Retail Gross Comparable Store Sales variances for Retail by category for the 13 and 39 week periods are as follows:
13 weeks ended 39 weeks ended
Dollars in millions January 29, 2022 January 30, 2021 January 29, 2022 January 30, 2021
Textbooks (Course
Materials) $ (11.9) (4.0) % $ (25.0) (8.1) % $ 17.4 2.0 % $ (136.1) (14.3) %
General Merchandise 41.2 59.1 % (58.0) (45.8) % 164.5 82.0 % (242.2) (54.9) %
Trade Books 1.6 48.5 % (5.5) (61.1) % 5.0 61.6 % (19.4) (69.3) %
Total Retail Gross
Comparable Store Sales $ 30.9 8.4 % $ (88.5) (19.9) % $ 186.9 17.6 % $ (397.7)
(28.0) %
Consistent with prior years and further exacerbated by some delayed start dates, the Spring Rush period extended beyond the quarter into the fourth quarter. Factoring in the fiscal month of February into the third quarter, which includes rental deferred revenue for our First Day programs, Retail gross comparable store sales increased by approximately 18.8%.
Wholesale
Wholesale sales decreased by$2.4 million , or 6.1% to$37.0 million during the 13 weeks endedJanuary 29, 2022 from$39.5 million during the 13 weeks endedJanuary 30, 2021 . Wholesale sales decreased by$53.0 million , or 33.9% to$103.2 million during the 39 weeks endedJanuary 29, 2022 from$156.1 million during the 39 weeks endedJanuary 30, 2021 . The decrease is primarily due to lower gross sales impacted by the COVID-19 pandemic, including supply constraints resulting from the lack of on campus textbook buyback opportunities during the prior fiscal year, a decrease in customer demand resulting from a shift in buying patterns from physical textbooks to digital products, and lower demand from other third-party clients, partially offset by lower returns and allowances. During the prior year period, the Wholesale operations assumed direct-to-student fulfillment of course material orders for the Retail Segment campus bookstores that were not fully operational due to COVID-19 campus store closures, whereas the sales shifted back to the physical bookstores in the current period.
DSS
DSS total sales increased by$2.2 million , or 30.9% to$9.4 million during the 13 weeks endedJanuary 29, 2022 from$7.2 million during the 13 weeks endedJanuary 30, 2021 . DSS total sales increased by$7.0 million , or 36.7% to$26.0 million during the 39 weeks endedJanuary 29, 2022 from$19.0 million during the 39 weeks endedJanuary 30, 2021 . Sales increased primarily due to an increase in subscription sales.
Cost of Sales and Gross Margin
Our cost of sales decreased as a percentage of sales to 78.4% during the 13 weeks ended
from
Our cost of sales decreased as a percentage of sales to 77.0% during the 39 weeks endedJanuary 29, 2022 compared to 82.1% during the 39 weeks endedJanuary 30, 2021 . Our gross margin increased by$75.8 million , or 35.0%, to$292.5 million , or 23.0% of sales, during the 39 weeks endedJanuary 29, 2022 from$216.7 million , or 17.9% of sales during the 39 weeks endedJanuary 30, 2021 . During the 39 weeks endedJanuary 29, 2022 , we recognized a merchandise inventory loss of$0.4 million in cost of goods sold in the Retail Segment discussed below. For additional information, see Item 1. Financial Statements - Note 2. Summary of Significant Accounting Policies - Merchandise Inventories.
Retail
The following table summarizes the Retail cost of sales for the 13 and 39 weeks ended
13 weeks ended 39 weeks ended
January 29, % of January 30, % of January 29, % of January 30, % of
Dollars in thousands 2022 Related Sales 2021 Related Sales 2022 Related Sales 2021 Related Sales
Product and other cost of
sales $ 287,435 82.2% $ 308,752 88.3% $ 894,936 80.9% $ 897,283 87.1%
Rental cost of sales 18,144 72.3% 25,394 66.6% 53,096 60.5% 60,506 65.4%
Total Cost of Sales $ 305,579 81.5% $ 334,146 86.2% $ 948,032 79.4% $ 957,789 85.3%
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The following table summarizes the Retail gross margin for the 13 and 39 weeks ended
13 weeks ended 39 weeks ended
January 29, % of January 30, % of January 29, % of January 30, % of
Dollars in thousands 2022 Related Sales 2021 Related Sales 2022 Related Sales 2021 Related Sales
Product and other gross margin $ 62,220 17.8% $ 40,806 11.7% $ 211,468 19.1% $ 133,108 12.9%
Rental gross margin 6,941 27.7% 12,717 33.4% 34,661 39.5% 32,062 34.6%
Gross Margin $ 69,161 18.5% $ 53,523 13.8% $ 246,129 20.6% $ 165,170 14.7%
For the 13 weeks ended
•Product and other gross margin increased (610 basis points), driven primarily by a favorable sales mix (450 basis points) due to higher general merchandise sales, higher margin rates (295 basis points) due to lower inventory reserves and lower markdowns, partially offset by higher contract costs as a percentage of sales related to our college and university contracts (135 basis points) resulting from contract renewals and new store contracts. •Rental gross margin decreased (570 basis points), driven primarily by lower rental margin rates (1,380 basis points) and unfavorable rental mix (275 basis points), partially offset by lower contract costs as a percentage of sales related to our college and university contracts (1,080 basis points).
For the 39 weeks ended
•Product and other gross margin increased (620 basis points), driven primarily by a favorable sales mix (465 basis points) due to higher general merchandise sales, higher margin rates (200 basis points) due to lower inventory reserves and lower markdowns, partially offset by higher contract costs as a percentage of sales related to our college and university contracts (40 basis points) resulting from contract renewals and new store contracts and an inventory merchandise loss of$0.4 million (5 basis points) related to the final sale of our logo and emblematic general merchandise inventory below cost to FLC. •Rental gross margin increased (490 basis points), driven primarily by lower contract costs as a percentage of sales related to our college and university contracts (685 basis points) and a favorable rental mix (45 basis points), partially offset by lower rental margin rates (240 basis points).
Wholesale
The cost of sales and gross margin for Wholesale were$28.9 million , or 78.1% of sales, and$8.1 million , or 21.9% of sales, respectively, during the 13 weeks endedJanuary 29, 2022 . The cost of sales and gross margin for Wholesale was$28.8 million or 73.0% of sales and$10.7 million or 27.0% of sales, respectively, during the 13 weeks endedJanuary 30, 2021 . The cost of sales and gross margin for Wholesale were$79.1 million , or 76.6% of sales, and$24.1 million , or 23.4% of sales, respectively, during the 39 weeks endedJanuary 29, 2022 . The cost of sales and gross margin for Wholesale was$118.0 million or 75.6% of sales and$38.1 million or 24.4% of sales, respectively, during the 39 weeks endedJanuary 30, 2021 .
The gross margin rate decreased during the 13 and 39 weeks ended
DSS
The gross margin for the DSS segment was$7.9 million , or 84.1% of sales, during the 13 weeks endedJanuary 29, 2022 and$5.9 million , or 81.6% of sales, during the 13 weeks endedJanuary 30, 2021 . The gross margin for the DSS segment was$21.9 million , or 84.1% of sales, during the 39 weeks endedJanuary 29, 2022 and$15.3 million , or 80.4% of sales, during the 39 weeks endedJanuary 30, 2021 . The high gross margins are driven primarily by high margin subscription service revenue earned. Intercompany Eliminations During the 13 weeks endedJanuary 29, 2022 andJanuary 30, 2021 , our sales eliminations were$(18.4) million and$(22.7) million , respectively. During the 39 weeks endedJanuary 29, 2022 andJanuary 30, 2021 , our sales eliminations were$(52.8) million and$(87.0) million , respectively. These sales eliminations represent the elimination of Wholesale sales and fulfillment service fees to Retail and the elimination of Retail commissions earned from Wholesale. During the 13 weeks endedJanuary 29, 2022 andJanuary 30, 2021 , the cost of sales eliminations were$(20.2) million and$(23.3) million , respectively. During the 39 weeks endedJanuary 29, 2022 andJanuary 30, 2021 , the cost of sales eliminations were$(53.2) million and$(85.2) million , respectively. These cost of sales eliminations represent (i) the recognition of 34
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intercompany profit for Retail inventory that was purchased from Wholesale in a prior period that was subsequently sold to external customers during the current period and the elimination of Wholesale service fees charged for fulfillment of inventory for virtual store sales, net of (ii) the elimination of intercompany profit for Wholesale inventory purchases by Retail that remain in ending inventory at the end of the current period. During the 13 weeks endedJanuary 29, 2022 andJanuary 30, 2021 , the gross margin eliminations were$1.8 million and$0.5 million , respectively. During the 39 weeks endedJanuary 29, 2022 andJanuary 30, 2021 , the gross margin eliminations were$0.4 million and$(1.8) million , respectively. The gross margin eliminations reflect the net impact of the sales eliminations and cost of sales eliminations during the above mentioned reporting periods.
Selling and Administrative Expenses
13 weeks ended 39 weeks ended
January 29, % of January 30, % of January 29, % of January 30, % of
Dollars in thousands 2022 Sales 2021 Sales 2022 Sales 2021 Sales
Total Selling and
Administrative Expenses $ 101,460 25.2% $ 92,708 22.5% $ 295,597 23.3% $ 254,723
21.0%
During the 13 weeks endedJanuary 29, 2022 , selling and administrative expenses increased by$8.8 million , or 9.4%, to$101.5 million from$92.7 million during the 13 weeks endedJanuary 30, 2021 . During the 39 weeks endedJanuary 29, 2022 , selling and administrative expenses increased by$40.9 million , or 16.0%, to$295.6 million from$254.7 million during the 39 weeks endedJanuary 30, 2021 . The variances by segment are discussed by segment below. The increase in selling and administrative expenses is primarily related to the impact from re-opening stores that had temporarily closed due to the COVID-19 pandemic in the prior year. Additionally, during the 13 and 39 weeks endedJanuary 29, 2022 , long-term incentive compensation expense decreased by$0.6 million and increased by$4.0 million , respectively, primarily related to cash-settled phantom share unit awards which are remeasured at the end of each reporting period to reflect current assumptions, including changes in the our common stock price. Retail During the 13 weeks endedJanuary 29, 2022 , Retail selling and administrative expenses increased by$8.7 million , or 11.5%, to$84.6 million from$75.9 million during the 13 weeks endedJanuary 30, 2021 . This increase was primarily due to a$7.4 million increase in stores payroll and operating expenses including comparable stores, virtual stores and new/closed stores payroll and operating expenses, and a$1.3 million increase in corporate payroll, infrastructure and product development costs. The payroll increase is primarily related to the impact from re-opening stores that had temporarily closed due to the COVID-19 pandemic in the prior year. During the 39 weeks endedJanuary 29, 2022 , Retail selling and administrative expenses increased by$32.2 million , or 15.3%, to$242.5 million from$210.3 million during the 39 weeks endedJanuary 30, 2021 . This increase was primarily due to a$29.8 million increase in stores payroll and operating expenses including comparable stores, virtual stores and new/closed stores payroll and operating expenses, a$0.9 million increase in incentive plan compensation expense related to phantom share awards as discussed above, and a$1.5 million increase in corporate payroll, infrastructure and product development costs. The payroll increase is primarily related to the impact from re-opening stores that had temporarily closed due to the COVID-19 pandemic in the prior year.
Wholesale
Wholesale selling and administrative expenses decreased by$0.4 million , or 9.1%, to$3.9 million from$4.3 million during the 13 weeks endedJanuary 30, 2021 , primarily driven by lower payroll and operating costs. Wholesale selling and administrative expenses remained flat at$12.3 million for both the 39 weeks endedJanuary 29, 2022 andJanuary 30, 2021 , as lower payroll and operating costs were offset by higher incentive plan compensation expense related to phantom share awards, as discussed above.
DSS
During the 13 weeks endedJanuary 29, 2022 , DSS selling and administrative expenses increased by$1.8 million , or 29.3%, to$7.8 million from$6.0 million during the 13 weeks endedJanuary 30, 2021 . During the 39 weeks endedJanuary 29, 2022 , DSS selling and administrative expenses increased by$6.5 million , or 43.0%, to$21.5 million from$15.0 million during the 39 weeks endedJanuary 30, 2021 . The increase in costs was primarily driven by higher compensation-related expense, higher operating costs invested in the business associated with higher product development and sales costs aimed at increasing revenue, and higher incentive plan compensation expense related to phantom share awards, as discussed above. 35
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Corporate Services
During the 13 weeks endedJanuary 29, 2022 , Corporate Services' selling and administrative expenses decreased by$1.3 million , or 20.6%, to$5.2 million during the 13 weeks endedJanuary 29, 2022 from$6.5 million during the 13 weeks endedJanuary 30, 2021 . The decrease was primarily due to lower compensation-related expense of$1.5 million and lower incentive plan compensation expense related to phantom share awards of$0.4 million , as discussed above, partially offset by higher operating costs of$0.6 million . During the 39 weeks endedJanuary 29, 2022 , Corporate Services' selling and administrative expenses increased by$2.2 million , or 12.6%, to$19.4 million from$17.2 million during the 39 weeks endedJanuary 30, 2021 . The increase was primarily due to higher incentive plan compensation expense related to phantom share awards of$2.6 million , as discussed above, and higher operating costs of$1.1 million , partially offset by lower compensation-related expense of$1.5 million .
Depreciation and Amortization Expense
13 weeks ended 39 weeks ended
January 29, % of January 30, % of January 29, % of January 30, % of
Dollars in thousands 2022 Sales 2021 Sales 2022 Sales 2021 Sales
Total Depreciation and
Amortization Expense $ 12,179 3.0% $ 13,307 3.2% $ 36,755 2.9% $ 40,563 3.3%
Depreciation and amortization expense decreased by $1.1 million , or 8.5%, to
$12.2 million during the 13 weeks ended January 29, 2022 from $13.3 million
during the 13 weeks ended January 30, 2021 . Depreciation and amortization
expense decreased by $3.8 million , or 9.4%, to $36.8 million during the 39 weeks
ended January 29, 2022 from $40.6 million during the 39 weeks ended January 30 ,
2021.The decrease was primarily attributable to lower depreciable assets and
intangibles due to the store impairment loss recognized during the third quarter
of Fiscal 2021.
Impairment Loss (non-cash)
We review our long-lived assets for impairment whenever events or changes in circumstances that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets.
During the 13 and 39 weeks endedJanuary 29, 2022 , we evaluated certain of our store-level long-lived assets in the Retail segment for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of$6.4 million (both pre-tax and after-tax), comprised of$0.7 million ,$1.8 million ,$3.7 million and$0.2 million of property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets, respectively, on the condensed consolidated statement of operations. During the 13 and 39 weeks endedJanuary 30, 2021 , we evaluated certain of our store-level long-lived assets in the Retail segment for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of$27.6 million ($20.5 million after-tax), comprised of$5.1 million ,$13.3 million ,$6.3 million and$2.9 million of property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets, respectively, on the condensed consolidated statement of operations.
For additional information, see Item 1. Financial Statements – Note 2. Summary of Significant Accounting Policies and Note 6. Fair Value Measurements.
Restructuring and other charges
During the 39 weeks endedJanuary 29, 2022 , we recognized restructuring and other charges totaling$3.8 million , comprised primarily of$2.0 million for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives and$1.8 million for costs associated with professional service costs for restructuring, process improvements, development and integration associated with theFLC Partnership , shareholder activist activities, and liabilities for a facility closure. During the 13 and 39 weeks endedJanuary 30, 2021 , we recognized restructuring and other charges totaling$1.7 million and$10.7 million , respectively, comprised primarily of$1.3 million and$5.8 million , respectively, for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives, and$0.4 million and$4.9 million , respectively, for costs associated with professional service costs for restructuring, process improvements, development and integration associated with theFLC Partnership , shareholder activist activities, and liabilities for a facility closure. 36
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Operating Loss
13 weeks ended 39 weeks ended
January 29, % of January 30, % of January 29, % of January 30, % of
Dollars in thousands 2022 Sales 2021 Sales 2022 Sales 2021 Sales
Total Operating Loss $ (33,135) (8.2)% $ (64,702) (15.6)% $ (49,999) (4.0)% $ (116,884) (9.6)%
Our operating loss was $(33.1) million during the 13 weeks ended January 29,
2022 , compared to operating loss of $(64.7) million during the 13 weeks ended
January 30, 2021 . The decrease in operating loss is due to the matters discussed
above. For the 13 weeks ended January 29, 2022 , excluding the $6.4 million of
impairment loss (non-cash) discussed above, operating loss was $(26.7) million
(or (6.6)% of sales). For the 13 weeks ended January 30, 2021 , excluding the
$27.6 million of impairment loss (non-cash) and the $1.7 million of
restructuring and other charges, discussed above, operating loss was $(35.4)
million (or (8.6)% of sales).
Our operating loss was $(50.0) million during the 39 weeks ended January 29,
2022 , compared to an operating loss of $(116.9) million during the 39 weeks
ended January 30, 2021 . The decrease in operating loss is due to the matters
discussed above. For the 39 weeks ended January 29, 2022 , excluding the $0.4
million of merchandise inventory loss, $6.4 million of impairment loss
(non-cash), and the $3.8 million of restructuring and other charges discussed
above, operating loss was $(39.4) million (or (3.1)% of sales). For the 39 weeks
ended January 30, 2021 , excluding the $27.6 million of impairment loss
(non-cash) and the $10.7 million of restructuring and other charges, discussed
above, operating loss was $(78.5) million (or (6.5)% of sales).
Interest Expense, Net
13 weeks ended 39 weeks ended
Dollars in thousands January 29, 2022 January 30, 2021 January 29, 2022 January 30, 2021
Interest Expense, Net $ 3,051 $ 2,311 $ 7,809 $ 5,876
Net interest expense increased by $0.7 million , or 32.0%, to $3.1 million during
the 13 weeks ended January 29, 2022 from $2.3 million during the 13 weeks ended
January 30, 2021 . Net interest expense increased by $1.9 million , or 32.9%, to
$7.8 million during the 39 weeks ended January 29, 2022 from $5.9 million during
the 39 weeks ended January 30, 2021 . The increase was primarily due to higher
borrowings compared to the prior year.
Income Tax Expense (Benefit)
13 weeks ended 39 weeks ended
January 29, January 30, January 29, January 30,
Dollars in thousands 2022 Effective Rate 2021 Effective Rate 2022 Effective Rate 2021 Effective Rate
Income Tax Expense
(Benefit) $ 615 (1.7)% $ (18,724) 27.9% $ 811 (1.4)% $ (35,334) 28.8%
We recorded an income tax expense of $0.6 million on pre-tax loss of $(36.2)
million during the 13 weeks ended January 29, 2022 , which represented an
effective income tax rate of (1.7)% and we recorded an income tax benefit of
$(18.7) million on a pre-tax loss of $(67.0) million during the 13 weeks ended
January 30, 2021 , which represented an effective income tax rate of 27.9%.
We recorded income tax expense of $0.8 million on a pre-tax loss of $(57.8)
million during the 39 weeks ended January 29, 2022 , which represented an
effective income tax rate of (1.4)% and we recorded an income tax benefit of
$(35.3) million on a pre-tax loss of $(122.8) million during the 39 weeks ended
January 30, 2021 , which represented an effective income tax rate of 28.8%.
The effective tax rate for the 13 and 39 weeks ended January 29, 2022 is lower
as compared to the comparable prior year due to the assessment of the
realization of deferred tax assets and loss carrybacks recorded in the prior
year.
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Net Loss
13 weeks ended 39 weeks ended
January 29, January 30, January 29, January 30,
Dollars in thousands 2022 2021 2022 2021
Net loss $ (36,801) $ (48,289) $ (58,619) $ (87,426)
As a result of the factors discussed above, net loss was $(36.8) million during
the 13 weeks ended January 29, 2022 , compared with net loss of $(48.3) million
during the 13 weeks ended January 30, 2021 . As a result of the factors discussed
above, net loss was $(58.6) million during the 39 weeks ended January 29, 2022 ,
compared with net loss of $(87.4) million during the 39 weeks ended January 30,
2021 .
Adjusted Earnings (non-GAAP) is $(28.9) million during the 13 weeks ended
January 29, 2022 , compared with $(25.6) million during the 13 weeks ended
January 30, 2021 . Adjusted Earnings (non-GAAP) is $(44.0) million during the 39
weeks ended January 29, 2022 , compared with $(56.2) million during the 39 weeks
ended January 30, 2021 . See Adjusted Earnings (non-GAAP) discussion below.
Use of Non-GAAP Measures – Adjusted Earnings, Adjusted EBITDA, Adjusted EBITDA by Segment, and Free Cash Flow
To supplement our results prepared in accordance with generally accepted
accounting principles ("GAAP"), we use the measure of Adjusted Earnings,
Adjusted EBITDA, Adjusted EBITDA by Segment, and Free Cash Flow, which are
non-GAAP financial measures under Securities and Exchange Commission (the "SEC")
regulations. We define Adjusted Earnings as net income adjusted for certain
reconciling items that are subtracted from or added to net income (loss). We
define Adjusted EBITDA as net income (loss) plus (1) depreciation and
amortization; (2) interest expense and (3) income taxes, (4) as adjusted for
items that are subtracted from or added to net income (loss). We define Free
Cash Flow as Cash Flows from Operating Activities less capital expenditures,
cash interest and cash taxes.
To properly and prudently evaluate our business, we encourage you to review our
condensed consolidated financial statements included elsewhere in this Form
10-Q, the reconciliation of Adjusted Earnings to net income (loss), the
reconciliation of consolidated Adjusted EBITDA to consolidated net income
(loss), and the reconciliation of Adjusted EBITDA by Segment to net income
(loss) by segment, the most directly comparable financial measure presented in
accordance with GAAP, set forth in the tables below. All of the items included
in the reconciliations below are either (i) non-cash items or (ii) items that
management does not consider in assessing our on-going operating performance.
These non-GAAP financial measures are not intended as substitutes for and should
not be considered superior to measures of financial performance prepared in
accordance with GAAP. In addition, our use of these non-GAAP financial measures
may be different from similarly named measures used by other companies, limiting
their usefulness for comparison purposes.
We review these non-GAAP financial measures as internal measures to evaluate our
performance at a consolidated level and at a segment level and manage our
operations. We believe that these measures are useful performance measures which
are used by us to facilitate a comparison of our on-going operating performance
on a consistent basis from period-to-period. We believe that these non-GAAP
financial measures provide for a more complete understanding of factors and
trends affecting our business than measures under GAAP can provide alone, as
they exclude certain items that management believes do not reflect the ordinary
performance of our operations in a particular period. Our Board of Directors and
management also use Adjusted EBITDA and Adjusted EBITDA by Segment, at a
consolidated and at a segment level, as one of the primary methods for planning
and forecasting expected performance, for evaluating on a quarterly and annual
basis actual results against such expectations, and as a measure for performance
incentive plans. Management also uses Adjusted EBITDA by Segment to determine
segment capital allocations. We believe that the inclusion of Adjusted Earnings,
Adjusted EBITDA, and Adjusted EBITDA by Segment results provides investors
useful and important information regarding our operating results, in a manner
that is consistent with management's evaluation of business performance. We
believe that Free Cash Flow provides useful additional information concerning
cash flow available to meet future debt service obligations and working capital
requirements and assists investors in their understanding of our operating
profitability and liquidity as we manage the business to maximize margin and
cash flow.
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