BARNES & NOBLE EDUCATION, INC. 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 . References to "Student Brands" refer to our subsidiaryStudent Brands, LLC . Overview Description of BusinessBarnes & 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 1,436 physical, virtual, and custom bookstores and serve more than 6 million students, delivering essential educational content and tools within a dynamic omni channel retail environment. Additionally, we offer direct-to-student products and services to help students study more effectively and improve academic performance. The BNC and MBS brands are virtually synonymous with innovation in bookselling and campus retail, and, we believe, 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 for 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 year endedApril 27, 2019 . We offer our BNC First Day™ inclusive access programs, consisting of First Day and First Day Complete programs in which course materials, including e-content, are offered at a reduced price through a course materials fee, and delivered to students on or before the first day of class. InAugust 2019 , we announced a new agreement with VitalSource®, part ofIngram Content Group , to use their technology to power our First Day inclusive access platform, allowing us to increase penetration rates for course material sales, as well as accelerate and optimize First Day implementations. During the 39 weeks endedJanuary 25, 2020 , First Day total revenue increased 99% from the prior year comparative period. 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 general merchandise e-commerce capabilities, increase market share with new accounts, and expand our strategic opportunities through acquisitions and partnerships. We expect general merchandise sales to continue to increase over the long term, as our product assortments continue to emphasize and reflect the changing consumer trends, and we evolve our presentation concepts and merchandising of products in stores and online, as we improve our e-commerce capabilities through investments we are making in new systems, processes and people. As we previously disclosed, we have retainedMorgan Stanley & Co. to serve as a financial advisor in connection with our review of strategic opportunities. The review is designed to accelerate the execution of customer-focused strategic initiatives and enhance value for our shareholders, including, but not limited to, continued execution of our current business plan, new partnerships, joint ventures and other potential opportunities. There can be no assurance that the review will result in a transaction or announcement of any kind. We have not set a timetable for the conclusion of the review. InFebruary 2020 , we implemented a significant cost reduction program designed to streamline our operations, maximize productivity and drive profitability. Certain elements of this plan have recently been implemented, while other actions are planned for Fiscal 2021, which begins inMay 2020 . We anticipate meaningful annualized cost savings from this program, the majority of which is expected to be realized beginning in Fiscal 2021. As a result of the personnel and related elements of this program, we expect to recognize a restructuring charge of$10 million to$15 million during the fourth quarter of Fiscal 2020. Segments Prior to the fourth quarter of Fiscal 2019, we had three reportable segments: BNC, MBS, and Digital Student Solutions ("DSS"). During the fourth quarter of fiscal year 2019, in an effort to streamline our retail go-to-market strategy, reinforce our company branding, and more efficiently focus our product development efforts, we realigned our business and sales organization into the following three reportable segments: Retail, Wholesale and DSS. The Retail Segment combines the operations of the former BNC segment with MBS Direct (from the former MBS segment), the Wholesale Segment is comprised of the MBS wholesale business (from the former MBS segment), and the DSS Segment remains unchanged. Additionally, unallocated shared-service costs, which include various corporate level expenses and other governance functions, continue to be presented as "Corporate Services". The following discussion summarizes the three segments: 22
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Retail Segment The Retail Segment operates 1,436 college, university, and K-12 school bookstores, comprised of 772 physical bookstores and 664 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 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, including e-content, are offered at a reduced price through a course materials fee, 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 3,500 physical bookstores (including our Retail Segment's 772 physical bookstores) and sources and distributes new and used textbooks to our 664 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 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 ofStudent 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, tutoring and test prep services. 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. For additional information about the Retail, Wholesale and DSS segment operations, see Part I - Item 1. Business in our Annual Report on Form 10-K for the year endedApril 27, 2019 . 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 unprecedented 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: • 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.
• 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 hashistorically 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. Some textbook
publishers have begun to supply textbooks pursuant to consignment or
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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. •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.
• Competition. In addition to the competition we face from alternative
distribution sources, we also have competition from other college bookstore
operators, textbook wholesalers and educational content providers. We also
compete with competitors offering products utilizing open educational
resources ("OER") and other expert sources and enhanced with digital content.
Competitors that provide online bookstore solutions to colleges and
universities not only compete with our physical bookstore operations, but
also compete with Retail's virtual stores. We also compete with other
companies that offer college-themed and other general merchandise. Our DSS
segment faces competition from other digital student solutions providers,
including Chegg, Course Hero and others.
• 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, including virtual bookstores and online
marketplace websites, and we also continue to see a variety of business
models being pursued for the provision of textbooks and other course
materials, such as inclusive access 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.
• Overall Economic Environment, College Enrollment and Consumer Spending
Patterns. Our business is affected by 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.
• Economic Environment: Retail general merchandise sales are subject to
short-term fluctuations driven by the broader retail environment. We
expect general merchandise sales to continue to increase over the long
term, as our product assortments continue to emphasize and reflect the
changing consumer trends, and we evolve our presentation concepts and
merchandising of products in stores and online, as we improve oure-commerce capabilities through investments we are making in new systems,
processes and people.
• 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
and shrinking resources from state and federal government for colleges and
universities. Enrollment trends, specifically at community colleges,
continue to decline, led primarily by an improved economy (e.g. low
unemployment) and a dip in
students at the traditional 18-24 year-old college age. However, online
degree program enrollments continue to grow, even in the face of declining
overall higher education enrollment, and consistent with projections from
the
enrollment to increase in the long-term.
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 endedApril 27, 2019 . 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 inthe United States ("GAAP"). 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. 24
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Our selling and administrative expenses consist primarily of store payroll and
store operating expenses. Selling and administrative expenses also include
stock-based compensation 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 25, January 26, January 25, January 26,
Dollars in thousands 2020 2019 2020 2019
Sales:
Product sales and other $ 453,678 $ 491,989 $ 1,474,448 $ 1,566,007
Rental income 48,614 56,019 119,729 134,251
Total sales $ 502,292 $ 548,008 $ 1,594,177 $ 1,700,258
Net (loss) income $ (1,693 ) $ 769 $ 2,083 $ 21,844 Adjusted Earnings (non-GAAP) (a)
Adjusted EBITDA (non-GAAP) (a) Retail$ 8,140 $ 10,480 $ 49,220 $ 60,020 Wholesale 9,923 17,458 28,024 40,275 DSS 1,150 1,475 2,492 5,652 Corporate Services (5,154 ) (6,197 ) (15,829 ) (17,706 ) Elimination (644 ) (992 )
(1,071 ) (2,966 )
Total Adjusted EBITDA (non-GAAP)
(a) Adjusted Earnings and Adjusted EBITDA are non-GAAP financial measures. See
Adjusted Earnings (non-GAAP) and Adjusted EBITDA (non-GAAP) discussion below.
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 25, January 26, January 25, January 26,
2020 2019 2020 2019
Sales:
Product sales and other 90.3 % 89.8 % 92.5 % 92.1 %
Rental income 9.7 10.2 7.5 7.9
Total sales 100.0 100.0 100.0 100.0
Cost of sales:
Product and other cost of
sales (a) 78.2 77.6 77.8 77.2
Rental cost of sales (a) 59.2 59.1 59.0 59.8
Total cost of sales 76.4 75.7 76.3 75.9
Gross margin 23.6 24.3 23.7 24.1
Selling and administrative
expenses 21.1 20.2 19.9 19.1
Depreciation and
amortization expense 3.0 3.0 2.9 2.9
Impairment loss (non-cash) - - - -
Restructuring and other
charges - 0.5 0.2 0.1
Transaction costs - - - -
Operating (loss) income (0.5 )% 0.6 % 0.7 % 2.0 %
(a) Represents the percentage these costs bear to the related sales, instead of
total sales.
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Results of Operations - 13 and 39 weeks ended
13 weeks ended, January 25, 2020
Corporate
Dollars in thousands Retail Wholesale DSS Services Eliminations Total
Sales:
Product sales and other $ 409,374 $ 66,996 $ 6,435 $ - $ (29,127 ) $ 453,678
Rental income 48,614 - - - - 48,614
Total sales 457,988 66,996 6,435 - (29,127 ) 502,292
Cost of sales:
Product and other cost of
sales 329,440 52,761 1,152 - (28,354 ) 354,999
Rental cost of sales 28,758 - - - - 28,758
Total cost of sales 358,198 52,761 1,152
- (28,354 ) 383,757
Gross profit 99,790 14,235 5,283 - (773 ) 118,535
Selling and administrative
expenses 91,860 4,312 4,987 5,154 (129 ) 106,184
Depreciation and
amortization expense 11,699 1,483 1,904 31 - 15,117
Sub-Total: $ (3,769 ) $ 8,440 $ (1,608 ) $ (5,185 ) $ (644 ) (2,766 )
Restructuring and other
charges 205
Operating loss $ (2,971 )
13 weeks ended, January 26, 2019
Corporate
Dollars in thousands Retail Wholesale DSS Services Eliminations Total
Sales:
Product sales and other $ 442,127 $ 78,508 $ 5,237 $ - $ (33,883 ) $ 491,989
Rental income 56,019 - - - - 56,019
Total sales 498,146 78,508 5,237 - (33,883 ) 548,008
Cost of sales:
Product and other cost of
sales 358,800 55,769 268 - (32,884 ) 381,953
Rental cost of sales 33,102 - - - - 33,102
Total cost of sales 391,902 55,769 268
- (32,884 ) 415,055
Gross profit 106,244 22,739 4,969 - (999 ) 132,953
Selling and administrative
expenses 95,895 5,281 3,575 6,197 (7 ) 110,941
Depreciation and
amortization expense 12,769 1,496 2,072 37 - 16,374
Sub-Total: $ (2,420 ) $ 15,962 $ (678 ) $ (6,234 ) $ (992 ) 5,638
Restructuring and other
charges 2,500
Transaction costs 117
Operating income $ 3,021
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39 weeks ended, January 25, 2020
Corporate
Dollars in thousands Retail Wholesale DSS Services Eliminations Total
Sales:
Product sales and other $ 1,354,684 $ 179,515 $ 17,024 $ - $ (76,775 ) $ 1,474,448
Rental income 119,729 - - - - 119,729
Total sales 1,474,413 179,515 17,024 - (76,775 ) 1,594,177
Cost of sales:
Product and other cost of
sales 1,080,909 137,827 3,186 - (75,522 ) 1,146,400
Rental cost of sales 70,635 - - - - 70,635
Total cost of sales 1,151,544 137,827 3,186
- (75,522 ) 1,217,035
Gross profit 322,869 41,688 13,838 - (1,253 ) 377,142
Selling and administrative
expenses 274,253 13,664 13,715 15,829 (182 ) 317,279
Depreciation and
amortization expense 35,372 4,531 6,543 96 - 46,542
Sub-Total: $ 13,244 $ 23,493 $ (6,420 ) $ (15,925 ) $ (1,071 ) 13,321
Impairment loss (non-cash) 433
Restructuring and other
charges 3,240
Operating income $ 9,648
39 weeks ended, January 26, 2019
Corporate
Dollars in thousands Retail Wholesale DSS Services Eliminations Total
Sales:
Product sales and other $ 1,434,886 $ 209,282 $ 15,848 $ - $ (94,009 ) $ 1,566,007
Rental income 134,251 - - - - 134,251
Total sales 1,569,137 209,282 15,848 - (94,009 ) 1,700,258
Cost of sales:
Product and other cost of
sales 1,147,412 152,723 536 - (90,995 ) 1,209,676
Rental cost of sales 80,259 - - - 80,259
Total cost of sales 1,227,671 152,723 536
- (90,995 ) 1,289,935
Gross profit 341,466 56,559 15,312 - (3,014 ) 410,323
Selling and administrative
expenses 281,725 16,284 9,741 17,706 (48 ) 325,408
Depreciation and
amortization expense 39,061 4,455 5,698 119 - 49,333
Sub-Total: $ 20,680 $ 35,820 $ (127 ) $ (17,825 ) $ (2,966 ) 35,582
Restructuring and other
charges 2,500
Transaction costs 654
Operating income $ 32,428
Sales
The following table summarizes our sales for the 13 and 39 weeks ended
13 weeks ended 39 weeks ended
Dollars in
thousands January 25, 2020 January 26, 2019 % January 25, 2020 January 26, 2019 %
Product sales
and other $ 453,678 $ 491,989 (7.8)% $ 1,474,448 $ 1,566,007 (5.8)%
Rental income 48,614 56,019 (13.2)% 119,729 134,251 (10.8)%
Total Sales $ 502,292 $ 548,008 (8.3)% $ 1,594,177 $ 1,700,258 (6.2)%
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Our sales decreased by$45.7 million , or 8.3%, to$502.3 million during the 13 weeks endedJanuary 25, 2020 from$548.0 million during the 13 weeks endedJanuary 26, 2019 . Our sales decreased by$106.1 million , or 6.2%, to$1,594.2 million during the 39 weeks endedJanuary 25, 2020 from$1,700.3 million during the 39 weeks endedJanuary 26, 2019 . 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 25, 2020 January 26, 2019 January 25, 2020 January 26, 2019 Retail Sales New stores $ 16.3 $ 18.4 $ 61.9 $ 48.3 Closed stores (18.1 ) (23.1 ) (50.8 ) (71.7 ) Comparable stores (a) (37.9 ) (44.7 ) (99.0 ) (101.2 ) Textbook rental deferral 0.7 4.9 3.0 8.5 Service revenue (b) (1.4 ) (1.3 ) (3.9 ) (1.1 ) Other (c) 0.3 (3.7 ) (5.9 ) (2.9 )
Retail sales subtotal: $ (40.1 ) $ (49.5 ) $
(94.7 )$ (120.1 ) Wholesale Sales $ (11.5 ) $ (15.3 ) $ (29.8 ) $ (23.4 ) DSS Sales $ 1.2 $ (0.3 ) $ 1.2 $ 5.8 Eliminations (d) $ 4.7 $ 9.7 $ 17.2 $ (8.2 ) Total sales variance: $ (45.7 ) $ (55.4 )$ (106.1 ) $ (145.9 )
(a) Comparable store sales includes sales from physical stores that have been
open for an entire fiscal year period and virtual store sales for the period,
does not include sales from closed stores for all periods presented, and
digital agency sales are included on a gross basis.
(b) Service revenue includes Promoversity, brand partnerships, shipping and
handling, digital content, software, services, 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$40.1 million , or 8.1%, to$458.0 million during the 13 weeks endedJanuary 25, 2020 from$498.1 million during the 13 weeks endedJanuary 26, 2019 . Retail sales decreased by$94.7 million , or 6.0%, to$1,474.4 million during the 39 weeks endedJanuary 25, 2020 from$1,569.1 million during the 39 weeks endedJanuary 26, 2019 . Retail added 107 new stores and closed 119 stores during the 39 weeks endedJanuary 25, 2020 , ending the period with a total of 1,436 stores. 13 weeks ended 39 weeks ended January 25, 2020 January 26, 2019 January 25, 2020 January 26, 2019 Number of Stores: Physical Virtual Physical Virtual Physical Virtual Physical Virtual Number of stores at beginning of period 772 664 773 677 772 676 768 676 Opened 5 7 1 6 45 62 35 32 Closed 5 7 1 3 45 74 30 28 Number of stores at end of period 772 664 773 680 772 664 773 680 28
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Product and other sales for Retail for the 13 weeks endedJanuary 25, 2020 decreased by$32.7 million , or 7.4% to$409.4 million from$442.1 million during the 13 weeks endedJanuary 26, 2019 . Product and other sales for Retail for the 39 weeks endedJanuary 25, 2020 decreased by$80.2 million , or 5.6% to$1,354.7 million from$1,434.9 million during the 39 weeks endedJanuary 26, 2019 . Product and other sales are impacted by comparable store sales (as noted in the chart below), new store openings and store closings. Textbook (Course Materials) revenue for Retail for the 13 and 39 weeks endedJanuary 25, 2020 decreased primarily due to lower new and used textbook and other course materials sales, while First Day, digital and eTextbook revenue increased. General merchandise sales for Retail decreased for the 13 weeks endedJanuary 25, 2020 primarily due to lower sales for supply products and lower emblematic apparel, partially offset by higher graduation product sales. General merchandise sales for Retail increased for the 39 weeks endedJanuary 25, 2020 primarily due to higher emblematic apparel and higher graduation product sales, partially offset by lower sales for supply products and dorm furnishings. Rental income for Retail for the 13 weeks endedJanuary 25, 2020 decreased by$7.4 million , or 13.2% to$48.6 million from$56.0 million during the 13 weeks endedJanuary 26, 2019 . Rental income for Retail for the 39 weeks endedJanuary 25, 2020 decreased by$14.5 million , or 10.8% to$119.7 million from$134.3 million . Rental income is impacted by comparable store sales, new store openings and store closings. The decrease in rental income is primarily due to decreased rental activity impacted by increased digital offerings. Comparable store sales for Retail decreased for the 13 and 39 week sales periods. Comparable store sales were impacted primarily by a shift to lower cost options and more affordable solutions, including digital offerings, increased consumer purchases directly from publishers and other online providers, and lower student enrollment, specifically in two-year community colleges. These decreases were partially offset by increased First Day, digital and eTextbook revenue. Consistent with prior years, the Spring Rush period extended beyond the quarter due to later school openings and the continued pattern of students buying course materials later in the semester. Factoring in the fiscal month of February, comparable store sales at BNC decreased 5.7% on a year to date basis. Comparable store sales variances for Retail by category for the 13 and 39 week periods are as follows: Comparable Store Sales variances - Retail 13 weeks ended 39 weeks ended
Dollars in millions January 25, 2020 January 26, 2019 January 25, 2020 January 26, 2019 Textbooks (Course Materials)$ (31.2 ) (9.3 )%$ (44.1 ) (11.7 )%$ (85.2 ) (8.3 )%$ (98.9 ) (8.8 )% General Merchandise (0.9 ) (0.7 )% 1.9 1.6 % 4.7 1.1 % 6.3 1.5 % Trade Books (2.3 ) (20.2 )% (0.5 ) (4.4 )% (4.9 ) (14.7 )% (2.6 ) (7.3 )%Total Comparable Store Sales$ (34.4 ) (7.3 )%$ (42.7 ) (8.3 )%$ (85.4 ) (5.7 )%$ (95.2 ) (6.0 )% Wholesale Wholesale sales decreased by$11.5 million , or 14.7%, to$67.0 million during the 13 weeks endedJanuary 25, 2020 from$78.5 million during the 13 weeks endedJanuary 26, 2019 . Wholesale sales decreased by$29.8 million , or 14.2%, to$179.5 million during the 39 weeks endedJanuary 25, 2020 from$209.3 million during the 39 weeks endedJanuary 26, 2019 . The decrease is driven primarily due to a shift in buying patterns from physical textbooks to digital products resulting in a decrease in customer demand (including sales to our Retail Segment). DSS DSS total sales increased by$1.2 million or 22.9% to$6.4 million during the 13 weeks endedJanuary 25, 2020 from$5.2 million during the 13 weeks endedJanuary 26, 2019 . DSS total sales increased by$1.2 million or 7.4% to$17.0 during the 39 weeks endedJanuary 25, 2020 from$15.8 million during the 39 weeks endedJanuary 26, 2019 . For both periods, bartleby subscription sales increased and were offset by lower Student Brands sales. Cost of Sales and Gross Margin Our cost of sales increased as a percentage of sales to 76.4% during the 13 weeks endedJanuary 25, 2020 compared to 75.7% during the 13 weeks endedJanuary 26, 2019 . Our gross margin decreased by$14.4 million , or 10.8%, to$118.5 million , or 23.6% of sales, during the 13 weeks endedJanuary 25, 2020 from$133.0 million , or 24.3% of sales during the 13 weeks endedJanuary 26, 2019 . Our cost of sales increased as a percentage of sales to 76.3% during the 39 weeks endedJanuary 25, 2020 compared to 75.9% during the 39 weeks endedJanuary 26, 2019 . Our gross margin decreased by$33.2 million , or 8.1%, to$377.1 million , or 23.7% of sales, during the 39 weeks endedJanuary 25, 2020 from$410.3 million , or 24.1% of sales during the 39 weeks endedJanuary 26, 2019 . 29
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Retail
The following table summarizes the Retail cost of sales for the 13 and 39 weeks
ended
13 weeks ended 39 weeks ended
Dollars in % of % of % of % of
thousands January 25, 2020 Related Sales January 26, 2019 Related Sales January 25, 2020 Related Sales January 26,2019 Related Sales Product and other cost of sales $ 329,440 80.5% $ 358,800 81.2%$ 1,080,909 79.8%$ 1,147,412 80.0% Rental cost of sales 28,758 59.2% 33,102 59.1% 70,635 59.0% 80,259 59.8% Total Cost of Sales $ 358,198 78.2% $ 391,902 78.7%$ 1,151,544 78.1%$ 1,227,671 78.2%
The following table summarizes the Retail gross margin for the 13 and 39 weeks
ended
13 weeks ended 39 weeks ended
Dollars in % of % of % of % of
thousands January 25, 2020 Related Sales January 26,2019 Related Sales January 25, 2020 Related Sales January 26, 2019 Related Sales Product and other gross margin $ 79,934 19.5% $ 83,327 18.8% $ 273,775 20.2% $ 287,474 20.0% Rental gross margin 19,856 40.8% 22,917 40.9% 49,094 41.0% 53,992 40.2% Gross Margin $ 99,790 21.8% $ 106,244 21.3% $ 322,869 21.9% $ 341,466 21.8% For the 13 weeks endedJanuary 25, 2020 , the Retail gross margin as a percentage of sales decreased as discussed below: • Product and other gross margin increased (70 basis points), driven primarily
by higher margin rates (70 basis points) due to lower markdowns and a
favorable sales mix (30 basis points) due to increased sales of higher
margin general merchandise, partially offset by higher costs related to our
college and university contracts (40 basis points) resulting from contract
renewals and new store contracts.
• Rental gross margin decreased (10 basis points), driven primarily by lower
rental margin rates (100 basis points), partially offset by lower costs
related to our college and university contracts (85 basis points) resulting
from contract renewals and new store contracts and favorable rental mix (5
basis points).
For the 39 weeks endedJanuary 25, 2020 , the Retail gross margin as a percentage of sales increased as discussed below: • Product and other gross margin increased (20 basis points), driven primarily
by a favorable sales mix (40 basis points) due to increased sales of higher
margin general merchandise, partially offset by lower margin rates (15 basis
points) due to a shift to lower margin digital products and higher markdowns
and higher costs related to our college and university contracts (10 basis
points) resulting from contract renewals and new store contracts.
• Rental gross margin increased (80 basis points), driven primarily by
favorable rental mix (50 basis points) and lower costs related to ourcollege and university contracts (50 basis points) resulting from contract
renewals and new store contracts, partially offset by lower rental margin
rates (25 basis points).
Wholesale
The cost of sales and gross margin for Wholesale were$52.8 million , or 78.8% of sales, and$14.2 million , or 21.2% of sales, respectively, during the 13 weeks endedJanuary 25, 2020 . The cost of sales and gross margin for Wholesale was$55.8 million or 71.0% of sales and$22.7 million or 29.0% of sales, respectively, during the 13 weeks endedJanuary 26, 2019 . The cost of sales and gross margin for Wholesale were$137.8 million , or 76.8% of sales, and$41.7 million , or 23.2% of sales, respectively, during the 39 weeks endedJanuary 25, 2020 . The cost of sales and gross margin for Wholesale was$152.7 million or 73.0% of sales and$56.6 million or 27.0% of sales, respectively, during the 39 weeks endedJanuary 26, 2019 . The gross margin decreased during the 13 and 39 weeks endedJanuary 25, 2020 primarily due to an unfavorable sales mix (higher priced inventory sold) and inventory markdowns. DSS The gross margin for the DSS segment was$5.3 million , or 82.1% of sales, during the 13 weeks endedJanuary 25, 2020 and$5.0 million , or 94.9% of sales, during the 13 weeks endedJanuary 26, 2019 . The gross margin for the DSS segment was$13.8 million , or 81.3% of sales, during the 39 weeks endedJanuary 25, 2020 and$15.3 million , or 96.6% of sales, during the 30
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39 weeks endedJanuary 26, 2019 . The high gross margins are driven primarily by high margin subscription service revenue earned. The decrease in gross margin for the 13 and 39 weeks endedJanuary 25, 2020 was primarily due to the amortization of content development costs of$0.8 million and$2.4 million , respectively, for bartleby textbook solutions which was launched in the latter half of Fiscal 2019. Intercompany Eliminations During the 13 weeks endedJanuary 25, 2020 andJanuary 26, 2019 , our sales eliminations were$(29.1) million and$(33.9) million , respectively. During the 39 weeks endedJanuary 25, 2020 andJanuary 26, 2019 , our sales eliminations were$(76.8) million and$(94.0) million , respectively. These sales eliminations represent the elimination of Wholesale sales and fulfillment service fees to Retail and the elimination of Retail commissions earned from Wholesale. During the 13 weeks endedJanuary 25, 2020 andJanuary 26, 2019 , the cost of sales eliminations were$(28.4) million and$(32.9) million , respectively. During the 39 weeks endedJanuary 25, 2020 andJanuary 26, 2019 , the cost of sales eliminations were$(75.5) million and$(91.0) million , respectively. These cost of sales eliminations represent (i) the recognition of intercompany profit for Retail inventory that was purchased from Wholesale in a prior period that was subsequently sold to external customers during the current period and the elimination of Wholesale service fees charged for fulfillment of inventory for virtual store sales, net of (ii) the elimination of intercompany profit for Wholesale inventory purchases by Retail that remain in ending inventory at the end of the current period. During the 13 weeks endedJanuary 25, 2020 andJanuary 26, 2019 , the gross margin eliminations were$(0.8) million and$(1.0) million , respectively. During the 39 weeks endedJanuary 25, 2020 andJanuary 26, 2019 , the gross margin eliminations were$(1.3) million and$(3.0) 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 Dollars in % of % of % of % of thousands January 25, 2020 Sales January 26, 2019 Sales January 25, 2020 Sales January 26, 2019 Sales Total Selling and Administrative Expenses $ 106,184 21.1% $ 110,941 20.2% $ 317,279 19.9% $ 325,408 19.1% During the 13 weeks endedJanuary 25, 2020 , selling and administrative expenses decreased by$4.8 million , or 4.3%, to$106.2 million from$110.9 million during the 13 weeks endedJanuary 26, 2019 . During the 39 weeks endedJanuary 25, 2020 , selling and administrative expenses decreased by$8.1 million , or 2.5%, to$317.3 million from$325.4 million during the 39 weeks endedJanuary 26, 2019 . The variances by segment are as follows: Retail During the 13 weeks endedJanuary 25, 2020 , Retail selling and administrative expenses decreased by$4.0 million , or 4.2%, to$91.9 million from$95.9 million during the 13 weeks endedJanuary 26, 2019 . This decrease was primarily due to a$4.5 million decrease in stores payroll and operating expenses, including comparable stores, virtual stores and new/closed stores payroll and operating expenses, partially offset by an increase of$1.1 million in corporate payroll and infrastructure costs and a$0.2 million increase in product development costs and digital operations costs. During the 39 weeks endedJanuary 25, 2020 , Retail selling and administrative expenses decreased by$7.5 million , or 2.7%, to$274.2 million from$281.7 million during the 39 weeks endedJanuary 26, 2019 . This decrease was primarily due to an$8.9 million decrease in stores payroll and operating expenses, including comparable stores, virtual stores and new/closed stores payroll and operating expenses, partially offset by an increase of$1.9 million in corporate payroll and infrastructure costs and a$0.5 million increase in product development costs and digital operations costs. Wholesale During the 13 weeks endedJanuary 25, 2020 , Wholesale selling and administrative expenses decreased by$1.0 million or 18.3% to$4.3 million from$5.3 million during the 13 weeks endedJanuary 26, 2019 . During the 39 weeks endedJanuary 25, 2020 , Wholesale selling and administrative expenses decreased by$2.6 million or 16.1% to$13.7 million from$16.3 million during the 39 weeks endedJanuary 26, 2019 . The decrease in selling and administrative expenses was primarily driven by lower payroll and operating costs. 31
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DSS
During the 13 weeks endedJanuary 25, 2020 , DSS selling and administrative expenses increased by$1.4 million to$5.0 million from$3.6 million during the 13 weeks endedJanuary 26, 2019 . During the 39 weeks endedJanuary 25, 2020 , DSS selling and administrative expenses increased by$4.0 million to$13.7 million from$9.7 million during the 39 weeks endedJanuary 26, 2019 . The increase in costs was primarily driven by higher payroll and professional fees related to developing, marketing and selling our student success hub on bartleby which launched during the latter half of Fiscal 2019. Corporate Services During the 13 weeks endedJanuary 25, 2020 , Corporate Services' selling and administrative expenses decreased by$1.0 million or 16.8% to$5.2 million from$6.2 million during the 13 weeks endedJanuary 26, 2019 . During the 39 weeks endedJanuary 25, 2020 , Corporate Services' selling and administrative expenses decreased by$1.9 million or 10.6% to$15.8 million from$17.7 million during the 39 weeks endedJanuary 26, 2019 . The decrease was primarily due to lower compensation-related expense and lower operating expenses. Depreciation and Amortization Expense 13 weeks ended 39 weeks ended Dollars in % of % of % of % of thousands January 25, 2020 Sales January 26, 2019 Sales
January 25, 2020 Sales January 26, 2019 Sales
Total
Depreciation
and
Amortization
Expense $ 15,117 3.0% $ 16,374 3.0% $ 46,542 2.9% $ 49,333 2.9%
Depreciation and amortization expense decreased by $1.3 million , or 7.7%, to
$15.1 million during the 13 weeks ended January 25, 2020 from $16.4 million
during the 13 weeks ended January 26, 2019 . Depreciation and amortization
expense decreased by $2.8 million , or 5.7%, to $46.5 million during the 39 weeks
ended January 25, 2020 from $49.3 million during the 39 weeks ended January 26,
2019 . The decrease was primarily attributable to lower depreciation related to
closed stores and lower capital expenditures.
Impairment loss (non-cash)
We review our long-lived assets for impairment whenever events or changes in
circumstances indicate 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 39 weeks ended January 25, 2020 , we
recognized an impairment loss (non-cash) of $0.4 million in the Retail segment
related to net capitalized development costs for a project which are not
recoverable.
Restructuring and other charges
During the 13 and 39 weeks ended January 25, 2020 , we recognized restructuring
and other charges totaling $0.2 million and $3.2 million , respectively,
comprised primarily of $0 and $0.8 million , respectively, for severance and
other employee termination and benefit costs associated with several management
changes and the elimination of various positions as part of cost reduction
objectives, and $0.2 million and $2.4 million , respectively for professional
service costs for restructuring, process improvements, and shareholder activist
activities.
During the 13 and 39 weeks ended January 26, 2019 , we recognized restructuring
and other charges totaling $2.5 million for severance and other employee
termination and benefit costs associated with management changes.
In February 2020 , we implemented a cost reduction program designed to streamline
our operations, maximize productivity and drive profitability. For additional
information, see the Overview discussion above or Item 1. Financial Statements -
Note 15. Subsequent Event.
Transaction Costs
Transaction costs were $0.1 million and 0.7 million during the 13 and 39 weeks
ended January 26, 2019 respectively. We incur transaction costs for business
development and acquisitions.
Operating (Loss) Income
13 weeks ended 39 weeks ended
Dollars in % of % of % of % of
thousands January 25, 2020 Sales January 26, 2019 Sales
January 25, 2020 Sales January 26, 2019 Sales
Total
Operating
(Loss)Income $ (2,971 ) (0.5)% $ 3,021 0.6% $ 9,648 0.7% $ 32,428 2.0%
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Our operating loss was$(3.0) million during the 13 weeks endedJanuary 25, 2020 , compared to operating income of$3.0 million during the 13 weeks endedJanuary 26, 2019 . The decrease is due to the matters discussed above. For the 13 weeks endedJanuary 25, 2020 , excluding the$0.2 million of restructuring and other charges, discussed above, operating loss was$(2.8) million . For the 13 weeks endedJanuary 26, 2019 , excluding the$2.5 million of restructuring and other charges and transaction costs of$0.1 million , discussed above, operating income was$5.6 million . Our operating income was$9.6 million during the 39 weeks endedJanuary 25, 2020 , compared to operating income of$32.4 million during the 39 weeks endedJanuary 26, 2019 . The decrease is due to the matters discussed above. For the 39 weeks endedJanuary 25, 2020 , excluding the$3.2 million of restructuring and other charges and impairment loss (non-cash) of$0.4 million , discussed above, operating income was$13.3 million (or 0.8% of sales). For the 39 weeks endedJanuary 26, 2019 , excluding the$2.5 million of restructuring and other charges and the transaction costs of$0.7 million , discussed above, operating income was$35.6 million (or 2.1% of sales). Interest Expense, Net 13 weeks ended 39 weeks ended Dollars in thousands January 25, 2020 January 26, 2019 January 25, 2020 January 26, 2019 Interest Expense, Net $ 1,904 $ 2,546 $ 5,882 $ 7,904 Net interest expense decreased by$0.6 million , or 25.2%, to$1.9 million during the 13 weeks endedJanuary 25, 2020 from$2.5 million during the 13 weeks endedJanuary 26, 2019 . Net interest expense decreased by$2.0 million , or 25.6%, to$5.9 million during the 39 weeks endedJanuary 25, 2020 from$7.9 million during the 39 weeks endedJanuary 26, 2019 . The decrease was primarily due to lower borrowings compared to the prior year. Income Tax (Benefit) Expense 13 weeks ended 39 weeks ended Dollars in thousands January 25, 2020 Effective Rate January 26, 2019 Effective Rate January 25, 2020 Effective Rate January 26,
2019 Effective Rate Income Tax (Benefit) Expense$ (3,182 ) 65.3% $ (294 ) (61.9)% $ 1,683 44.7% $ 2,680 10.9% We recorded an income tax benefit of$(3.2) million on a pre-tax loss of$(4.9) million of during the 13 weeks endedJanuary 25, 2020 , which represented an effective income tax rate of 65.3% and we recorded an income tax benefit of$(0.3) million on pre-tax income of$0.5 million during the 13 weeks endedJanuary 26, 2019 , which represented an effective income tax rate of (61.9)%. We recorded income tax expense of$1.7 million on pre-tax income of$3.8 million of during the 39 weeks endedJanuary 25, 2020 , which represented an effective income tax rate of 44.7% and we recorded income tax expense of$2.7 million on pre-tax income of$24.5 million during the 39 weeks endedJanuary 26, 2019 , which represented an effective income tax rate of 10.9%. The effective tax rate for the 13 and 39 weeks endedJanuary 25, 2020 is higher as compared to the comparable prior year due to permanent differences. Net (Loss) Income 13 weeks ended 39 weeks ended Dollars in thousands January 25, 2020 January 26, 2019 January 25, 2020 January 26, 2019 Net (loss) income $ (1,693 ) $ 769 $ 2,083 $ 21,844 As a result of the factors discussed above, net loss was$(1.7) million during the 13 weeks endedJanuary 25, 2020 , compared with net income of$0.8 million during the 13 weeks endedJanuary 26, 2019 and net income was$2.1 million during the 39 weeks endedJanuary 25, 2020 compared with net income of$21.8 million during the 39 weeks endedJanuary 26, 2019 . Adjusted Earnings (non-GAAP) is$(0.7) million during the 13 weeks endedJanuary 25, 2020 , compared with$3.3 million during the 13 weeks endedJanuary 26, 2019 and Adjusted Earnings (non-GAAP) is$7.0 million during the 39 weeks endedJanuary 25, 2020 compared with$24.9 million during the 39 weeks endedJanuary 26, 2019 . See Adjusted Earnings (non-GAAP) discussion below. 33
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Use of Non-GAAP Measures - Adjusted Earnings and Adjusted EBITDA To supplement our results prepared in accordance with GAAP, we use the measure of Adjusted Earnings and Adjusted EBITDA, which are non-GAAP financial measures underSecurities and Exchange Commission (the "SEC") regulations. We define Adjusted Earnings as net income as adjusted for items that are subtracted from or added to net income. We define Adjusted EBITDA as net income 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. To properly and prudently evaluate our business, we encourage you to review our consolidated financial statements included elsewhere in the Form 10-K for the year endedApril 27, 2019 , the reconciliation of Adjusted Earnings to net income and the reconciliation of Adjusted EBITDA to net income, 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 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 do not reflect the ordinary earnings of our operations. Our Board of Directors and management also use Adjusted EBITDA as one of the primary methods for planning and forecasting overall expected performance, for evaluating on a quarterly and annual basis actual results against such expectations, and as a measure for performance incentive plans. We believe that the inclusion of Adjusted Earnings and Adjusted EBITDA results provides investors useful and important information regarding our operating results. Adjusted Earnings (non-GAAP) 13 weeks ended 39 weeks ended Dollars in thousands January 25, 2020 January 26,
2019
$ (1,693 ) $ 769 $ 2,083 $ 21,844 Reconciling items, after-tax (below) 945 2,539 4,928 3,085 Adjusted Earnings (non-GAAP) $ (748 ) $ 3,308 $ 7,011 $ 24,929 Reconciling items, pre-tax Impairment loss (non-cash) (a) $ - $ - $ 433 $ - Content amortization (non-cash) (b) 1,064 212 2,973 360 Restructuring and other charges (a) 205 2,500 3,240 2,500 Transaction costs (a) - 117 - 654 Reconciling items, pre-tax 1,269 2,829 6,646 3,514 Less: Pro forma income tax impact (b) 324 290 1,718 429 Reconciling items, after-tax $ 945 $ 2,539 $ 4,928 $ 3,085
(a) See Management Discussion and Analysis and Results of Operations discussion
above.
(b) For the 13 and 39 weeks ended
amortization expense (non-cash) related to content development costs which
are included in cost of goods sold.
(c) Represents the income tax effects of the non-GAAP items.
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Adjusted EBITDA (non-GAAP)
13 weeks ended 39 weeks ended
Dollars in thousands January 25, 2020 January 26, 2019 January 25, 2020 January 26, 2019
Net (loss) income $ (1,693 ) $ 769 $ 2,083 $ 21,844
Add:
Depreciation and amortization expense 15,117 16,374 46,542 49,333 Content amortization (non-cash) (a) 1,064 212 2,973 360 Interest expense, net 1,904 2,546 5,882 7,904 Income tax (benefit) expense (3,182 ) (294 ) 1,683 2,680 Impairment loss (non-cash) (b) - - 433 - Restructuring and other charges (b) 205 2,500 3,240 2,500 Transaction costs (b) - 117 - 654
Adjusted EBITDA (non-GAAP) (b)
$ 62,836 $ 85,275
(a) For the 13 and 39 weeks ended
amortization expense (non-cash) related to content development costs which
are included in cost of goods sold.
(b) See Management Discussion and Analysis and Results of Operations discussion
above.
The following is Adjusted EBITDA by segment for the 13 and 39 weeks endedJanuary 25, 2020 andJanuary 26, 2019 . Adjusted EBITDA - by Segment 13 weeks ended,January 25, 2020 Corporate
Dollars in thousands Retail Wholesale DSS Services Elimination(b) Total Sales
$ 457,988 $ 66,996 $ 6,435 $ -$ (29,127 ) $ 502,292 Cost of sales (a) 357,988 52,761 298 - (28,354 ) 382,693 Gross profit 100,000 14,235 6,137 - (773 ) 119,599 Selling and administrative expenses 91,860 4,312 4,987 5,154 (129 ) 106,184 Adjusted EBITDA (non-GAAP)$ 8,140 $ 9,923 $ 1,150 $ (5,154 ) $ (644 )$ 13,415 Adjusted EBITDA - by Segment 13 weeks ended, January 26, 2019 Corporate
Dollars in thousands Retail Wholesale DSS Services Elimination(b) Total Sales
$ 498,146 $ 78,508 $ 5,237 $ -$ (33,883 ) $ 548,008 Cost of sales (a) 391,771 55,769 187 - (32,884 ) 414,843 Gross profit 106,375 22,739 5,050 - (999 ) 133,165 Selling and administrative expenses 95,895 5,281 3,575 6,197 (7 ) 110,941 Adjusted EBITDA (non-GAAP)$ 10,480 $ 17,458 $ 1,475 $ (6,197 ) $ (992 )$ 22,224 35
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Table of Contents Adjusted EBITDA - by Segment 39 weeks ended,January 25, 2020 Corporate
Dollars in thousands Retail Wholesale DSS Services Elimination(b) Total Sales
$ 1,474,413 $ 179,515 $ 17,024 $ -$ (76,775 ) $ 1,594,177 Cost of sales (a) 1,150,940 137,827 817 - (75,522 ) 1,214,062 Gross profit 323,473 41,688 16,207 - (1,253 ) 380,115 Selling and administrative expenses 274,253 13,664 13,715 15,829 (182 ) 317,279 Adjusted EBITDA (non-GAAP)$ 49,220 $ 28,024 $ 2,492 $ (15,829 ) $ (1,071 ) $ 62,836 Adjusted EBITDA - by Segment 39 weeks ended, January 26, 2019 Corporate
Dollars in thousands Retail Wholesale DSS Services Elimination(b) Total Sales
$ 1,569,137 $ 209,282 $ 15,848 $ -$ (94,009 ) $ 1,700,258 Cost of sales (a) 1,227,392 152,723 455 - (90,995 ) 1,289,575 Gross profit 341,745 56,559 15,393 - (3,014 ) 410,683 Selling and administrative expenses 281,725 16,284 9,741 17,706 (48 ) 325,408 Adjusted EBITDA (non-GAAP)$ 60,020 $ 40,275 $ 5,652 $ (17,706 ) $ (2,966 ) $ 85,275 (a) For the 13 weeks endedJanuary 25, 2020 , gross margin excludes$0.2 million and$0.9 million of amortization expense (non-cash) related to content development costs in the Retail Segment and DSS Segment, respectively. For the 39 weeks endedJanuary 25, 2020 , gross margin excludes$0.6 million and$2.4 million of amortization expense (non-cash) related to content development costs in the Retail Segment and DSS Segment, respectively. For the 13 weeks endedJanuary 26, 2019 , gross margin excludes$0.1 million of amortization expense (non-cash) related to content development costs in both the Retail Segment and DSS Segment, respectively. For the 39 weeks endedJanuary 26, 2019 , gross margin excludes$0.3 million and$0.1 million of amortization expense (non-cash) related to content development costs in the Retail Segment and DSS Segment, respectively. (b) See Management Discussion and Analysis and Results of Operations discussion
above.
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