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 1,441 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, 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. We believe the BNC and MBS brands are synonymous with innovation in bookselling and campus retail, 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 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 fiscal year endedMay 2, 2020 . Partnership with Fanatics and FLC InDecember 2020 , we entered into a new merchandising partnership withFanatics Retail Group Fulfillment, LLC, Inc. ('Fanatics") andFanatics Lids College, Inc. ("FLC"). Through this partnership, we will receive unparalleled product assortment, e-commerce capabilities and powerful digital marketing tools to drive increased value for customers and accelerate growth of our high margin general merchandise business. Fanatics' cutting-edge e-commerce and technology expertise will offer our campus stores expanded product selection, a world-class online and mobile experience, and a progressive direct-to-consumer platform. Coupled with FLC, the leading standalone brick and mortar retailer focused exclusively on licensed fan and alumni products, our campus stores will have improved access to trend and sales performance data on licensees, product styles, and design treatments. FLC has agreed to purchase our logo and emblematic general merchandise inventory, which we expect to be finalized during our fiscal 2021 fourth quarter. We will maintain our relationships with campus partners and remain responsible for staffing and managing the day-to-day operations of our campus bookstores. We will also work closely with our campus partners to ensure that each campus store will maintain unique aspects of in-store merchandising, including localized product assortments and specific styles and designs that reflect each campus's brand. We will leverage Fanatics' e-commerce technology and expertise for the operational management of the emblematic merchandise and gift sections of our campus store websites. FLC will manage in-store assortment planning and merchandising of emblematic apparel, headwear, and gift products for our partner campus stores. We expect to go live with this partnership beginning in the second calendar quarter of 2021. Additionally,Fanatics, Inc. andLids Holdings, Inc. jointly made a$15,000 strategic equity investment in BNED and received 2,307,692 common shares of BNED in exchange. We expect to use these proceeds for general corporate purposes. For additional information, see Item 1. Financial Statements - Note 7. Equity and Earnings Per Share. Wolfram|Alpha Agreement InDecember 2020 , we entered into an agreement with Wolfram|Alpha to develop a math solver as a new feature in our bartleby suite of homework help and learning solutions. Powered by Wolfram|Alpha's best-in-class computation engine, the 23 -------------------------------------------------------------------------------- Table of Contents math solver will allow students to access an interactive digital calculator that provides real-time, step-by-step explanations for even the most advanced math problems. COVID-19 Business Impact Our business experienced an unprecedented and significant 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. Colleges and universities inthe United States continue to adjust their plans for each academic term, with some implementing shortened semesters or choosing to remain fully virtual in order to best protect students and faculty. As many schools adjusted their learning model and curtailed on-campus activities in response to the pandemic, our flexible offerings ensured that students were equipped with their course materials regardless of whether schools resumed classes on campus, remotely or via a hybrid learning model. Our fiscal 2021 results have been significantly impacted by the ongoing COVID-19 pandemic, as many schools continued to adjust their learning model and on-campus activities in response to the pandemic. Fewer students have returned to campus, as many schools implemented a remote learning model and curtailed on-campus classes and activities. While many big athletic conferences resumed their sport activities, fan attendance at the games was either eliminated or severely restricted, which further impacted the company's high-margin general merchandise business. Additionally, sales were impacted by overall enrollment declines in higher education. See Item 1. Financial Statements - Note 2. Summary of Significant Accounting Policies - Evaluation ofGoodwill and Other Long-Lived Assets related to the impairment loss (non-cash) recognized during the 13 weeks endedJanuary 30, 3021 . The COVID-19 impact on higher education remains a fluid situation, and we are committed to supporting our campus partners through our flexible offerings and our ability to quickly pivot to ensure uninterrupted service as institutions manage the safety of their campuses. There is still uncertainty about the duration and extent of the impact of the COVID-19 pandemic. 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. 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 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 2, 2020 . Retail Segment The Retail Segment operates 1,441 college, university, and K-12 school bookstores, comprised of 765 physical bookstores and 676 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 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. 24 -------------------------------------------------------------------------------- Table of Contents 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 3,300 physical bookstores (including our Retail Segment's 765 physical bookstores) and sources and distributes new and used textbooks to our 676 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 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, 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 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: •Overall Economic Environment, College Enrollment and Consumer Spending Patterns. Our business is affected by 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 COVID-19: 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 have been required to cease in-person classes in an attempt to limit the spread of the COVID-19 pandemic and ensure the safety of their students. Although many institutions have reopened, academic institutions are considering alternatives to traditional in-person instruction, including on-line learning and significantly reduced classroom size. Additionally, many big athletic conferences resumed their sport activities, fan attendance at the games was either eliminated or severely restricted, which further impacted the company's high-margin general merchandise business. •Economic Environment: Retail general merchandise sales are subject to short-term fluctuations driven by the broader retail environment. •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, 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 25 -------------------------------------------------------------------------------- Table of Contents 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. •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. •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 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 endedMay 2, 2020 . 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. 26 -------------------------------------------------------------------------------- Table of Contents 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 30, January 25, January 30, January 25, Dollars in thousands 2021 2020 2021 2020 Sales: Product sales and other$ 373,502 $ 453,678 $ 1,118,544 $ 1,474,448 Rental income 38,111 48,614 92,568 119,729 Total sales$ 411,613 $ 502,292 $ 1,211,112 $ 1,594,177 Net (loss) income$ (48,289) $ (1,693) $ (87,426) $ 2,083
Adjusted Earnings (non-GAAP) (a)
Adjusted EBITDA (non-GAAP) (a) Retail$ (22,222) $ 8,140 $ (44,538) $ 49,220 Wholesale 6,322 9,923 25,856 28,024 DSS 1,005 1,150 3,358 2,492 Corporate Services (6,491) (5,154) (17,236) (15,829) Elimination 604 (644)
(1,704) (1,071)
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 30, January 25, January 30, January 25,
2021 2020 2021 2020
Sales:
Product sales and other 90.7 % 90.3 % 92.4 % 92.5 %
Rental income 9.3 9.7 7.6 7.5
Total sales 100.0 100.0 100.0 100.0
Cost of sales:
Product and other cost of sales (a) 84.5 78.2 83.5 77.8
Rental cost of sales (a) 66.6 59.2 65.4 59.0
Total cost of sales 82.8 76.4 82.1 76.3
Gross margin 17.2 23.6 17.9 23.7
Selling and administrative expenses 22.5 21.1 21.0 19.9
Depreciation and amortization expense 3.2 3.0 3.3 2.9
Impairment loss (non-cash) 6.7 - 2.3 -
Restructuring and other charges 0.4 - 0.9 0.2
Operating (loss) income (15.6) % (0.5) % (9.6) % 0.7 %
(a)Represents the percentage these costs bear to the related sales, instead of total sales.
27
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Results of Operations - 13 and 39 weeks ended January 30, 2021 compared with the
13 and 39 weeks ended January 25, 2020 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:
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
Restructuring and other charges 1,669
Operating loss $ (64,702)
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)
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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:
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
Restructuring and other charges 10,727 Operating loss$ (116,884) 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 Sales
The following table summarizes our sales for the 13 and 39 weeks ended
13 weeks ended 39 weeks ended
January 30, January 25,
Dollars in thousands 2021 2020 % January 30, 2021 January 25, 2020 %
Product sales and other $ 373,502 $ 453,678 (17.7)% $ 1,118,544 $ 1,474,448 (24.1)%
Rental income 38,111 48,614 (21.6)% 92,568 119,729 (22.7)%
Total Sales $ 411,613 $ 502,292 (18.1)% $ 1,211,112 $ 1,594,177 (24.0)%
29-------------------------------------------------------------------------------- Table of Contents Sales decreased by$90.7 million , or 18.1%, to$411.6 million during the 13 weeks endedJanuary 30, 2021 from$502.3 million during the 13 weeks endedJanuary 25, 2020 . Sales decreased by$383.1 million , or 24.0%, to$1,211.1 million during the 39 weeks endedJanuary 30, 2021 from$1,594.2 million during the 39 weeks endedJanuary 25, 2020 . The sales decrease is primarily related to the impact from temporary store closings related to COVID-19, as well as lower in store foot traffic, lower enrollments and fewer on-campus events due to COVID-19. 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 30, 2021 January 25, 2020 January 30, 2021 January 25, 2020 Retail Sales New stores $ 17.3 $ 16.3 $ 52.7 $ 61.9 Closed stores (8.3) (18.1) (32.2) (50.8) Comparable stores (a) (83.3) (37.9) (384.0) (99.0) Textbook rental deferral 1.6 0.7 11.7 3.0 Service revenue (b) 1.8 (1.4) (1.9) (3.9) Other (c) 0.6 0.3 2.2 (5.9) Retail sales subtotal: $ (70.3) $ (40.1) $ (351.5) $ (94.7) Wholesale Sales $ (27.5) $ (11.5) $ (23.4) $ (29.8) DSS Sales $ 0.8 $ 1.2 $ 2.0 $ 1.2 Eliminations (d) $ 6.3 $ 4.7 $ (10.2) $ 17.2 Total sales variance: $ (90.7) $ (45.7) $ (383.1) $ (106.1) (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$70.3 million , or 15.4%, to$387.7 million during the 13 weeks endedJanuary 30, 2021 from$458.0 million during the 13 weeks endedJanuary 25, 2020 . Retail sales decreased by$351.5 million , or 23.8%, to$1,123.0 million during the 39 weeks endedJanuary 30, 2021 from$1,474.4 million during the 39 weeks endedJanuary 25, 2020 . Retail added 88 new stores and closed 66 stores (not including temporary store closings due to COVID-19) during the 39 weeks endedJanuary 30, 2021 , ending the period with a total of 1,441 stores. 13 weeks ended 39 weeks endedJanuary 30, 2021 January 25, 2020 January 30, 2021 January 25, 2020 Number of Stores: Physical Virtual Physical Virtual Physical Virtual Physical Virtual Number of stores at beginning of period 769 671 772 664 772 647 772 676 Opened - 7 5 7 30 58 45 62 Closed 4 2 5 7 37 29 45 74 Number of stores at end of period 765 676 772 664 765 676 772 664 30
-------------------------------------------------------------------------------- Table of Contents Product and other sales for Retail for the 13 weeks endedJanuary 30, 2021 decreased by$59.8 million , or 14.6% to$349.6 million from$409.4 million during the 13 weeks endedJanuary 25, 2020 . Product and other sales for Retail for the 39 weeks endedJanuary 30, 2021 decreased by$324.3 million , or 23.9% to$1,030.4 million from$1,354.7 million during the 39 weeks endedJanuary 25, 2020 . Product and other sales are impacted by comparable store sales (as noted in the chart below), new store openings and store closings, as well as the impact from the COVID-19 pandemic. Sales were impacted by the temporary store closings due to COVID-19 earlier in the fiscal year, as well as the impact of fewer students returning to campus, as many schools implemented a remote learning model and curtailed on-campus classes and activities. While many big-conferences resumed their sport activities, fan attendance at the games was either eliminated or severely restricted, which further impacted the company's high-margin general merchandise business. Additionally, sales were impacted by overall enrollment declines in higher education. Textbook (Course Materials) revenue for Retail decreased primarily due to lower new and used textbook and other course materials sales, while First Day (our inclusive access program), digital and eTextbook revenue increased. General merchandise sales for Retail decreased primarily due to lower emblematic apparel sales (as many athletic events were canceled due to COVID-19), lower supply product sales and lower graduation product sales (primarily due to COVID-19 related campus closures). We have made continued progress in the development of our next generation e-commerce platform, which launched in Fiscal 2021 to deliver increased high-margin general merchandise sales. Rental income for Retail for the 13 weeks endedJanuary 30, 2021 decreased by$10.5 million , or 21.6% to$38.1 million from$48.6 million during the 13 weeks endedJanuary 25, 2020 . Rental income for Retail for the 39 weeks endedJanuary 30, 2021 decreased by$27.2 million , or 22.7% to$92.6 million from$119.7 million during the 39 weeks endedJanuary 25, 2020 . Rental income is impacted by comparable store sales, new store openings and store closings. The decrease in rental income is primarily due to decreased rental activity due to the COVID-19 pandemic as discussed above and the impact of increased digital offerings. Comparable store sales for Retail decreased for the 13 and 39 week sales period. Comparable store sales were impacted primarily by COVID-19 related campus temporary store closures, lower enrollment and on-campus events (all discussed above), a shift to lower cost options and more affordable solutions, including digital offerings, increased consumer purchases directly from publishers and other online providers, lower general merchandise sales (including graduation products and logo products for athletic events). These decreases were partially offset by increased First Day, digital and eTextbook revenue. Consistent with prior years, the Spring Rush period extended beyond the quarter due to later school openings and the continued pattern of students buying course materials later in the semester. Factoring in the fiscal month of February, comparable store sales decreased 26.7% on a year to date basis. Comparable store sales variances for Retail by category for the 13 and 39 week periods are as follows: Comparable Store Sales variances - Retail 13 weeks ended 39 weeks ended Dollars in millions January 30, 2021 January 25, 2020 January 30, 2021 January 25, 2020 Textbooks (Course Materials)$ (25.0) (8.1) %$ (31.2) (9.3) %$ (136.1) (14.3) %$ (85.2) (8.3) % General Merchandise (58.0) (45.8) % (0.9) (0.7) % (242.2) (54.9) % 4.7 1.1 % Trade Books (5.5) (61.1) % (2.3) (20.2) % (19.4) (69.3) % (4.9) (14.7) %Total Comparable Store Sales$ (88.5) (19.9) %$ (34.4) (7.3) %$ (397.7) (28.0) %$ (85.4) (5.7) % 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. Wholesale Wholesale sales decreased by$27.5 million , or 41.1% to$39.5 million during the 13 weeks endedJanuary 30, 2021 from$67.0 million during the 13 weeks endedJanuary 25, 2020 . Wholesale sales decreased by$23.4 million , or 13.0% to$156.1 million during the 39 weeks endedJanuary 30, 2021 from$179.5 million during the 39 weeks endedJanuary 25, 2020 . The decrease is primarily due to decreased gross sales impacted by the COVID-19 pandemic, partially offset by a lower returns and allowances. DSS DSS total sales increased by$0.8 million , or 12.0% to$7.2 million during the 13 weeks endedJanuary 30, 2021 from$6.4 million during the 13 weeks endedJanuary 25, 2020 . DSS total sales increased by$2.0 million , or 11.8% to$19.0 million during the 39 weeks endedJanuary 30, 2021 from$17.0 million during the 39 weeks endedJanuary 25, 2020 . Sales increased primarily due to an increase in bartleby subscription sales. 31 -------------------------------------------------------------------------------- Table of Contents Cost of Sales and Gross Margin Our cost of sales increased as a percentage of sales to 82.8% during the 13 weeks endedJanuary 30, 2021 compared to 76.4% during the 13 weeks endedJanuary 25, 2020 . Our gross margin decreased by$47.9 million , or 40.4%, to$70.6 million , or 17.2% of sales, during the 13 weeks endedJanuary 30, 2021 from$118.5 million , or 23.6% of sales during the 13 weeks endedJanuary 25, 2020 . Our cost of sales increased as a percentage of sales to 82.1% during the 39 weeks endedJanuary 30, 2021 compared to 76.3% during the 39 weeks endedJanuary 25, 2020 . Our gross margin decreased by$160.4 million , or 42.5%, to$216.7 million , or 17.9% of sales, during the 39 weeks endedJanuary 30, 2021 from$377.1 million , or 23.7% of sales during the 39 weeks endedJanuary 25, 2020 . Retail The following table summarizes the Retail cost of sales for the 13 and 39 weeks endedJanuary 30, 2021 andJanuary 25, 2020 : 13 weeks ended 39 weeks endedJanuary 30 , % ofJanuary 25 , % ofJanuary 30 , % of % of Dollars in thousands 2021 Related Sales 2020 Related Sales 2021 Related SalesJanuary 25, 2020 Related Sales Product and other cost of sales$ 308,752 88.3%$ 329,440 80.5%$ 897,283 87.1%$ 1,080,909 79.8% Rental cost of sales 25,394 66.6% 28,758 59.2% 60,506 65.4% 70,635 59.0% Total Cost of Sales$ 334,146 86.2%$ 358,198 78.2%$ 957,789 85.3%$ 1,151,544 78.1%
The following table summarizes the Retail gross margin for the 13 and 39 weeks
ended
13 weeks ended 39 weeks ended
January 30, % of January 25, % of January 30, % of January 25, % of
Dollars in thousands 2021 Related Sales 2020 Related Sales 2021 Related Sales 2020 Related Sales
Product and other gross margin $ 40,806 11.7% $ 79,934 19.5% $ 133,108 12.9% $ 273,775 20.2%
Rental gross margin 12,717 33.4% 19,856 40.8% 32,062 34.6% 49,094 41.0%
Gross Margin $ 53,523 13.8% $ 99,790 21.8% $ 165,170 14.7% $ 322,869 21.9%
For the 13 weeks ended January 30, 2021 , the Retail gross margin as a percentage
of sales decreased as discussed below:
•Product and other gross margin decreased (785 basis points), driven primarily
by an unfavorable sales mix (445 basis points) due to lower high-margin general
merchandise sales of approximately $59.1 million and the shift to lower margin
digital courseware, and lower margin rates (380 basis points) due to higher
markdowns, partially offset by lower 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.
•Rental gross margin decreased (745 basis points), driven primarily by higher
contract costs as a percentage of sales related to our college and university
contracts (795 basis points), partially offset by higher rental margin rates (40
basis points) and favorable rental mix (10 basis points).
For the 39 weeks ended January 30, 2021 , the Retail gross margin as a percentage
of sales decreased as discussed below:
•Product and other gross margin decreased (730 basis points), driven primarily
by an unfavorable sales mix (475 basis points) due to lower high-margin general
merchandise sales of approximately $247.0 million and the shift to lower margin
digital courseware, and lower margin rates (325 basis points) due to higher
markdowns, partially offset by lower contract costs as a percentage of sales
related to our college and university contracts (70 basis points) resulting from
contract renewals and new store contracts.
•Rental gross margin decreased (640 basis points), driven primarily by higher
contract costs as a percentage of sales related to our college and university
contracts (670 basis points) and unfavorable rental mix (40 basis points),
partially offset by higher rental margin rates (70 basis points).
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Wholesale
The cost of sales and gross margin for Wholesale were $28.8 million , or 73.0% of
sales, and $10.7 million , or 27.0% of sales, respectively, during the 13 weeks
ended January 30, 2021 . The cost of sales and gross margin for Wholesale was
$52.8 million or 78.8% of sales and $14.2 million or 21.2% of sales,
respectively, during the 13 weeks ended January 25, 2020 .
The cost of sales and gross margin for Wholesale were $118.0 million , or 75.6%
of sales, and $38.1 million , or 24.4% of sales, respectively, during the 39
weeks ended January 30, 2021 . The cost of sales and gross margin for Wholesale
was $137.8 million or 76.8% of sales and $41.7 million or 23.2% of sales,
respectively, during the 39 weeks ended January 25, 2020 .
The gross margin rate increased during the 13 and 39 weeks ended January 30,
2021 primarily due to the favorable impact of returns and allowances and lower
markdowns, partially offset by an unfavorable sales mix.
DSS
The gross margin for the DSS segment was $5.9 million , or 81.6% of sales, during
the 13 weeks ended January 30, 2021 and $5.3 million , or 82.1% of sales, during
the 13 weeks ended January 25, 2020 . The gross margin for the DSS segment was
$15.3 million , or 80.4% of sales, during the 39 weeks ended January 30, 2021 and
$13.8 million , or 81.3% of sales, during the 39 weeks ended January 25, 2020 .
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 ended
January 30, 2021 is primarily due to increased amortization of content
development costs for bartleby textbook solutions of $0.3 million and $0.8
million , respectively.
Intercompany Eliminations
During the 13 weeks ended January 30, 2021 and January 25, 2020 , our sales
eliminations were $(22.7) million and $(29.1) million , respectively. During the
39 weeks ended January 30, 2021 and January 25, 2020 , our sales eliminations
were $(87.0) million and $(76.8) 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 ended January 30, 2021 and January 25, 2020 , the cost of
sales eliminations were $(23.3) million and $(28.4) million , respectively.
During the 39 weeks ended January 30, 2021 and January 25, 2020 , the cost of
sales eliminations were $(85.2) million and $(75.5) 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 ended January 30, 2021 and January 25, 2020 , the gross
margin eliminations were $0.5 million and $(0.8) million , respectively. During
the 39 weeks ended January 30, 2021 and January 25, 2020 , the gross margin
eliminations were $(1.8) million and $(1.3) 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 30, % of January 25, % of January 30, % of January 25, % of
Dollars in thousands 2021 Sales 2020 Sales 2021 Sales 2020 Sales
Total Selling and
Administrative Expenses $ 92,708 22.5% $ 106,184 21.1% $ 254,723 21.0% $ 317,279 19.9%
During the 13 weeks ended January 30, 2021 , selling and administrative expenses
decreased by $13.5 million , or 12.7%, to $92.7 million from $106.2 million
during the 13 weeks ended January 25, 2020 . During the 39 weeks ended
January 30, 2021 , selling and administrative expenses decreased by $62.6
million , or 19.7%, to $254.7 million from $317.3 million during the 39 weeks
ended January 25, 2020 .
The variances by segment are as follows:
Retail
During the 13 weeks ended January 30, 2021 , Retail selling and administrative
expenses decreased by $15.9 million , or 17.4%, to $75.9 million from $91.9
million during the 13 weeks ended January 25, 2020 . This decrease was primarily
due to a $13.1 million decrease in stores payroll and operating expenses,
including comparable stores, lower virtual stores and new/closed stores payroll
and operating expenses, and a decrease of $2.8 million in corporate payroll,
infrastructure costs, product development costs and digital operations costs.
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During the 39 weeks ended January 30, 2021 , Retail selling and administrative
expenses decreased by $64.0 million , or 23.3%, to $210.3 million from $274.2
million during the 39 weeks ended January 25, 2020 . This decrease was primarily
due to a $53.6 million decrease in stores payroll and operating expenses,
including comparable stores, primarily due to furloughed store employees, lower
virtual stores and new/closed stores payroll and operating expenses, and a
decrease of $10.4 million in corporate payroll, infrastructure costs, product
development costs and digital operations costs.
Wholesale
Wholesale selling and administrative expenses remained flat at $4.3 million for
both the 13 weeks ended January 30, 2021 and January 25, 2020 . During the 39
weeks ended January 30, 2021 , Wholesale selling and administrative expenses
decreased by $1.4 million or 10.2% to $12.3 million from $13.7 million during
the 39 weeks ended January 25, 2020 . The decrease in selling and administrative
expenses was primarily driven by lower payroll and operating costs.
DSS
During the 13 weeks ended January 30, 2021 , DSS selling and administrative
expenses increased by $1.0 million or 20.6% to $6.0 million from $5.0 million
during the 13 weeks ended January 25, 2020 . During the 39 weeks ended
January 30, 2021 , DSS selling and administrative expenses increased by $1.3
million or 9.8% to $15.0 million from $13.7 million during the 39 weeks ended
January 25, 2020 . The increase in costs was primarily driven by higher
professional services and advertising costs.
Corporate Services
During the 13 weeks ended January 30, 2021 , Corporate Services' selling and
administrative expenses increased by $1.3 million or 25.9% to $6.5 million from
$5.2 million during the 13 weeks ended January 25, 2020 . During the 39 weeks
ended January 30, 2021 , Corporate Services' selling and administrative expenses
increased by $1.4 million or 8.9% to $17.2 million from $15.8 million during the
39 weeks ended January 25, 2020 . The increase was primarily due to higher
compensation-related expense and higher operating expenses.
Depreciation and Amortization Expense
13 weeks ended 39 weeks ended
January 30, % of January 25, % of January 30, % of January 25, % of
Dollars in thousands 2021 Sales 2020 Sales 2021 Sales 2020 Sales
Total Depreciation and
Amortization Expense $ 13,307 3.2% $ 15,117 3.0% $ 40,563 3.3% $ 46,542 2.9%
Depreciation and amortization expense decreased by $1.8 million , or 12.0%, to
$13.3 million during the 13 weeks ended January 30, 2021 from $15.1 million
during the 13 weeks ended January 25, 2020 . Depreciation and amortization
expense decreased by $6.0 million , or 12.8%, to $40.6 million during the 39
weeks ended January 30, 2021 from $46.5 million during the 39 weeks ended
January 25 , 2020.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 13 weeks ended January 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 8. Fair Value Measurements.
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 were not recoverable.
Restructuring and other charges
During the 13 and 39 weeks ended January 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, $0.2
million and $4.6 million , respectively, for professional service costs related
to restructuring, process improvements, the financial advisor strategic review
process, costs related to development and integration associated with Fanatics
and FLC
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partnership agreements and shareholder activist activities, and $0.2 million and
$0.3 million , respectively, related to liabilities for a facility closure.
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, related to
professional service costs related to restructuring, process improvements,
shareholder activist activities, and costs related to liabilities for a facility
closure.
Operating (Loss) Income
13 weeks ended 39 weeks ended
January 30, % of January 25, % of January 30, % of January 25, % of
Dollars in thousands 2021 Sales 2020 Sales 2021 Sales 2020 Sales
Total Operating (Loss)
Income $ (64,702) (15.6)% $ (2,971) (0.5)% $ (116,884) (9.6)% $ 9,648 0.7%
Our operating loss was $(64.7) million during the 13 weeks ended January 30,
2021 , compared to an operating loss of $(3.0) million during the 13 weeks ended
January 25, 2020 . The increase in operating loss is due to the matters discussed
above. 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).
For the 13 weeks ended January 25, 2020 , excluding the $0.2 million of
restructuring and other charges, discussed above, operating loss was $(2.8)
million (or 0.6% of sales).
Our operating loss was $(116.9) million during the 39 weeks ended January 30,
2021 , compared to an operating income of $9.6 million during the 39 weeks ended
January 25, 2020 . The decrease in operating income is due to the matters
discussed above. For the 39 weeks ended January 30, 2021 , excluding the
impairment loss (non-cash) of $27.6 million and the $10.7 million of
restructuring and other charges, discussed above, operating loss was $(78.5)
million (or 6.5%). For the 39 weeks ended January 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).
Interest Expense, Net
13 weeks ended 39 weeks ended
Dollars in thousands January 30, 2021 January 25, 2020 January 30, 2021 January 25, 2020
Interest Expense, Net $ 2,311 $ 1,904 $ 5,876 $ 5,882
Net interest expense increased by $0.4 million , or 21.4%, to $2.3 million during
the 13 weeks ended January 30, 2021 from $1.9 million during the 13 weeks ended
January 25, 2020 . Net interest expense remained flat at $5.9 million during both
the 39 weeks ended January 30, 2021 and January 25, 2020 .
Income Tax (Benefit) Expense
13 weeks ended 39 weeks ended
January 30, January 25, January 30, January 25,
Dollars in thousands 2021 Effective Rate 2020 Effective Rate 2021 Effective Rate 2020 Effective Rate
Income Tax (Benefit)
Expense $ (18,724) 27.9% $ (3,182) 65.3% $ (35,334) 28.8% $ 1,683 44.7%
We recorded an income tax benefit of $(18.7) million on a pre-tax loss of
$(67.0) million of during the 13 weeks ended January 30, 2021 , which represented
an effective income tax rate of 27.9% and we recorded an income tax benefit of
$(3.2) million on a pre-tax loss of $(4.9) million during the 13 weeks ended
January 25, 2020 , which represented an effective income tax rate of 65.3%.
We recorded an income tax benefit of $(35.3) million on a pre-tax loss of
$(122.8) million of during the 39 weeks ended January 30, 2021 , which
represented an effective income tax rate of 28.8% and we recorded income tax
expense of $1.7 million on pre-tax income of $3.8 million during the 39 weeks
ended January 25, 2020 , which represented an effective income tax rate of 44.7%.
The effective tax rate for the 13 and 39 weeks ended January 30, 2021 is lower
as compared to the comparable prior year due to permanent differences.
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Net (Loss) Income
13 weeks ended 39 weeks ended
January 30, January 30,
Dollars in thousands 2021 January 25, 2020 2021 January 25, 2020
Net (loss) income $ (48,289) $ (1,693) $ (87,426) $ 2,083
As a result of the factors discussed above, net loss was $(48.3) million during
the 13 weeks ended January 30, 2021 , compared with net loss of $(1.7) million
during the 13 weeks ended January 25, 2020 and net loss was $(87.4) million
during the 39 weeks ended January 30, 2021 , compared with net income of $2.1
million during the 39 weeks ended January 25, 2020 .
Adjusted Earnings (non-GAAP) is $(25.6) million during the 13 weeks ended
January 30, 2021 , compared with $(0.7) million during the 13 weeks ended
January 25, 2020 and Adjusted Earnings (non-GAAP) is $(56.2) million during the
39 weeks ended January 30, 2021 , compared with $7.0 million during the 39 weeks
ended January 25, 2020 . See Adjusted Earnings (non-GAAP) discussion below.
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
under Securities 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 ended May 2, 2020 , 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
January 30,
2021 2020 2021 2020
Net (loss) income $ (48,289) $ (1,693) $ (87,426) $ 2,083
Reconciling items, after-tax (below) 22,717 945 31,213 4,928
Adjusted Earnings (non-GAAP) $ (25,572) $
(748)
Reconciling items, pre-tax Impairment loss (non-cash) (a)$ 27,630 $
-
Content amortization (non-cash) 1,314 1,064 3,700 2,973 Restructuring and other charges (a) 1,669 205 10,727 3,240 Reconciling items, pre-tax 30,613 1,269 42,057 6,646 Less: Pro forma income tax impact (b) 7,896 324 10,844 1,718 Reconciling items, after-tax$ 22,717 $ 945 $ 31,213 $ 4,928
(a) See Management Discussion and Analysis and Results of Operations discussion above. (b) Represents the income tax effects of the non-GAAP items.
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Adjusted EBITDA (non-GAAP)
13 weeks ended 39 weeks ended
January 30 ,
2021 2020 2021 2020
Net (loss) income $ (48,289) $ (1,693) $ (87,426) $ 2,083
Add:
Depreciation and amortization expense 13,307 15,117 40,563 46,542
Content amortization (non-cash) 1,314 1,064 3,700 2,973
Interest expense, net 2,311 1,904 5,876 5,882
Income tax (benefit) expense (18,724) (3,182) (35,334) 1,683
Impairment loss (non-cash) (a) 27,630 - 27,630 433
Restructuring and other charges (a) 1,669 205 10,727 3,240
Adjusted EBITDA (non-GAAP) (a) $ (20,782) $
13,415
(a) 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 30, 2021 andJanuary 25, 2020 . Adjusted EBITDA - by Segment
13 weeks ended
Corporate
Dollars in thousands Retail Wholesale DSS Services Elimination(b) Total
Sales $ 387,669 $ 39,465 $ 7,206 $ - $ (22,727) $ 411,613
Cost of sales (a) 333,970 28,807 186 - (23,276) 339,687
Gross profit 53,699 10,658 7,020 - 549 71,926
Selling and administrative
expenses 75,921 4,336 6,015 6,491 (55) 92,708
Adjusted EBITDA (non-GAAP) $ (22,222) $ 6,322 $ 1,005 $ (6,491) $ 604 $ (20,782)
Adjusted EBITDA - by Segment
13 weeks ended
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)
Adjusted EBITDA - by Segment
39 weeks ended
Corporate
Dollars in thousands Retail Wholesale DSS Services Elimination(b) Total
Sales $ 1,122,959 $ 156,146 $ 19,025 $ - $ (87,018) $ 1,211,112
Cost of sales (a) 957,211 118,017 613 - (85,188) 990,653
Gross profit 165,748 38,129 18,412 - (1,830) 220,459
Selling and administrative
expenses 210,286 12,273 15,054 17,236 (126) 254,723
Adjusted EBITDA (non-GAAP)
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Adjusted EBITDA - by Segment
39 weeks ended
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)
(a) For the 13 weeks endedJanuary 30, 2021 , gross margin excludes$0.2 million and$1.1 million of amortization expense (non-cash) related to content development costs in the Retail Segment and DSS Segment, respectively. For the 39 weeks endedJanuary 30, 2021 , gross margin excludes$0.6 million and$3.1 million of amortization expense (non-cash) related to content development costs in the Retail Segment and DSS Segment, respectively. 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. (b) See Management Discussion and Analysis and Results of Operations discussion above. Liquidity and Capital Resources Our primary sources of cash are net cash flows from operating activities, funds available under our credit agreement and short-term vendor financing. As ofJanuary 30, 2021 , we had$150.8 million outstanding borrowings under the Credit Agreement. See Financing Arrangements discussion below. COVID-19 Impact Our business experienced an unprecedented and significant 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. Colleges and universities inthe United States continue to adjust their plans for each academic term, with some implementing shortened semesters or choosing to remain fully virtual in order to best protect students and faculty. As many schools adjusted their learning model and curtailed on-campus activities in response to the pandemic, our flexible offerings ensured that students were equipped with their course materials regardless of whether schools resumed classes on campus, remotely or via a hybrid learning model. Our fiscal 2021 results have been significantly impacted by the ongoing COVID-19 pandemic, as many schools continued to adjust their learning model and on-campus activities in response to the pandemic. Fewer students have returned to campus, as many schools implemented a remote learning model and curtailed on-campus classes and activities. While many big athletic conferences resumed their sport activities, fan attendance at the games was either eliminated or severely restricted, which further impacted the company's high-margin general merchandise business. Additionally, sales were impacted by overall enrollment declines in higher education. See Item 1. Financial Statements - Note 2. Summary of Significant Accounting Policies - Evaluation ofGoodwill and Other Long-Lived Assets related to the impairment loss (non-cash) recognized during the 13 weeks endedJanuary 30, 3021 . The COVID-19 impact on higher education remains a fluid situation, and we are committed to supporting our campus partners through our flexible offerings and our ability to quickly pivot to ensure uninterrupted service as institutions manage the safety of their campuses. We have implemented a significant cost reduction program designed to streamline our operations, maximize productivity and drive profitability. Certain elements of this plan were implemented in late Fiscal 2020, while other actions are planned for 38
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Table of Contents Fiscal 2021. We anticipate meaningful annualized cost savings from this program, the majority of which is expected to be realized beginning in Fiscal 2021. The first half of Fiscal 2021 was significantly impacted by COVID-19 related campus store closures, as well as lower enrollments due to COVID-19 and fewer on campus events. We cannot accurately predict the duration or extent of the impact of COVID-19 on enrollments, university budgets, athletics and other areas that directly affect our business operations. There is still uncertainty about the duration and extent of the impact of the COVID-19 pandemic. 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. We believe that our future cash from operations, access to borrowings under the Credit Facility, FILO Facility and short-term vendor financing will provide adequate resources to fund our operating and financing needs for the foreseeable future. Our future capital requirements will depend on many factors, including, but not limited to, the economy and the outlook for and pace of sustainable growth in our markets, the levels at which we maintain inventory, the number and timing of new store openings, and any potential acquisitions of other brands or companies including digital properties. To the extent that available funds are insufficient to fund our future activities, we may need to raise additional funds through public or private financing of debt or equity. Our access to, and the availability of, financing in the future will be impacted by many factors, including the liquidity of the overall capital markets and the current state of the economy. There can be no assurances that we will have access to capital markets on acceptable terms. Sale of Treasury Shares InDecember 2020 , we entered into a new merchandising partnership with Fanatics and FLC which included a strategic equity investment in the Company.Fanatics, Inc. andLids Holdings, Inc. jointly purchased an aggregate 2,307,692 of our common shares (issued from treasury shares) for$15 million , representing a share price of$6.50 per share. The premium price paid above the fair market value of our common stock at closing was approximately$4.1 million and was recognized as a contract liability ($0.2 million in accrued liabilities and$3.9 million in other long-term liabilities on our condensed consolidated balance sheet) which is expected to be earned over the term of the merchandising contracts for Fanatics and FLC. We expect to use these proceeds for general corporate purposes. Additionally, FLC has agreed to purchase our logo and emblematic general merchandise inventory, which we expect to be finalized during our fiscal 2021 fourth quarter. For additional information regarding the merchandising partnership, see Item 1. Financial Statements - Note 1. Organization - Partnership with Fanatics and FLC and Note 7. EPS and Earnings Per Share - Sale of Treasury Shares.
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