BARNES & NOBLE EDUCATION, INC. : Discussion and analysis by management of the financial situation and the results of operations (form 10-Q)

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Unless the context otherwise indicates, references to "we," "us," "our" and "the
Company" refer to Barnes & Noble Education, Inc. or "BNED", a Delaware
corporation. References to "Barnes & Noble College" or "BNC" refer to our
subsidiary Barnes & Noble College Booksellers, LLC. References to "MBS" refer to
our subsidiary MBS Textbook Exchange, LLC.
Overview
Description of Business
Barnes & Noble Education, Inc. ("BNED") is one of the largest contract operators
of physical and virtual bookstores for college and university campuses and K-12
institutions across the 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 1,445 physical, virtual, and
custom bookstores and serve more than 6 million students, delivering essential
educational content and tools within a dynamic omnichannel retail environment.
Additionally, we offer direct-to-student products and services to help students
study more effectively and improve academic performance.
The strengths of our business include our ability to compete by developing new
products and solutions to meet market needs, our large operating footprint with
direct access to students and faculty, our well-established, deep relationships
with academic partners and stable, long-term contracts and our well-recognized
brands. We expect to continue to introduce scalable and advanced digital
solutions focused largely on the student, expand our e-commerce capabilities and
accelerate such capabilities through our recent merchandising partnership with
Fanatics Retail Group Fulfillment, LLC, Inc. ("Fanatics") and Fanatics Lids
College, Inc. ("FLC") (collectively referred to herein as the "FLC
Partnership"), increase market share with new accounts, and expand our strategic
opportunities through acquisitions and partnerships.
We expect general merchandise sales to increase over the long term, as our
product assortments continue to emphasize and reflect changing consumer trends,
and we evolve our presentation concepts and merchandising of products in stores
and online, which we expect to be further enhanced and accelerated through the
FLC Partnership. Through this partnership, we receive unparalleled product
assortment, e-commerce capabilities and powerful digital marketing tools to
drive increased value for customers and accelerate growth of our logo and
emblematic general merchandise business.
We believe the Barnes & Noble brand (licensed from our former parent) along with
our subsidiary brands, BNC and MBS, are synonymous with innovation in
bookselling and campus retailing, and are widely recognized and respected brands
in the United States. Our large college footprint, reputation, and credibility
in the marketplace not only support our marketing efforts to universities,
students, and faculty, but are also important to our relationship with leading
publishers who rely on us as one of their primary distribution channels, and for
being a trusted source for students in our direct-to-student digital solutions
business.
For additional information related to our business, see Part I - Item 1.
Business in our Annual Report on Form 10-K for the fiscal year ended May 1,
2021.
Partnership with Fanatics and FLC
In December 2020, we entered into the FLC Partnership. Through this partnership,
we receive unparalleled product assortment, e-commerce capabilities and powerful
digital marketing tools to drive increased value for customers and accelerate
growth of our general merchandise business. Fanatics' cutting-edge e-commerce
and technology expertise offers our campus stores expanded product selection, a
world-class online and mobile experience, and a progressive direct-to-consumer
platform. Coupled with FLC, the leading standalone brick and mortar retailer
focused exclusively on licensed fan and alumni products, our campus stores have
improved access to trend and sales performance data on licensees, product
styles, and design treatments.
We maintain our relationships with campus partners and remain responsible for
staffing and managing the day-to-day operations of our campus bookstores. We
also work closely with our campus partners to ensure that each campus store
maintains unique aspects of in-store merchandising, including localized product
assortments and specific styles and designs that reflect each campus's brand. We
leverage Fanatics' e-commerce technology and expertise for the operational
management of the emblematic merchandise and gift sections of our campus store
websites. FLC manages in-store assortment planning and merchandising of
emblematic apparel, headwear, and gift products for our partner campus stores.
In December 2020, Fanatics, Inc. and Lids Holdings, Inc. jointly made a
strategic equity investment in BNED. On April 4, 2021, as contemplated by the
FLC Partnership's merchandising agreement, we sold our logo and emblematic
general merchandise inventory to FLC, which was finalized during the first
quarter of Fiscal 2022. As contemplated by the FLC Partnership's e-commerce
agreement, we began to transition certain of our e-commerce sites to Fanatics
e-commerce sites for logo and emblematic products during the first quarter of
Fiscal 2022. As the logo and emblematic general merchandise sales are fulfilled
by FLC and Fanatics, we recognize commission revenue earned for these sales on a
net basis in our condensed
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consolidated financial statements, as compared to the recognition of logo and
emblematic general merchandise sales on a gross basis in the prior year. For
additional information, see Item 1. Financial Statements - Note 2. Summary of
Significant Accounting Policies - Merchandise Inventories.
COVID-19 Business Impact
Our business experienced an unprecedented and significant negative impact as a
result of COVID-19 related campus store closures. Beginning in March 2020,
colleges and universities nationwide began to close their campuses in light of
safety concerns and as a result of local and state issued stay-at-home orders.
By mid-March, during our Fiscal 2020 fourth quarter, we closed the majority of
our physical campus stores to protect the health and safety of our customers and
employees.
While our campus stores were closed, we continued to serve institutions and
students through our campus websites, providing free shipping on all orders and
an expanded digital content offering to provide immediate access to course
materials to students at our campuses that closed due to COVID-19. We developed
and implemented plans to safely reopen our campus stores based on national,
state and local guidelines, as well as the campus policies set by the school
administration.
Despite the introduction of COVID-19 vaccines, the pandemic remains highly
volatile and continues to evolve. We cannot accurately predict the duration or
extent of the impact of the COVID-19 virus, including the Delta variant, on
enrollments, university budgets, athletics and other areas that directly affect
our business operations. Although most four year schools have returned to a
traditional on-campus environment for learning in the current Fall semester, as
well as hosted traditional on campus sporting activities and events, there is
still uncertainty about the duration and extent of the impact of the COVID-19
pandemic, including on enrollments at community colleges and by international
students, the continuation of remote and hybrid class offerings, and the effect
on our ability to source products, including textbooks and general merchandise
offerings. We will continue to assess our operations and will continue to
consider the guidance of local governments and our campus partners to determine
how to operate our bookstores in the safest manner for our employees and
customers. If economic conditions caused by the pandemic do not recover as
currently estimated by management or market factors currently in place change,
there could be a further impact on our results of operations, financial
condition and cash flows from operations. For additional information, see Part I
- Item 1. Business in our Annual Report on Form 10-K for the fiscal year ended
May 1, 2021.
Segments
We have three reportable segments: Retail, Wholesale and DSS. Additionally,
unallocated shared-service costs, which include various corporate level expenses
and other governance functions, continue to be presented as "Corporate
Services".
We identify our segments in accordance with the way our business is managed
(focusing on the financial information 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 ended May 1, 2021.
Retail Segment
The Retail Segment operates 1,445 college, university, and K-12 school
bookstores, comprised of 794 physical bookstores and 651 virtual bookstores. Our
bookstores typically operate under agreements with the college, university, or
K-12 schools to be the official bookstore and the exclusive seller of course
materials and supplies, including physical and digital products. The majority of
the physical campus bookstores have school-branded e-commerce sites which we
operate independently or along with our merchant partners, and which offer
students access to affordable course materials and affinity products, including
emblematic apparel and gifts. The Retail Segment also offers inclusive access
programs, in which course materials are offered at a reduced price through a fee
charged by the institution or included in tuition, and delivered to students on
or before the first day of class. Additionally, the Retail Segment offers a
suite of digital content and services to colleges and universities, including a
variety of open educational resource-based courseware.
Wholesale Segment
The Wholesale Segment is comprised of our wholesale textbook business and is one
of the largest textbook wholesalers in the country. The Wholesale Segment
centrally sources, sells, and distributes new and used textbooks to
approximately 3,200 physical bookstores (including our Retail Segment's 794
physical bookstores) and sources and distributes new and used textbooks to our
651 virtual bookstores. Additionally, the Wholesale Segment sells hardware and a
software suite of applications that provides inventory management and
point-of-sale solutions to approximately 400 college bookstores.
DSS Segment
The Digital Student Solutions ("DSS") Segment includes direct-to-student
products and services to assist students to study more effectively and improve
academic performance. The DSS Segment is comprised of the operations of Student
Brands, LLC, a leading direct-to-student subscription-based writing services
business, and bartleby®, a direct-to-student subscription-based offering
providing textbook solutions, expert questions and answers, writing and
tutoring.
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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 impact of the COVID-19 pandemic, the
overall economic environment, funding levels at colleges and universities, by
changes in enrollments at colleges and universities, and spending on course
materials and general merchandise.
•Impact of the COVID-19 Pandemic: The COVID-19 pandemic has materially and
adversely impacted certain segments of the U.S. economy, with legislative and
regulatory responses including unprecedented monetary and fiscal policy actions
across all sectors, and there is significant uncertainty as to timing of
stabilization and recovery, including the ability to gain adequate herd-immunity
levels through vaccine programs and their resilience to future virus variants.
Many colleges and K-12 schools were required to cease in-person classes in an
attempt to limit the spread of the COVID-19 virus and ensure the safety of their
students. Although many academic institutions have reopened, some are providing
alternatives to traditional in-person instruction, including online and hybrid
learning options and significantly reduced classroom sizes. Additionally, our
business, like many others has been affected by the challenging labor market and
the ability to recruit employees.
•Economic Environment: Retail general merchandise sales are subject to
short-term fluctuations driven by the broader retail environment. The broader
macro-economic global supply chain issues may also impact our ability to source
school supplies and general merchandise sold in our campus bookstores, including
technology-related products and emblematic clothing.
•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 in U.S. economic activity
and increased unemployment could lead to decreased enrollment and consumer
spending. Additionally, enrollment trends are impacted by the dip in the United
States birth rate resulting in fewer students at the traditional 18-24 year-old
college age. Online degree program enrollments continue to grow, even in the
face of declining overall higher education enrollment.
•Increased Use of Online and Digital Platforms as Companions or Alternatives to
Printed Course Materials. Students and faculty can now choose from a wider
variety of educational content and tools than ever before, delivered across both
print and digital platforms.
•Increasing Costs Associated with Defending Against Security Breaches and Other
Data Loss, Including Cyber-Attacks. We are increasingly dependent upon
information technology systems, infrastructure and data. Cyber-attacks are
increasing in their frequency, sophistication and intensity, and have become
increasingly difficult to detect. We continue to invest in data protection and
information technology to prevent or minimize these risks and, to date, we have
not experienced any material service interruptions and are not aware of any
material breaches.
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•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 through McGraw-Hill Education's and Pearson Education's
consignment rental program, both of which are relatively nascent. The broader
macro-economic global supply chain issues may also impact our ability to source
school supplies and general merchandise sold in our campus bookstores, including
technology-related products and emblematic clothing.
•Price Competition. In addition to the competition in the services we provide to
our customers, our textbook and other course materials business faces
significant price competition. Students purchase textbooks and other course
materials from multiple providers, are highly price sensitive, and can easily
shift spending from one provider or format to another.
•A Large Number of Traditional Campus Bookstores Have Yet to be Outsourced.
•Outsourcing Trends. We continue to see the trend towards outsourcing in the
campus bookstore market and also continue to see a variety of business models
being pursued for the provision of course materials (such as inclusive access
programs and publisher subscription models) and general merchandise.
•New and Existing Bookstore Contracts. We expect awards of new accounts
resulting in new physical and virtual store openings will continue to be an
important driver of future growth in our business. We also expect that certain
less profitable or essential bookstores we operate may close. Such stores could
be included in contracts for stores we operate that may be deemed non-essential;
and such stores could be operated by others or independently by schools. The
scope of any such store closures remains uncertain, although we are not aware,
at this time, of any significant volume of stores which we operate that are
likely to close or have informed us of upcoming closures.
For additional discussion of our trends and other factors affecting our
business, see Part I - Item 1. Business in our Annual Report on Form 10-K for
the year ended May 1, 2021.
Elements of Results of Operations
Our condensed consolidated financial statements reflect our consolidated
financial position, results of operations and cash flows in conformity with
accounting principles generally accepted in the United States ("GAAP"). The
results of operations reflected in our consolidated financial statements are
presented on a consolidated basis. All material intercompany accounts and
transactions have been eliminated in consolidation.
Our sales are primarily derived from the sale of course materials, which include
new, used and digital textbooks, and at college and university bookstores which
we operate, we sell high margin general merchandise, including emblematic
apparel and gifts, trade books, computer products, school and dorm supplies,
convenience and café items and graduation products. Our rental income is
primarily derived from the rental of physical textbooks. We also derive revenue
from other sources, such as sales of inventory management, hardware and
point-of-sale software, direct-to-student subscription-based services, and other
services.
Our cost of sales primarily includes costs such as merchandise costs, textbook
rental amortization, content development cost amortization, warehouse costs
related to inventory management and order fulfillment, insurance, certain
payroll costs, and management service agreement costs, including rent expense,
related to our college and university contracts and other facility related
expenses.
Our selling and administrative expenses consist primarily of store payroll and
store operating expenses. Selling and administrative expenses also include
long-term incentive plan compensation expense and general office expenses, such
as
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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                              26 weeks ended
                                            October 30,           October 31,           October 30,           October 31,
Dollars in thousands                           2021                  2020                  2021                  2020
Sales:
Product sales and other                   $    577,329          $   
551,832          $    805,099          $    745,042
Rental income                                   49,648                43,653                62,672                54,457
Total sales                               $    626,977          $    595,485          $    867,771          $    799,499

Net income (loss)                         $     22,528          $      7,515          $    (21,818)         $    (39,137)

Adjusted earnings (non-GAAP) (a) $ 24,955 $ 11,075 $ (15,059) (30,641) $

Adjusted EBITDA (non-GAAP) (a)
Retail                                    $     39,444          $     18,324          $     19,822          $    (22,316)
Wholesale                                        1,233                 6,568                 7,647                19,534
DSS                                                807                   689                 2,499                 2,353
Corporate Services                              (6,809)               (5,501)              (14,253)              (10,745)
Elimination                                      4,293                 4,455                (1,244)               (2,308)

Total adjusted EBITDA (non-GAAP) $ 38,968 $ 24,535 $ 14,471 $ (13,482)

(a) Adjusted earnings and Adjusted EBITDA are non-GAAP financial measures. See the discussion of Adjusted Earnings (non-GAAP) and Adjusted EBITDA (non-GAAP) below.

The following table shows, for the periods indicated, the percentage ratio that certain items report to total sales:

                                                              13 weeks ended                                        26 weeks ended
                                                 October 30,                October 31,                October 30,                October 31,
                                                     2021                       2020                       2021                       2020
Sales:
Product sales and other                                  92.1  %                      92.7  %                  92.8  %                      93.2  %
Rental income                                             7.9                          7.3                      7.2                          6.8
Total sales                                             100.0                        100.0                    100.0                        100.0
Cost of sales:
Product and other cost of sales (a)                      78.5                         82.0                     77.9                         83.0
Rental cost of sales (a)                                 57.1                         63.5                     55.8                         64.5
Total cost of sales                                      76.8                         80.6                     76.3                         81.7
Gross margin                                             23.2                         19.4                     23.7                         18.3
Selling and administrative expenses                      17.2                         15.4                     22.4                         20.3
Depreciation and amortization expense                     1.9                          2.2                      2.8                          3.4

Restructuring and other charges                           0.2                          0.6                      0.4                          1.1

Operating income (loss)                                   3.9  %                       1.2  %                  (1.9) %                      (6.5) %


(a) Represents the percentage that these costs bear of related sales, instead of total sales.

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Results of Operations - 13 and 26 weeks ended October 30, 2021 compared with the
13 and 26 weeks ended October 31, 2020
                                                                            

13 weeks completed October 30, 2021

                                                                                                  Corporate
Dollars in thousands                       Retail           Wholesale             DSS             Services            Eliminations            Total
Sales:
Product sales and other                 $ 559,304          $  21,669          $  8,279          $        -          $     (11,923)         $ 577,329
Rental income                              49,648                  -                 -                   -                      -             49,648
Total sales                               608,952             21,669             8,279                   -                (11,923)           626,977
Cost of sales:
Product and other cost of sales           451,779             16,049             1,373                   -                (16,131)           453,070
Rental cost of sales                       28,348                  -                 -                   -                      -             28,348
Total cost of sales                       480,127             16,049             1,373                   -                (16,131)           481,418
Gross profit                              128,825              5,620             6,906                   -                  4,208            145,559
Selling and administrative expenses        89,486              4,387             7,305               6,809                    (85)           107,902
Depreciation and amortization expense       8,669              1,364             1,902                  17                      -             11,952
                             Sub-Total: $  30,670          $    (131)         $ (2,301)         $   (6,826)         $       4,293             25,705

Restructuring and other charges                                                                                                                1,116

Operating income                                                                                                                           $  24,589


                                                                                13 weeks ended October 31, 2020
                                                                                                  Corporate
Dollars in thousands                       Retail           Wholesale             DSS             Services            Eliminations            Total
Sales:
Product sales and other                 $ 532,861          $  36,387          $  5,947          $        -          $     (23,363)         $ 551,832
Rental income                              43,653                  -                 -                   -                      -             43,653
Total sales                               576,514             36,387             5,947                   -                (23,363)           595,485
Cost of sales:
Product and other cost of sales           453,277             25,673             1,285                   -                (27,760)           452,475
Rental cost of sales                       27,725                  -                 -                   -                      -             27,725
Total cost of sales                       481,002             25,673             1,285                   -                (27,760)           480,200
Gross profit                               95,512             10,714             4,662                   -                  4,397            115,285
Selling and administrative expenses        77,380              4,146             5,003               5,501                    (58)            91,972
Depreciation and amortization expense       9,985              1,322             1,855                  31                      -             13,193
                             Sub-Total: $   8,147          $   5,246          $ (2,196)         $   (5,532)         $       4,455             10,120

Restructuring and other charges                                                                                                                3,387

Operating income                                                                                                                           $   6,733




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                                                                                26 weeks ended October 30, 2021
                                                                                                  Corporate
Dollars in thousands                       Retail           Wholesale             DSS             Services            Eliminations            Total
Sales:
Product sales and other                 $ 756,749          $  66,153          $ 16,582          $        -          $     (34,385)         $ 805,099
Rental income                              62,672                  -                 -                   -                      -             62,672
Total sales                               819,421             66,153            16,582                   -                (34,385)           867,771
Cost of sales:
Product and other cost of sales           607,501             50,128             2,646                   -                (33,044)           627,231
Rental cost of sales                       34,952                  -                 -                   -                      -             34,952
Total cost of sales                       642,453             50,128             2,646                   -                (33,044)           662,183
Gross profit                              176,968             16,025            13,936                   -                 (1,341)           205,588
Selling and administrative expenses       157,851              8,378            13,752              14,253                    (97)           194,137
Depreciation and amortization expense      18,076              2,664             3,801                  35                      -             24,576
                             Sub-Total: $   1,041          $   4,983          $ (3,617)         $  (14,288)         $      (1,244)           (13,125)

Restructuring and other charges                                                                                                                3,739

Operating loss                                                                                                                             $ (16,864)



                                                                               26 weeks ended, October 31, 2020
                                                                                                  Corporate
Dollars in thousands                       Retail           Wholesale             DSS             Services            Eliminations            Total
Sales:
Product sales and other                 $ 680,833          $ 116,681          $ 11,819          $        -          $     (64,291)         $ 745,042
Rental income                              54,457                  -                 -                   -                      -             54,457
Total sales                               735,290            116,681            11,819                   -                (64,291)           799,499
Cost of sales:
Product and other cost of sales           588,531             89,210             2,411                   -                (61,912)           618,240
Rental cost of sales                       35,112                  -                 -                   -                      -             35,112
Total cost of sales                       623,643             89,210             2,411                   -                (61,912)           653,352
Gross profit                              111,647             27,471             9,408                   -                 (2,379)           146,147
Selling and administrative expenses       134,365              7,937             9,039              10,745                    (71)           162,015
Depreciation and amortization expense      20,555              2,617             4,020                  64                      -             27,256
                             Sub-Total: $ (43,273)         $  16,917          $ (3,651)         $  (10,809)         $      (2,308)           (43,124)

Restructuring and other charges                                                                                                                9,058

Operating loss                                                                                                                             $ (52,182)



Sales

The following table summarizes our sales for the 13 and 26 weeks ended.
October 30, 2021 and October 31, 2020:

                                              13 weeks ended                                             26 weeks ended
                            October 30,         October 31,                            October 30,         October 31,
Dollars in thousands           2021                2020                 %                 2021                2020                 %
Product sales and other    $  577,329          $  551,832              4.6%           $  805,099          $  745,042              8.1%
Rental income                  49,648              43,653             13.7%               62,672              54,457             15.1%
Total Sales                $  626,977          $  595,485              5.3%           $  867,771          $  799,499              8.5%


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Sales increased by $31.5 million, or 5.3%, to $627.0 million during the 13 weeks
ended October 30, 2021 from $595.5 million during the 13 weeks ended October 31,
2020. Sales increased by $68.3 million, or 8.5%, to $867.8 million during the 26
weeks ended October 30, 2021 from $799.5 million during the 26 weeks ended
October 31, 2020. The sales increase is primarily related to the impact from
re-opening stores that had temporarily closed due to the COVID-19 pandemic in
the prior year. The components of the variances for the 13 and 26 week periods
are reflected in the table below.
Sales variances                                            13 weeks ended                                       26 weeks ended
Dollars in millions                          October 30, 2021          October 31, 2020           October 30, 2021          October 31, 2020
Retail Sales
New stores                                 $            26.3          $           27.6          $            36.6          $           35.4
Closed stores                                           (7.9)                    (16.4)                     (12.5)                    (21.9)
Comparable stores (a)                                   14.0                    (196.5)                      58.6                    (302.7)
Textbook rental deferral                                 3.2                      16.4                        3.4                      10.1
Service revenue (b)                                     (2.1)                      1.0                        0.1                      (3.7)
Other (c)                                               (1.1)                      2.7                       (2.1)                      1.7
              Retail sales subtotal:       $            32.4          $         (165.2)         $            84.1          $         (281.1)

Wholesale Sales                            $           (14.7)         $           (3.8)         $           (50.5)         $            4.2
DSS Sales                                  $             2.3          $            0.7          $             4.8          $            1.2
Eliminations (d)                           $            11.5          $           (8.4)         $            29.9          $          (16.7)
               Total sales variance:       $            31.5          $         (176.7)         $            68.3          $         (292.4)


(a)  Effective April 2021, as contemplated by the FLC Partnership's
merchandising agreement, logo and emblematic general merchandise sales were
fulfilled by FLC. During the first quarter of Fiscal 2022, as contemplated by
the FLC Partnership's e-commerce agreement, we began to transition certain of
our e-commerce sites to Fanatics e-commerce sites for logo and emblematic
products. As the logo and emblematic general merchandise sales are fulfilled by
FLC and Fanatics, we recognize commission revenue earned for these sales on a
net basis in our condensed consolidated financial statements, as compared to the
recognition of logo and emblematic general merchandise sales on a gross basis in
the prior year period. For Comparable Store Sales details, see below.
(b)  Service revenue includes brand partnerships, shipping and handling, and
revenue from other programs.
(c)  Other includes inventory liquidation sales to third parties, marketplace
sales and certain accounting adjusting items related to return reserves, and
other deferred items.
(d)  Eliminates Wholesale sales and service fees to Retail and Retail
commissions earned from Wholesale. See discussion of intercompany activities and
eliminations below.
Retail
Retail sales increased by $32.4 million, or 5.6%, to $608.9 million during the
13 weeks ended October 30, 2021 from $576.5 million during the 13 weeks ended
October 31, 2020. Retail sales increased by $84.1 million, or 11.4%, to $819.4
million during the 26 weeks ended October 30, 2021 from $735.3 million during
the 26 weeks ended October 31, 2020. Retail added 76 new stores and closed 48
stores during the 26 weeks ended October 30, 2021, ending the period with a
total of 1,445 stores.
                                                                       13 weeks ended                                                                               26 weeks ended
                                            October 30, 2021                               October 31, 2020                              October 30, 2021                               October 31, 2020
Number of Stores:                    Physical               Virtual                Physical                  Virtual              Physical               Virtual                Physical                  Virtual
Number of stores at beginning of
period                                  784                   645                         772                    670                 769                   648                         772                    647
Opened                                   11                    12                           5                     11                  41                    35                          29                     51
Closed                                    1                     6                           9                     10                  16                    32                          33                     27
Number of stores at end of period       794                   651                         768                    671                 794                   651                         768                    671



Product and other sales for Retail for the 13 weeks ended October 30, 2021
increased by $26.4 million, or 5.0% to $559.3 million from $532.9 million during
the 13 weeks ended October 31, 2020. Product and other sales for Retail for the
26 weeks ended October 30, 2021 increased by $75.9 million, or 11.2% to $756.7
million from $680.8 million during the 26 weeks ended October 31, 2020. The
sales increase is primarily related to the impact from re-opening stores that
had temporarily closed due to the COVID-19 pandemic in the prior year.
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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. Comparable textbook sales remained essentially flat, as
compared to a 19% decline a year ago, as enrollment declines were mitigated by
the growth of First Day (our inclusive access program). Revenue for First Day
programs grew 80% to $96 million during the quarter. Comparable general
merchandise sales increased 78.3%, as compared to a 52.0% decline a year ago,
benefiting greatly from the return to an on campus learning experience and the
resumption of many activities and events. Sales for general merchandise,
including on-campus cafe and convenience products, and trade merchandise have
increased compared to the prior year, when sales were impacted by the temporary
store closings due to the COVID-19 pandemic, 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.
Sales were impacted by overall enrollment declines in higher education. Although
most four year schools have returned to a traditional on-campus environment for
learning in the current Fall semester, as well as hosted traditional on campus
sporting activities and events, there is still uncertainty about the duration
and extent of the impact of the COVID-19 pandemic, including on enrollments at
community colleges and by international students, the continuation of remote and
hybrid class offerings. While many big-conferences resumed their sport
activities, other on campus events, such as Parent's Weekends or Alumni events,
continue to be either eliminated or severely restricted, which further impacted
the company's general merchandise business. First Day (our inclusive access
program), digital and eTextbook revenue increased, due to a shift to lower cost
options and more affordable solutions, including digital offerings.
To supplement the Total Sales table presented above in accordance with generally
accepted accounting principles ("GAAP"), the Company uses the non-GAAP financial
measure of Retail Gross Comparable Store Sales. Retail Gross Comparable Store
Sales (non-GAAP) includes sales from physical and virtual stores that have been
open for an entire fiscal year period and does not include sales from closed
stores for all periods presented. As contemplated by the FLC Partnership's
merchandising agreement and e-commerce agreement, we began to transition the
fulfillment of logo and emblematic general merchandise sales to FLC and
Fanatics. As the logo and emblematic general merchandise sales are fulfilled by
FLC and Fanatics, we recognize commission revenue earned for these sales on a
net basis in our condensed consolidated financial statements, as compared to the
recognition of logo and emblematic sales on a gross basis in the prior year
period. For Retail Gross Comparable Store Sales (non-GAAP), sales for logo and
emblematic general merchandise fulfilled by FLC, Fanatics and digital agency
sales are included on a gross basis. We believe the current Retail Gross
Comparable Store Sales (non-GAAP) calculation method reflects the manner in
which management views comparable sales, as well as the seasonal nature of our
business. Retail Gross Comparable Store Sales (non-GAAP) variances for Retail by
category for the 13 and 26 week periods are as follows:
Retail Gross Comparable Store Sales (non-GAAP) variances
                                                        13 weeks ended                                                         26 weeks ended
Dollars in millions                  October 30, 2021                   October 31, 2020                    October 30, 2021                   October 31, 2020
Textbooks (Course
Materials)                     $   (0.5)            (0.1) %       $  (101.6)           (19.0) %       $   22.9              4.1  %       $  (112.5)           (17.5) %
General Merchandise                72.7             78.3  %           (97.2)           (52.0) %          121.5             90.6  %          (184.8)           (58.6) %
Trade Books                         1.3             33.8  %            (6.3)           (62.3) %            3.2             60.7  %           (14.0)           (73.2) %
Total Retail Gross
Comparable Store Sales
(non-GAAP)                     $   73.5             13.2  %       $  (205.1)           (28.1) %       $  147.6             21.0  %       $  (311.3)           (31.8) %


Rental income for Retail for the 13 weeks ended October 30, 2021 increased by
$6.0 million, or 13.7% to $49.6 million from $43.7 million during the 13 weeks
ended October 31, 2020. Rental income for Retail for the 26 weeks ended
October 30, 2021 increased by $8.2 million, or 15.1% to $62.7 million from $54.5
million during the 26 weeks ended October 31, 2020. Rental income is impacted by
comparable store sales, new store openings and store closings. The increase in
rental income is primarily due to increased rental activity due to the temporary
store closings due the COVID-19 pandemic in the prior year discussed above.
Wholesale
Wholesale sales decreased by $14.7 million, or 40.5% to $21.7 million during the
13 weeks ended October 30, 2021 from $36.4 million during the 13 weeks ended
October 31, 2020. Wholesale sales decreased by $50.5 million, or 43.3% to $66.2
million during the 26 weeks ended October 30, 2021 from $116.7 million during
the 26 weeks ended October 31, 2020. The decrease is primarily due to lower
gross sales impacted by the COVID-19 pandemic, including supply constraints
resulting from the lack of on campus textbook buyback opportunities during the
prior fiscal year, a decrease in customer demand resulting from a shift in
buying patterns from physical textbooks to digital products, and lower demand
from other third-party clients, partially offset by a lower returns and
allowances. During the prior year period, the Wholesale operations assumed
direct-to-student fulfillment of course material orders for the Retail Segment
campus bookstores that were not fully operational due to COVID-19 campus store
closures, whereas the sales shifted back to the physical bookstores in the
current period.
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DSS
DSS total sales increased by $2.3 million, or 39.2% to $8.3 million during the
13 weeks ended October 30, 2021 from $6.0 million during the 13 weeks ended
October 31, 2020. DSS total sales increased by $4.8 million, or 40.3% to $16.6
million during the 26 weeks ended October 30, 2021 from $11.8 million during the
26 weeks ended October 31, 2020. Sales increased primarily due to an increase in
subscription sales.
Cost of Sales and Gross Margin
Our cost of sales decreased as a percentage of sales to 76.8% during the 13
weeks ended October 30, 2021 compared to 80.6% during the 13 weeks ended
October 31, 2020. Our gross margin increased by $30.3 million, or 26.3%, to
$145.6 million, or 23.2% of sales, during the 13 weeks ended October 30, 2021
from $115.3 million, or 19.4% of sales during the 13 weeks ended October 31,
2020.
Our cost of sales decreased as a percentage of sales to 76.3% during the 26
weeks ended October 30, 2021 compared to 81.7% during the 26 weeks ended
October 31, 2020. Our gross margin increased by $59.4 million, or 40.7%, to
$205.6 million, or 23.7% of sales, during the 26 weeks ended October 30, 2021
from $146.1 million, or 18.3% of sales during the 26 weeks ended October 31,
2020. During the 26 weeks ended October 30, 2021, we recognized a merchandise
inventory loss of $0.4 million in cost of goods sold in the Retail Segment
discussed below. For additional information, see Item 1. Financial Statements -
Note 2. Summary of Significant Accounting Policies - Merchandise Inventories.
Retail
The following table summarizes the Retail cost of sales for the 13 and 26 weeks
ended October 30, 2021 and October 31, 2020:
                                                             13 weeks ended                                                                          26 weeks ended
                             October 30,              % of               October 31,              % of               October 30,              % of               October 31,              % of
Dollars in thousands            2021              Related Sales             2020              Related Sales             2021              Related Sales             2020              Related Sales
Product and other cost of
sales                       $  451,779                80.8%             $  453,277                85.1%             $  607,501                80.3%             $  588,531                86.4%
Rental cost of sales            28,348                57.1%                 27,725                63.5%                 34,952                55.8%                 35,112                64.5%
Total Cost of Sales         $  480,127                78.8%             $  481,002                83.4%             $  642,453                78.4%             $  623,643                84.8%

The following table summarizes the retail gross margin for the 13 and 26 weeks ended. October 30, 2021 and October 31, 2020:

                                                                    13 weeks ended                                                                             26 weeks ended
                                October 30,               % of                                              % of               October 30,              % of               October 31,              % of
Dollars in thousands                2021              Related Sales          October 31, 2020           Related Sales             2021              Related Sales             2020              Related Sales
Product and other gross margin $   107,525                19.2%             $         79,584                14.9%             $  149,248                19.7%             $   92,302                13.6%
Rental gross margin                 21,300                42.9%                       15,928                36.5%                 27,720                44.2%                 19,345                35.5%
Gross Margin                   $   128,825                21.2%             $         95,512                16.6%             $  176,968                21.6%             $  111,647                15.2%


For the 13 weeks ended October 30, 2021, the Retail gross margin as a percentage
of sales increased as discussed below:
•Product and other gross margin increased (430 basis points), driven primarily
by a favorable sales mix (400 basis points) due to higher general merchandise
sales, lower contract costs as a percentage of sales related to our college and
university contracts (25 basis points) resulting from contract renewals and new
store contracts, and higher margin rates (5 basis points) due to lower inventory
reserves and lower markdowns.
•Rental gross margin increased (640 basis points), driven primarily by higher
rental margin rates (595 basis points) and lower contract costs as a percentage
of sales related to our college and university contracts (285 basis points),
partially offset by an unfavorable rental mix (240 basis points).
For the 26 weeks ended October 30, 2021, the Retail gross margin as a percentage
of sales increased as discussed below:
•Product and other gross margin increased (610 basis points), driven primarily
by a favorable sales mix (475 basis points) due to higher general merchandise
sales, higher margin rates (130 basis points) due to lower inventory reserves
and lower markdowns, and lower contract costs as a percentage of sales related
to our college and university contracts (5 basis points) resulting from contract
renewals and new store contracts, partially offset by an inventory merchandise
loss of $0.4 million (5 basis points) related to the final sale of our logo and
emblematic general merchandise inventory below
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cost to FLC.
•Rental gross margin increased (870 basis points), driven primarily by higher
rental margin rates (590 basis points) and lower contract costs as a percentage
of sales related to our college and university contracts (470 basis points),
partially offset by an unfavorable rental mix (190 basis points).
Wholesale
The cost of sales and gross margin for Wholesale were $16.1 million, or 74.1% of
sales, and $5.6 million, or 25.9% of sales, respectively, during the 13 weeks
ended October 30, 2021. The cost of sales and gross margin for Wholesale was
$25.7 million or 70.6% of sales and $10.7 million or 29.4% of sales,
respectively, during the 13 weeks ended October 31, 2020. The gross margin rate
decreased during the 13 weeks ended October 30, 2021 primarily due to higher
markdowns, partially offset by a favorable sales mix.
The cost of sales and gross margin for Wholesale were $50.1 million, or 75.8% of
sales, and $16.0 million, or 24.2% of sales, respectively, during the 26 weeks
ended October 30, 2021. The cost of sales and gross margin for Wholesale was
$89.2 million or 76.5% of sales and $27.5 million or 23.5% of sales,
respectively, during the 26 weeks ended October 31, 2020. The gross margin rate
increased during the 26 weeks ended October 30, 2021 primarily due to a
favorable sales mix and lower markdowns, partially offset by the unfavorable
impact of returns and allowances.
DSS
The gross margin for the DSS segment was $6.9 million, or 83.4% of sales, during
the 13 weeks ended October 30, 2021 and $4.7 million, or 78.4% of sales, during
the 13 weeks ended October 31, 2020. The gross margin for the DSS segment was
$13.9 million, or 84.0% of sales, during the 26 weeks ended October 30, 2021 and
$9.4 million, or 79.6% of sales, during the 26 weeks ended October 31, 2020. The
high gross margins are driven primarily by high margin subscription service
revenue earned.
Intercompany Eliminations
During the 13 weeks ended October 30, 2021 and October 31, 2020, our sales
eliminations were $(11.9) million and $(23.4) million, respectively. During the
26 weeks ended October 30, 2021 and October 31, 2020, our sales eliminations
were $(34.4) million and $(64.3) 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 October 30, 2021 and October 31, 2020, the cost of
sales eliminations were $(16.1) million and $(27.8) million, respectively.
During the 26 weeks ended October 30, 2021 and October 31, 2020, the cost of
sales eliminations were $(33.0) million and $(61.9) 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 October 30, 2021 and October 31, 2020, the gross
margin eliminations were $4.2 million and $4.4 million, respectively. During the
26 weeks ended October 30, 2021 and October 31, 2020, the gross margin
eliminations were $(1.3) million and $(2.4) 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                                                           26 weeks ended
                            October 30,           % of          October 31,           % of           October 30,           % of           October 31,           % of
Dollars in thousands           2021              Sales              2020             Sales              2021              Sales              2020              Sales
Total Selling and
Administrative Expenses    $  107,902            17.2%          $  91,972            15.4%          $  194,137            22.4%          $  162,015     

20.3%


During the 13 weeks ended October 30, 2021, selling and administrative expenses
increased by $15.9 million, or 17.3%, to $107.9 million from $92.0 million
during the 13 weeks ended October 31, 2020. During the 26 weeks ended
October 30, 2021, selling and administrative expenses increased by $32.1
million, or 19.8%, to $194.1 million from $162.0 million during the 26 weeks
ended October 31, 2020. The variances by segment are discussed by segment below.
The increase in selling and administrative expenses is primarily related to the
impact from re-opening stores that had temporarily closed due to the COVID-19
pandemic in the prior year. Additionally, during the 13 and 26 weeks ended
October 30, 2021, long-term incentive compensation expense increased by $2.5
million and $4.6 million, respectively, primarily related to cash-settled
phantom share unit awards which are remeasured at the end of each reporting
period to reflect current assumptions, including changes in the our common stock
price.
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Contents

Retail

During the 13 weeks ended October 30, 2021, Retail selling and administrative
expenses increased by $12.1 million, or 15.6%, to $89.5 million from $77.4
million during the 13 weeks ended October 31, 2020. This increase was primarily
due to a $10.2 million increase in stores payroll and operating expenses
including comparable stores, virtual stores and new/closed stores payroll and
operating expenses, a $1.3 million increase in corporate payroll, infrastructure
and product development costs and $0.6 million increase in incentive plan
compensation expense related to phantom share awards as discussed above. The
payroll increase is primarily related to the impact from re-opening stores that
had temporarily closed due to the COVID-19 pandemic in the prior year.
During the 26 weeks ended October 30, 2021, Retail selling and administrative
expenses increased by $23.5 million, or 17.5%, to $157.9 million from $134.4
million during the 26 weeks ended October 31, 2020. This increase was primarily
due to a $22.3 million increase in stores payroll and operating expenses
including comparable stores, virtual stores and new/closed stores payroll and
operating expenses, a $1.1 million increase in incentive plan compensation
expense related to phantom share awards as discussed above, and a $0.1 million
increase in corporate payroll, infrastructure and product development costs. The
payroll increase is primarily related to the impact from re-opening stores that
had temporarily closed due to the COVID-19 pandemic in the prior year.
Wholesale
Wholesale selling and administrative expenses increased by $0.3 million, or
5.8%, to $4.4 million from $4.1 million during the 13 weeks ended October 31,
2020. Wholesale selling and administrative expenses increased by $0.5 million,
or 5.6%, to $8.4 million from $7.9 million during the 26 weeks ended October 31,
2020. The increase in selling and administrative expenses was primarily driven
by higher incentive plan compensation expense related to phantom share awards,
as discussed above.
DSS
During the 13 weeks ended October 30, 2021, DSS selling and administrative
expenses increased by $2.3 million, or 46.0%, to $7.3 million from $5.0 million
during the 13 weeks ended October 31, 2020. During the 26 weeks ended
October 30, 2021, DSS selling and administrative expenses increased by $4.7
million, or 52.1%, to $13.8 million from $9.0 million during the 26 weeks ended
October 31, 2020. The increase in costs was primarily driven by higher operating
costs invested in the business associated with higher product development and
sales costs aimed at increasing revenue, and higher incentive plan compensation
expense related to phantom share awards, as discussed above.
Corporate Services
During the 13 weeks ended October 30, 2021, Corporate Services' selling and
administrative expenses increased by $1.3 million, or 23.8%, to $6.8 million
from $5.5 million during the 13 weeks ended October 31, 2020. The increase was
primarily due to higher incentive plan compensation expense related to phantom
share awards of $1.6 million, as discussed above, partially offset by lower
operating costs of $0.3 million.
During the 26 weeks ended October 30, 2021, Corporate Services' selling and
administrative expenses increased by $3.5 million, or 32.6%, to $14.3 million
from $10.8 million during the 26 weeks ended October 31, 2020. The increase was
primarily due to higher incentive plan compensation expense related to phantom
share awards of $3.0 million, as discussed above, and higher operating expenses
of $0.5 million.
Depreciation and Amortization Expense
                                                   13 weeks ended                                                          26 weeks ended
                          October 30,           % of          October 31,           % of          October 30,           % of          October 31,           % of
Dollars in thousands          2021             Sales              2020             Sales              2021             Sales              2020             Sales
Total Depreciation and
Amortization Expense      $  11,952             1.9%          $  13,193             2.2%          $  24,576             2.8%          $  27,256             3.4%


Depreciation and amortization expense decreased by $1.2 million, or 9.4%, to
$12.0 million during the 13 weeks ended October 30, 2021 from $13.2 million
during the 13 weeks ended October 31, 2020. Depreciation and amortization
expense decreased by $2.7 million, or 9.8%, to $24.6 million during the 26 weeks
ended October 30, 2021 from $27.3 million during the 26 weeks ended October 31,
2020.The decrease was primarily attributable to lower depreciable assets and
intangibles due to the store impairment loss recognized during the third quarter
of Fiscal 2021.
Restructuring and other charges
During the 13 and 26 weeks ended October 30, 2021, we recognized restructuring
and other charges totaling $1.1 million and $3.7 million, respectively,
comprised primarily of $0.4 million and $2.0 million, respectively, for
severance and other
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employee termination and benefit costs associated with elimination of various
positions as part of cost reduction objectives, $0.7 million and $1.7 million,
respectively, for costs associated with professional service costs for
restructuring, process improvements, development and integration associated with
the FLC Partnership, shareholder activist activities, and liabilities for a
facility closure.
During the 13 and 26 weeks ended October 31, 2020, we recognized restructuring
and other charges totaling $3.4 million and $9.1 million, respectively,
comprised primarily of $1.1 million and $4.5 million, respectively, for
severance and other employee termination and benefit costs associated with
elimination of various positions as part of cost reduction objectives, $2.3
million and $4.6 million, respectively, for costs associated with professional
service costs for restructuring, process improvements, shareholder activist
activities, and liabilities for a facility closure.
Operating Income (Loss)
                                             13 weeks ended                                                           26 weeks ended
Dollars in          October 30,           % of          October 31,           % of           October 30,           % of           October 31,           % of
thousands               2021             Sales              2020             Sales              2021              Sales              2020              Sales
Total Operating
Income (Loss)       $  24,589             3.9%          $   6,733             1.2%          $  (16,864)           (1.9)%         $  (52,182)           (6.5)%


Our operating income was $24.6 million during the 13 weeks ended October 30,
2021, compared to operating income of $6.7 million during the 13 weeks ended
October 31, 2020. The increase in operating income is due to the matters
discussed above. For the 13 weeks ended October 30, 2021, excluding the $1.1
million of restructuring and other charges discussed above, operating income was
$25.7 million (or 4.1% of sales). For the 13 weeks ended October 31, 2020,
excluding the $3.4 million of restructuring and other charges, discussed above,
operating income was $10.1 million (or 1.7% of sales).
Our operating loss was $(16.9) million during the 26 weeks ended October 30,
2021, compared to an operating loss of $(52.2) million during the 26 weeks ended
October 31, 2020. The decrease in operating loss is due to the matters discussed
above. For the 26 weeks ended October 30, 2021, excluding the $0.4 million of
merchandise inventory loss and the $3.7 million of restructuring and other
charges discussed above, operating loss was $(12.7) million (or (1.5)% of
sales). For the 26 weeks ended October 31, 2020, excluding the $9.1 million of
restructuring and other charges, discussed above, operating loss was $(43.1)
million (or (5.4)% of sales).
Interest Expense, Net
                                                        13 weeks ended                                        26 weeks ended
Dollars in thousands                      October 30, 2021           October 31, 2020           October 30, 2021           October 31, 2020
Interest Expense, Net                   $           2,264          $             912          $           4,758          $           3,565


Net interest expense increased by $1.4 million, or 148.4%, to $2.3 million
during the 13 weeks ended October 30, 2021 from $0.9 million during the 13 weeks
ended October 31, 2020. Net interest expense increased by $1.2 million, or
33.5%, to $4.8 million during the 13 weeks ended October 30, 2021 from $3.6
million during the 13 weeks ended October 31, 2020. The increase was primarily
due to higher borrowings compared to the prior year.
Income Tax (Benefit) Expense
                                                        13 weeks ended                                                                         26 weeks ended
                        October 30,                                October 31,                                 October 30,                                 October 31,
Dollars in thousands        2021            Effective Rate             2020            Effective Rate             2021             Effective Rate             2020             Effective Rate
Income Tax (Benefit)
Expense                 $    (203)              (0.9)%             $  (1,694)              (29.1)%            $      196               (0.9)%             $  (16,610)               29.8%


We recorded an income tax benefit of $(0.2) million on pre-tax income of $22.3
million during the 13 weeks ended October 30, 2021, which represented an
effective income tax rate of (0.9)% and we recorded an income tax benefit of
$(1.7) million on a pre-tax income of $5.8 million during the 13 weeks ended
October 31, 2020, which represented an effective income tax rate of (29.1)%.
We recorded income tax expense of $0.2 million on a pre-tax loss of $(21.6)
million during the 26 weeks ended October 30, 2021, which represented an
effective income tax rate of (0.9)% and we recorded an income tax benefit of
$(16.6) million on a pre-tax loss of $(55.7) million during the 26 weeks ended
October 31, 2020, which represented an effective income tax rate of 29.8%.
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The effective tax rate for the 26 weeks ended October 30, 2021 is lower as
compared to the comparable prior year due to the assessment of the realization
of deferred tax assets and loss carrybacks recorded in the prior year.
Net Income (Loss)
                                                        13 weeks ended                                 26 weeks ended
                                                                                              October 30,          October 31,
Dollars in thousands                     October 30, 2021           October 31, 2020              2021                 2020
Net income (loss)                       $         22,528          $         

7,515 $ (21 818) $ (39,137)


As a result of the factors discussed above, net income was $22.5 million during
the 13 weeks ended October 30, 2021, compared with net income of $7.5 million
during the 13 weeks ended October 31, 2020. As a result of the factors discussed
above, net loss was $(21.8) million during the 26 weeks ended October 30, 2021,
compared with net loss of $(39.1) million during the 26 weeks ended October 31,
2020.
Adjusted Earnings (non-GAAP) is $25.0 million during the 13 weeks ended
October 30, 2021, compared with $11.1 million during the 13 weeks ended
October 31, 2020. Adjusted Earnings (non-GAAP) is $(15.1) million during the 26
weeks ended October 30, 2021, compared with $(30.6) million during the 26 weeks
ended October 31, 2020. See Adjusted Earnings (non-GAAP) discussion below.
Use of Non-GAAP Measures - Adjusted Earnings, Adjusted EBITDA and Free Cash Flow
To supplement our results prepared in accordance with generally accepted
accounting principles ("GAAP"), we use the measure of Adjusted Earnings,
Adjusted EBITDA, and Free Cash Flow, which are non-GAAP financial measures under
Securities and Exchange Commission (the "SEC") regulations. We define Adjusted
Earnings as net income adjusted for certain reconciling items that are
subtracted from or added to net income. 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. We define Free Cash Flow as Adjusted EBITDA less capital expenditures,
cash interest and cash taxes.
To properly and prudently evaluate our business, we encourage you to review our
condensed consolidated financial statements included elsewhere in this Form
10-K, 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. We believe that Free Cash Flow provides useful additional
information concerning cash flow available to meet future debt service
obligations and working capital requirements and assists investors in their
understanding of our operating profitability and liquidity as we manage the
business to maximize margin and cash flow.
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Adjusted Earnings (non-GAAP)
                                                         13 weeks ended                          26 weeks ended
                                                 October 30,         

October 31, October 30, October 31, Dollars in thousands

                                2021                2020                2021                2020
Net income (loss)                               $   22,528          $    7,515          $  (21,818)         $  (39,137)
Reconciling items, after-tax (below)                 2,427               3,560               6,759               8,496
Adjusted Earnings (non-GAAP)                    $   24,955          $   

11,075 $ (15,059) (30,641) $

Reconciliation of items, before tax

Merchandise inventory loss (a)                  $        -          $        -                 434                   -
Content amortization (non-cash)                      1,311               1,222               2,586               2,386
Restructuring and other charges (a)                  1,116               3,387               3,739               9,058

Reconciling items, pre-tax                           2,427               4,609               6,759              11,444
Less: Pro forma income tax impact (a)(b)                 -               1,049                   -               2,948
Reconciling items, after-tax                    $    2,427          $    3,560          $    6,759          $    8,496

(a) See Management Discussion and Analysis and Discussion of Results of Operations above. (b) Represents the tax consequences of non-GAAP items. Adjusted EBITDA (non-GAAP)

                                                         13 weeks ended                          26 weeks ended
                                                 October 30,         

October 31, October 30, October 31, Dollars in thousands

                                2021                2020                2021                2020
Net income (loss)                               $   22,528          $    7,515          $  (21,818)         $  (39,137)
Add:
Depreciation and amortization expense               11,952              13,193              24,576              27,256
Interest expense, net                                2,264                 912               4,758               3,565
Income tax (benefit) expense                          (203)             (1,694)                196             (16,610)

Merchandise inventory loss (a)                           -                   -                 434                   -
Content amortization (non-cash)                      1,311               1,222               2,586               2,386
Restructuring and other charges (a)                  1,116               3,387               3,739               9,058

Adjusted EBITDA (non-GAAP) (a)                  $   38,968          $   

24,535 $ 14,471 $ (13,482)


(a)   See Management Discussion and Analysis and Results of Operations
discussion above.
The following is Adjusted EBITDA by segment for the 13 and 26 weeks ended
October 30, 2021 and October 31, 2020.
Adjusted EBITDA - by Segment                                                

13 weeks completed October 30, 2021

                                                                                             Corporate
Dollars in thousands                   Retail           Wholesale            DSS             Services            Elimination(b)            Total
Sales                               $ 608,952          $  21,669          $ 8,279          $        -          $       (11,923)         $ 626,977
Cost of sales (a)                     480,022             16,049              167                   -                  (16,131)           480,107
Gross profit                          128,930              5,620            8,112                   -                    4,208          $ 146,870
Selling and administrative
expenses                               89,486              4,387            7,305               6,809                      (85)           107,902
Adjusted EBITDA (non-GAAP)          $  39,444          $   1,233          $   807          $   (6,809)         $         4,293          $  38,968



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Adjusted EBITDA - by Segment                                                

13 weeks completed October 31, 2020

                                                                                             Corporate
Dollars in thousands                   Retail           Wholesale            DSS             Services            Elimination(b)            Total
Sales                               $ 576,514          $  36,387          $ 5,947          $        -          $       (23,363)         $ 595,485
Cost of sales (a)                     480,810             25,673              255                   -                  (27,760)           478,978
Gross profit                           95,704             10,714            5,692                   -                    4,397            116,507
Selling and administrative
expenses                               77,380              4,146            5,003               5,501                      (58)            91,972
Adjusted EBITDA (non-GAAP)          $  18,324          $   6,568          $   689          $   (5,501)         $         4,455          $  24,535




Adjusted EBITDA - by Segment                                               

26 weeks completed October 30, 2021

                                                                                              Corporate
Dollars in thousands                   Retail           Wholesale             DSS             Services            Elimination(b)            Total
Sales                               $ 819,421          $  66,153          $ 16,582          $        -          $       (34,385)         $ 867,771
Cost of sales (a)                     641,748             50,128               331                   -                  (33,044)           659,163
Gross profit                          177,673             16,025            16,251                   -                   (1,341)         $ 208,608
Selling and administrative
expenses                              157,851              8,378            13,752              14,253                      (97)           194,137
Adjusted EBITDA (non-GAAP)          $  19,822          $   7,647          $  2,499          $  (14,253)         $        (1,244)         $  14,471



Adjusted EBITDA - by Segment                                               

26 weeks completed October 31, 2020

                                                                                              Corporate
Dollars in thousands                   Retail           Wholesale             DSS             Services            Elimination(b)            Total
Sales                               $ 735,290          $ 116,681          $ 11,819          $        -          $       (64,291)         $ 799,499
Cost of sales (a)                     623,241             89,210               427                   -                   61,912            774,790
Gross profit                          112,049             27,471            11,392                   -                   (2,379)         $ 148,533
Selling and administrative
expenses                              134,365              7,937             9,039              10,745                      (71)           162,015
Adjusted EBITDA (non-GAAP)          $ (22,316)         $  19,534          $  2,353          $  (10,745)         $        (2,308)         $ (13,482)



(a) For the 13 and 26 weeks ended October 30, 2021, the Retail Segment gross
margin excludes $0.1 million and $0.3 million, respectively, of amortization
expense (non-cash) related to content development costs. Additionally, for the
26 weeks ended October 30, 2021, gross margin excludes a merchandise inventory
loss of $0.4 million in the Retail Segment related to the sale of our logo and
emblematic general merchandise inventory below cost to FLC. For the 13 and 26
weeks ended October 31, 2020, the Retail Segment gross margin excludes $0.2
million and $0.4 million, respectively, of amortization expense (non-cash)
related to content development costs.
For the 13 and 26 weeks ended October 30, 2021, the DSS Segment gross margin
excludes $1.2 million and $2.3 million, respectively, of amortization expense
(non-cash) related to content development costs. For the 13 and 26 weeks ended
October 31, 2020, the DSS Segment gross margin excludes $1.0 million and $2.0
million, respectively of amortization expense (non-cash) related to content
development costs.
(b)  See Management Discussion and Analysis and Results of Operations discussion
above.
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Free Cash Flow (non-GAAP)
                                                             13 weeks ended                                    26 weeks ended
                                                                                                                             October 31,
Dollars in thousands                           October 30, 2021          October 31, 2020          October 30, 2021              2020
Adjusted EBITDA (non-GAAP)                    $         38,968          $         24,535          $         14,471          $   (13,482)
Less:
Capital expenditures (a)                                 9,894                     9,142                    21,264               16,197
Cash interest                                            1,980                     1,240                     3,662                3,200
Cash taxes                                              (8,032)                       85                    (7,778)               6,022
Free Cash Flow (non-GAAP)                     $         35,126          $         14,068          $         (2,677)         $   (38,901)


(a) Purchases of property and equipment are also referred to as capital
expenditures. Our investing activities consist principally of capital
expenditures for contractual capital investments associated with renewing
existing contracts, new store construction, digital initiatives and enhancements
to internal systems and our website. The following table provides the components
of total purchases of property and equipment:
Capital Expenditures                                     13 weeks ended                                       26 weeks ended
Dollars in thousands                       October 30, 2021           October 31, 2020          October 30, 2021          October 31, 2020
Physical store capital
expenditures                             $           3,587          $      

$ 2,825 $ 7,480 $ 5,962 Product and system development

                       3,856                      2,901                     7,480                     5,226
Content development costs                            1,865                      1,752                     4,712                     2,828
Other                                                  586                      1,664                     1,592                     2,181
Total Capital Expenditures               $           9,894          $           9,142          $         21,264          $         16,197


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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 of
October 30, 2021, we had $183.3 million outstanding borrowings under the Credit
Agreement. See Financing Arrangements discussion below.
COVID-19 Business Impact
Our business experienced an unprecedented and significant negative impact as a
result of COVID-19 related campus store closures. Beginning in March 2020,
colleges and universities nationwide began to close their campuses in light of
safety concerns and as a result of local and state issued stay-at-home orders.
By mid-March, during our Fiscal 2020 fourth quarter, we closed the majority of
our physical campus stores to protect the health and safety of our customers and
employees.
While our campus stores were closed, we continued to serve institutions and
students through our campus websites, providing free shipping on all orders and
an expanded digital content offering to provide immediate access to course
materials to students at our campuses that closed due to COVID-19. We developed
and implemented plans to safely reopen our campus stores based on national,
state and local guidelines, as well as the campus policies set by the school
administration.
Despite the introduction of COVID-19 vaccines, the pandemic remains highly
volatile and continues to evolve. We cannot accurately predict the duration or
extent of the impact of the COVID-19 virus, including the Delta variant, on
enrollments, university budgets, athletics and other areas that directly affect
our business operations. Although most four year schools have returned to a
traditional on-campus environment for learning in the current Fall semester, as
well as hosted traditional on campus sporting activities and events, there is
still uncertainty about the duration and extent of the impact of the COVID-19
pandemic, including on enrollments at community colleges and by international
students, the continuation of remote and hybrid class offerings, and the effect
on our ability to source products, including textbooks and general merchandise
offerings. We will continue to assess our operations and will continue to
consider the guidance of local governments and our campus partners to determine
how to operate our bookstores in the safest manner for our employees and
customers. If economic conditions caused by the pandemic do not recover as
currently estimated by management or market factors currently in place change,
there could be a further impact on our results of operations, financial
condition and cash flows from operations. For additional information, see Part I
- Item 1. Business in our Annual Report on Form 10-K for the fiscal year ended
May 1, 2021.
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.

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