Financial Data and Key Metrics Changes - Total sales for Q2 2023 were $617.1 million, a decline of $9.9 million or 1.6% compared to $627 million in the prior year [31] - Consolidated revenue and adjusted EBITDA were essentially flat year-over-year, primarily due to the growth of higher margin First Day Complete (FDC) and general merchandise businesses [13][31] - The second quarter consolidated gross margin rate was 23.5%, compared to 23.2% in the prior year, primarily due to higher retail gross margins [34] Business Line Data and Key Metrics Changes - Retail revenue decreased by 1.7% year-over-year to $598.6 million, with gross comparable course material revenue down 4.6% [14][31] - FDC revenue grew 97% to $89.9 million, with 111 campus stores utilizing FDC for the fall term, representing approximately 545,000 undergraduate students [15][32] - General merchandise sales increased by 4.5% on a gross comparable basis, driven by strength in logo and emblematic sales [17][32] - DSS revenues increased by 2.3% to $8.5 million, although the growth was lower than anticipated due to product offering mix and lower web traffic [18][32] Market Data and Key Metrics Changes - Wholesale revenue declined by 2.5% to $21.1 million, impacted by supply constraints and lower overall demand due to declining enrollment [19][33] - The decline in the traditional à la carte course material model was attributed to faculty assigning fewer materials and students opting not to purchase materials [12][14] Company Strategy and Development Direction - The company is focusing on accelerating the transition to the FDC model, which aims to provide greater access, affordability, and convenience for students [11][25] - Cost reduction initiatives are being implemented to streamline operations and align capital allocation with high-return opportunities, expecting annual run rate savings of $30 million to $35 million [10][23] - The company plans to reinvest most of the savings into strategic priorities, particularly the FDC model [23][64] Management's Comments on Operating Environment and Future Outlook - Management noted ongoing challenges in the higher education space, including negative enrollment trends and rising operating costs [12][30] - The company expressed confidence in its ability to create durable growth and shareholder value through decisive actions and strategic investments [30][62] Other Important Information - The company expects to achieve free cash flow breakeven in the DSS segment in fiscal year 2024 [21] - The cash balance at the end of the quarter was $19.1 million, with outstanding borrowings of $252 million, an increase from $183.3 million in the prior year [37] Q&A Session Summary Question: How to drive accelerated adoption of First Day Complete? - Management emphasized the importance of leading the industry towards the FDC model and working closely with schools to ensure successful implementation [41][42] Question: Magnitude of cost cuts across segments? - Management indicated that cuts would be made across all segments, with a focus on aligning resources with the FDC model [48][49] Question: Impact of students not purchasing course materials? - Management acknowledged that the decline in the à la carte model indicates many students are not purchasing necessary materials, which impacts overall business [50][51] Question: Timeline for realizing cost savings? - Management expects the full annualized effect of cost savings to be realized in fiscal year 2024, with ongoing initiatives already in place [60][62]

Financial Position and Borrowings - The company has a credit facility with a committed principal amount of $400,000, with an option to request an increase of up to $100,000[81]. - As of October 29, 2022, the company had $222,000 in outstanding borrowings under the credit facility, compared to $183,300 as of October 30, 2021, reflecting an increase of 21.1% year-over-year[81]. - The company borrowed $318,200 and repaid $321,900 under the credit agreement during the 26 weeks ended October 29, 2022[81]. - The term loan credit agreement provides for term loans of $30,000, with an interest rate of 11.25%, maturing on June 7, 2024[82]. - The company incurred debt issuance costs of $1,964 related to the term loan credit agreement, which will be amortized over the term of the loan[85]. - The company had $222.0 million and $30.0 million in outstanding borrowings under the Credit Agreement and Term Loan Agreement, respectively, as of October 29, 2022[184]. - The company borrowed $30.0 million under the Term Loan Credit Agreement during the 26 weeks ended October 29, 2022, with an outstanding balance of $30.0 million as of the same date[194]. Revenue and Sales Performance - Total sales for the 13 weeks ended October 29, 2022, were $617.1 million, a decrease of 1.4% from $627.0 million for the same period in 2021[126]. - Total sales for the 13 weeks ended October 29, 2022, were $617,098, a decrease of 1.6% compared to $626,977 for the same period in 2021[134]. - Total sales for the 26 weeks ended October 29, 2022, increased to $880,956, up 1.5% from $867,771 in the prior year[134]. - Product sales and other for the 13 weeks ended October 29, 2022, were $575,764, down 0.3% from $577,329 in the prior year[134]. - Total course material product sales decreased by $13.9 million, or 3.2%, to $419.9 million during the 13 weeks ended October 29, 2022[139]. - Revenue from First Day models increased by $47.2 million to $143.2 million, or 49%, during the 13 weeks ended October 29, 2022, compared to $96.0 million during the same period in 2021[142]. - Retail sales decreased by $10.3 million, or 1.7%, to $598.6 million during the 13 weeks ended October 29, 2022, compared to $608.9 million during the same period in 2021[139]. - Retail sales increased by $15.7 million, or 1.9%, during the 26 weeks ended October 29, 2022, compared to the same period in 2021[139]. Expenses and Cost Management - The company recognized restructuring and other charges totaling $635 during the 26 weeks ended October 29, 2022, a decrease of 78.9% compared to $3,021 in the same period of the previous year[90]. - Lease expenses for the 26 weeks ended October 29, 2022, totaled $116,325, an increase of 7.5% from $107,803 in the same period of the previous year[89]. - Selling and administrative expenses as a percentage of total sales were 17.4% for the 13 weeks ended October 29, 2022, compared to 17.2% for the same period in 2021[129]. - Selling and administrative expenses for the 13 weeks ended October 29, 2022, decreased by $0.8 million, or 0.8%, to $107.1 million from $107.9 million during the same period in 2021[153]. - DSS selling and administrative expenses increased by $0.8 million, or 11.3%, to $8.1 million during the 13 weeks ended October 29, 2022, driven by increased operating costs and compensation expenses[158]. - Corporate Services' selling and administrative expenses decreased by $1.7 million, or 25.5%, to $5.1 million during the 13 weeks ended October 29, 2022, due to lower incentive plan compensation costs[159]. Profitability and Income - Net income for the 13 weeks ended October 29, 2022, was $22.1 million, compared to $22.5 million for the same period in 2021, reflecting a decrease of 1.7%[126]. - Adjusted Earnings (non-GAAP) was $24.0 million during the 13 weeks ended October 29, 2022, compared with $25.0 million during the same period in 2021, a decrease of 4.0%[168]. - Adjusted EBITDA for the 13 weeks ended October 29, 2022, was $39.4 million, slightly up from $39.0 million in the same period last year[126]. - Operating income was $26.7 million during the 13 weeks ended October 29, 2022, compared to $24.6 million during the same period in 2021, representing an increase of 8.6%[163]. - The effective income tax rate for the 26 weeks ended October 29, 2022, was (2.1)% on a pre-tax loss of $(29,930) million[98]. - The effective income tax rate for the 13 weeks ended October 29, 2022, was (1.4)%, compared to (0.9)% for the same period in 2021[166]. Operational Challenges and Market Conditions - The company is experiencing downward enrollment trends, particularly at community colleges, which correlate with economic conditions and unemployment rates[121]. - The impact of COVID-19 has led to a challenging labor market, affecting the company's ability to recruit employees and resulting in increased borrowings[119]. - The company continues to face significant price competition in the textbook and course materials market, with students being highly price sensitive[121]. - The company is exposed to risks related to counterfeit and piracy of digital and print materials[204]. - The company may face challenges related to attracting and retaining employees[204]. - The company faces risks associated with potential disruptions to information technology systems and third-party web service providers[204]. - The company is subject to various risks from international operations, including regulatory changes and supply chain disruptions[204]. Cash Flow and Capital Expenditures - Free cash flow for the 26 weeks ended October 29, 2022, was $38,864, compared to $37,738 for the same period in the previous year[181]. - Capital expenditures for the 26 weeks ended October 29, 2022, totaled $20,573, an increase from $21,264 in the prior year[183]. - Cash flows provided by operating activities during the 26 weeks ended October 29, 2022 were $9.4 million, a decrease of $14.9 million compared to $24.3 million during the same period in 2021[188]. - Cash flows used in investing activities were $(20.3) million for the 26 weeks ended October 29, 2022, compared to $(20.9) million in the prior year, primarily due to lower capital expenditures[189]. - Cash flows provided by financing activities increased to $23.7 million during the 26 weeks ended October 29, 2022, up from $3.4 million in the same period of 2021, driven by higher net borrowings[190]. Internal Controls and Compliance - A material weakness in internal controls was identified due to insufficient precision in the analysis of deferred tax asset valuation allowance[209]. - The company is in the process of implementing a remediation plan for the identified material weakness, expected to occur in Q4 of Fiscal 2023[209]. - The effectiveness of the company's disclosure controls and procedures was evaluated, concluding they were not effective at the reasonable assurance level[209]. - The company has not identified any changes in internal control over financial reporting that materially affected its operations during the second quarter[210].

Financial Data and Key Metrics Changes - Total sales for Q1 2023 were $263.9 million, a 9.6% increase from $240.8 million in the prior year [22] - Retail sales increased by $26 million or 12.4%, benefiting from a strong graduation season and higher demand for general merchandise [22][23] - The retail non-GAAP adjusted EBITDA loss was $25 million, compared to a loss of $19.6 million in the prior year [17] Business Line Data and Key Metrics Changes - Retail segment sales increased by $26 million, while wholesale segment revenue declined by 16.6% to $37.1 million due to supply constraints and lower demand for physical textbooks [22][26] - DSS segment sales grew by $0.9 million or 10.6% to $9.2 million, driven by an increase in subscription sales [26] Market Data and Key Metrics Changes - The First Day sales grew by 67% to $45 million, with First Day Complete sales doubling to $16.9 million [24] - The number of campus stores utilizing the First Day Complete program increased to 111, representing an 85% growth in undergraduate enrollment compared to Fall 2021 [14] Company Strategy and Development Direction - The company is focusing on expanding its First Day Complete program, which has shown to improve student outcomes and increase enrollment [13][19] - There is a strong pipeline of institutions evaluating the FDC program, indicating potential for continued growth [15] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about increased on-campus traffic and fewer restrictions, which may positively impact enrollment and sales [32] - The company is preparing for a robust Fall Rush, expecting strong demand for general merchandise and course materials [52] Other Important Information - The consolidated gross margin rate for the quarter was 24.1%, down from 24.9% in the prior year, primarily due to lower sales in the wholesale segment [27] - Cash balance at the end of the quarter was $9.1 million, with outstanding borrowings of $260.3 million [29] Q&A Session Summary Question: What is the enrollment outlook for this Fall? - Management is optimistic about increased traffic and fewer restrictions on campuses, but specific enrollment data will be available after the ad drop period [32][34] Question: What trends are observed in the First Day Complete program? - There is improved knowledge and acceptance of the program, with expectations of positive gains in participation rates [40] Question: How is consumer spending behavior changing? - While inflation is impacting costs, management expects a strong Fall Rush and is prepared for increased demand [52][54]

Debt and Financing - The company has a credit facility with a committed principal amount of $400,000, with an option to request an increase of up to $100,000[78]. - As of July 30, 2022, the company had outstanding borrowings of $230,300, comprised of $190,300 under the Credit Facility and $40,000 under the FILO Facility[78]. - During the 13 weeks ended July 30, 2022, the company borrowed $117,200 and repaid $112,600 under the Credit Agreement[78]. - The Term Loan Credit Agreement provides for term loans of $30,000, with an interest rate of 11.25% and a maturity date of June 7, 2024[79]. - The company incurred debt issuance costs totaling $1,909 related to the Term Loan Credit Agreement during the 13 weeks ended July 30, 2022[81]. - As of July 30, 2022, the company had outstanding borrowings of $260.3 million under the Credit Agreement and $203.7 million under the Term Loan Agreement[160]. Lease and Restructuring - Net lease expense for the 13 weeks ended July 30, 2022, was $38,045, an increase from $28,075 for the same period in 2021[85]. - The total lease payments as of July 30, 2022, amounted to $390,823, with operating lease liabilities at period end of $346,994[85]. - The weighted average remaining lease term as of July 30, 2022, was 5.3 years, with a weighted average discount rate of 4.2%[85]. - The company recognized restructuring and other charges totaling $375 during the 13 weeks ended July 30, 2022, compared to $1,905 in the same period in 2021[86]. Sales and Revenue - Total sales for the 13 weeks ended July 30, 2022, were $263.858 million, an increase from $240.794 million for the same period in 2021, representing an increase of 9.5%[117]. - Product sales and other accounted for 95.9% of total sales, while rental income contributed 4.1% for the 13 weeks ended July 30, 2022[118]. - Retail sales increased by $26.0 million, or 12.4%, to $236.5 million during the 13 weeks ended July 30, 2022, from $210.5 million during the same period in 2021[125]. - Total course material rental income for Retail decreased by $2.1 million, or 16.2%, to $10.9 million during the 13 weeks ended July 30, 2022, from $13.0 million during the same period in 2021[128]. - Revenue for First Day models increased to $45.0 million, or 67%, compared to $27.0 million in the prior year period[128]. Expenses and Losses - The net loss for the 13 weeks ended July 30, 2022, was $52.707 million, compared to a net loss of $43.628 million for the same period in 2021[117]. - Total Selling and Administrative Expenses rose by $12.3 million, or 14.2%, to $98.5 million during the 13 weeks ended July 30, 2022, compared to $86.2 million in the same period of 2021[141]. - The operating loss for the 13 weeks ended July 30, 2022, was $(47.9) million, compared to $(40.7) million in the same period of 2021, representing an increase in the operating loss margin from (16.9)% to (18.0)%[147]. - Net interest expense increased by $1.4 million, or 55.1%, to $3.9 million during the 13 weeks ended July 30, 2022, from $2.5 million in the prior year[148]. - Free Cash Flow (non-GAAP) for the 13 weeks ended July 30, 2022, was $(41.8) million, compared to $(30.6) million for the same period in 2021, reflecting a decline of approximately 36.4%[159]. Tax and Refunds - The company recorded an income tax expense of $933 million on a pre-tax loss of $(51,774) million for the 13 weeks ended July 30, 2022, resulting in an effective tax rate of (1.8)%[94]. - The company expects to receive additional tax refunds of approximately $6,881 million following refunds of $7,842 million received in Fiscal 2022 and $15,770 million on August 29, 2022[96]. - Income tax expense for the 13 weeks ended July 30, 2022, was $0.9 million on a pre-tax loss of $(51.8) million, resulting in an effective tax rate of (1.8)%[148]. Market and Operational Challenges - The company continues to face significant price competition in the textbook and course materials market, with students being highly price sensitive[113]. - The broader macroeconomic global supply chain issues have impacted the company's ability to source textbooks and school supplies[113]. - Enrollment trends at community colleges are negatively impacted by COVID-19 concerns and a decline in the U.S. birth rate, leading to fewer students in the traditional college age group[111]. - The company faces risks associated with public health crises, including the COVID-19 pandemic, which may impact overall demand for its products and services[179]. - There is a risk of decreased college enrollment or reduced funding available for students, which could negatively affect sales[179]. Digital Strategy and Initiatives - The company aims to expand its e-commerce capabilities through a partnership with Fanatics, enhancing product assortment and digital marketing tools[99]. - The implementation of the company's digital strategy may not yield the expected growth in digital sales and profitability[179]. - The company plans to continue focusing on digital initiatives and enhancements to internal systems and its website as part of its capital expenditures strategy[159]. Inventory and Capital Expenditures - The company reported a merchandise inventory loss of $434,000 for the 13 weeks ended July 31, 2021, which was not present in the current year[156]. - Total capital expenditures for the 13 weeks ended July 30, 2022, were $9.7 million, down from $11.4 million in the same period last year, a decrease of about 14.5%[159]. Employee and Operational Risks - The company may face challenges in attracting and retaining employees, which could affect operations[179]. - Risks associated with data privacy, information security, and intellectual property could impact the company's performance[179]. - The company is subject to potential disruptions in its information technology systems due to malware, viruses, or hacking attacks[179].

Financial Data and Key Metrics Changes - Total sales for Q4 2022 were $260.8 million, up from $222.8 million in the prior year, driven by a 32.6% increase in gross comparable store sales [33] - For the full fiscal year, total sales increased by $97.5 million, benefiting from the growth of inclusive access models and more students returning to campus [36] - Consolidated non-GAAP adjusted EBITDA improved by $60.8 million to a loss of $4.8 million for the full year [39] Business Line Data and Key Metrics Changes - Retail segment sales increased significantly, with textbook sales growing over 150% to $35.1 million in Q4, and general merchandise sales increasing by 76% [34][18] - Inclusive access offerings contributed to a 2.3% increase in comparable course material sales, marking the first increase in over five years [12] - The wholesale business saw a revenue decline of 32%, with EBITDA dropping to $3.8 million [22] Market Data and Key Metrics Changes - Undergraduate enrollment declined by 4.7% in spring 2022 compared to the previous year, with a total decline of 9.4% since before the pandemic [8] - Digital course materials grew from 11% of overall course material sales in 2019 to 35% in fiscal 2022 [43] - The First Day Complete program grew to 76 stores, representing approximately 380,000 undergraduate students, with revenue increasing more than 5x to $106 million [15] Company Strategy and Development Direction - The company is focused on expanding inclusive access offerings, growing general merchandise through partnerships, and increasing digital solutions subscriber base [10][28] - The First Day Complete program aims to reverse long-term declines in course material sales by ensuring students have access to all required materials on the first day of class [13] - The company plans to continue investing in its digital solutions and enhancing store-level economics [20][24] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the return to traditional on-campus learning but acknowledged ongoing challenges from COVID-19 variants and declining enrollments [7][8] - The company expects significant improvement in retail business driven by new First Day Complete implementations and increased on-campus traffic [39] - Management anticipates challenges in the wholesale business due to inventory constraints and inflationary pressures [40] Other Important Information - The company restated fiscal year 2021 results by $8 million due to out-of-period adjustments, which did not impact non-GAAP EBITDA figures [31] - The First Day Complete program's revenue is expected to continue growing, with commitments from 112 campus stores for the upcoming fall semester [49] Q&A Session Summary Question: Potential for converting First Day Courseware to First Day Complete - Management indicated that they expect to see a trend of campuses converting to First Day Complete, with commitments for 112 stores representing approximately 547,000 undergraduate students [57] Question: Trends in credit hours and pricing - Management noted that pricing varies by institution and is aligned with expectations, with annual reviews to ensure the right pricing for students [60][64] Question: Factors affecting return to pre-pandemic adjusted EBITDA levels - Management highlighted the significant decline in wholesale EBITDA as a major factor, with expectations for retail growth to drive overall improvement [66][76] Question: Guidance on enrollment and wholesale EBITDA - Management confirmed that the decline in wholesale EBITDA is a key driver of the shortfall relative to pre-COVID levels, with expectations for DSS to remain stable while retail is expected to grow [75][80] Question: Prioritization of new bookstore contracts versus existing initiatives - Management emphasized a careful allocation of capital, focusing on First Day Complete and digital business growth while being cautious about opening new stores [84][86]

Retail Segment Performance - In Fiscal 2022, the Retail Segment signed contracts for 92 new physical and virtual bookstores, estimated to generate approximately $128 million in first-year annual sales[27]. - The company generated $102 million in net new business in the Retail Segment, despite pruning under-performing stores[27]. - The partnership with Fanatics and FLC has enhanced product assortment and e-commerce capabilities, driving growth in the general merchandise business[32]. - The company operates 1,427 bookstores, including 805 physical and 622 virtual locations, serving a diverse educational market[27]. - The Retail Segment offers a suite of digital content and services, including open education resources, to enhance student access and affordability[27]. - The average relationship tenure for physical bookstore management contracts is 15 years, with approximately 90% renewal rate from Fiscal 2019 to Fiscal 2022[34]. - The company transitioned over 300 stores to a Custom Store Solutions model during the pandemic, ensuring continued service to customers[30]. - In Fiscal 2022, total sales from the First Day programs increased by 91% compared to the prior year, indicating strong growth in affordable course material offerings[39]. - The company operates 73 customized cafés and 11 convenience stores at physical campus locations, adapting offerings to include more grab-and-go options[39]. - The company’s e-commerce sales for general merchandise have seen significant growth, supported by the development of a next-generation e-commerce platform launched in Fiscal 2021[39]. Digital Solutions and Services - The Digital Student Solutions (DSS) Segment includes Student Brands and bartleby, providing subscription-based writing services and study tools to students[57]. - Student Brands generates subscription revenue that is deferred and recognized over the service period, with a community of online learners across multiple digital properties[59]. - Bartleby offers various products including bartleby+, bartleby learn™, and bartleby write, providing millions of textbook solutions and 24/7 virtual writing assistance[62]. - The company leverages its physical and virtual bookstore relationships to enhance the adoption of its digital products, targeting both K-12 and higher education institutions[63]. Market Trends and Challenges - The overall economic environment, including the impact of the COVID-19 pandemic, has affected college enrollment and consumer spending patterns, leading to downward enrollment trends[69]. - The market for educational materials is undergoing significant change, with increasing costs and a shift towards online and digital platforms as alternatives to printed materials[67]. - The competitive landscape is evolving, with disintermediation trends allowing students to purchase materials directly from publishers and alternative sources, impacting traditional bookstore sales[69]. - The company faces significant competition from various digital student solutions providers, including Chegg.com and Grammarly, as well as traditional textbook vendors like Amazon[66]. - The transition to online curriculums has impacted the demand for print textbooks, leading to potential revenue declines[89]. Financial Performance - Total sales for the 52 weeks ended April 30, 2022, were $1,531,400, an increase from $1,433,890 for the 52 weeks ended May 1, 2021, representing a growth of approximately 6.8%[321]. - Gross profit for the same period was $372,760, significantly higher than $252,661 in the previous year, indicating a gross profit margin improvement[321]. - The net loss for the 52 weeks ended April 30, 2022, was $68,857, a reduction from a net loss of $139,810 in the prior year, showing a decrease in losses by approximately 50.8%[321]. - Basic and diluted loss per share improved to $(1.33) from $(2.81) year-over-year, reflecting better financial performance[321]. - Cash and cash equivalents increased to $10,388 as of April 30, 2022, compared to $8,024 as of May 1, 2021, indicating improved liquidity[326]. Employee and Workplace Initiatives - As of April 30, 2022, the company had approximately 4,600 domestic employees, including about 3,000 full-time employees and 270 full-time international employees[77]. - Approximately 64% of full-time and part-time domestic employees identify as women, and about 33% identify as ethnically diverse[81]. - The company offers a 401(k) retirement savings plan with a 100% match of employee contributions up to 4% of eligible compensation[80]. - The company has implemented safety measures in response to the COVID-19 pandemic, including increased sanitization efforts and remote work arrangements for non-retail employees[81]. - The company is focused on creating an inclusive culture and has required all employees to complete training aimed at preventing harassment and discrimination[81]. Strategic Initiatives and Future Outlook - The company anticipates that new bookstore contracts will drive future growth, while also expecting some less profitable stores to close[71]. - The strategic initiative to grow digital products and services is critical, but the company may face challenges in successful implementation and customer adoption[106]. - The company plans to pursue strategic acquisitions and partnerships to expand its business, but may encounter difficulties in identifying suitable candidates and obtaining financing[106]. - The company aims to expand its strategic opportunities through acquisitions and partnerships, enhancing its competitive position in the market[339]. Risks and Compliance - The company is investing in data protection and information technology to defend against increasing cyber-attack risks, with no material service interruptions reported to date[69]. - The company faces potential data privacy and cybersecurity risks, which could lead to legal exposure and damage to reputation if not managed properly[110]. - Changes in federal, state, local, or international laws could increase regulatory compliance requirements and operational costs for the company[119]. - The company relies on third-party web service providers, such as AWS, posing risks that could disrupt operations and impact the ability to serve customers[113]. - The company has entered into agreements with major textbook publishers to implement anti-counterfeit best practices, but may still inadvertently sell counterfeit textbooks[125].

Financial Data and Key Metrics Changes - Total sales for Q3 2022 were $402.8 million, a decrease of $8.8 million or 2.1% compared to $411.6 million in the prior year [35] - Retail sales decreased by $12.9 million or 3.3% due to lower course material sales and lower logo and emblematic revenue recognition [35] - Gross comparable store sales increased by 8.4%, with a 59.1% increase in general merchandise sales [36] Business Line Data and Key Metrics Changes - Retail segment sales decreased by $12.9 million, while DSS segment sales grew by $2.2 million or 30.9% to $9.4 million [35][39] - First Day Complete and First Day rental course materials revenue increased by 64% to $76.1 million compared to $46.4 million in the prior year [36] - General merchandise comparable sales grew by 59% during the third quarter, benefiting from the partnership with Fanatics and Lids [21] Market Data and Key Metrics Changes - The wholesale segment saw a decrease of $2.4 million or 6.1% to $37 million, primarily due to COVID-19 related supply constraints [38] - The overall gross margin rate for the quarter was 21.6%, compared to 17.2% in the prior year, with gross profit increasing by 23.2% to $87 million [39] Company Strategy and Development Direction - The company is focused on enhancing its digital offerings and partnerships, particularly with First Day Complete and Bartleby, to meet the evolving needs of students and institutions [16][18] - The strategic partnership with Fanatics and Lids is expected to drive growth in general merchandise sales and improve operational efficiencies [22][24] - The company aims to adapt to a more flexible, student-centric model in higher education, addressing broader student needs beyond academics [15][16] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing COVID-related challenges but expressed optimism about returning to a more normal operating environment [31] - The company expects positive comps from the return of in-person events and activities, which should benefit sales [32] - Management indicated that while fiscal 2023 non-GAAP adjusted EBITDA is expected to improve, it will likely remain below pre-COVID levels due to inflationary pressures and supply chain issues [43] Other Important Information - The company plans to provide more specifics on expected enrollment growth for First Day Complete in connection with the year-end earnings release in June [18] - The partnership with Billie Jean King Enterprises aims to enhance diversity, equity, and inclusion initiatives within the company [30] Q&A Session Summary Question: What uplift is seen from the Fanatics Lids partnership? - Management noted a 59% increase in comp store general merchandise sales, attributing it to improved in-store assortment and online benefits [44][46] Question: Why might margin accretive businesses not translate to profitability? - Management highlighted concerns about inflation affecting costs and the need to remain competitive in a digital environment [50][52] Question: How is the Delgado partnership expected to scale? - The partnership is focused on providing personalized support to students, with a scalable framework being developed for future implementations [82] Question: What is the impact of revenue deferrals on Q3 results? - Approximately $25 million of revenue was deferred to the fourth quarter due to delayed school openings [75]

Financial Performance - The ongoing COVID-19 pandemic has significantly negatively impacted the company's business, resulting in an unprecedented material decline in revenue[35] - Total sales for the 13 weeks ended January 29, 2022, were $402,798, a decrease of 2% from $411,613 in the same period last year[56] - Retail total sales for the 39 weeks ended January 29, 2022, were $1,194,161, up from $1,122,959 in the prior year, reflecting a growth of approximately 6.4%[56] - The company reported a net loss of $36.8 million for the quarter, an improvement from a net loss of $48.3 million in the same quarter last year[126] - For the 39 weeks ended January 29, 2022, the net loss was $(58.6) million, an improvement from $(87.4) million in the prior year, indicating a 33.0% reduction in losses[172] Revenue Recognition - Revenue from the rental of physical textbooks is deferred and recognized over the rental period, typically for a single semester[45] - The company expects to recognize $51,125 of deferred revenue within the next 12 months, indicating anticipated revenue recognition from advanced payments[60] - The company recognized commission revenue for logo and emblematic merchandise sales on a net basis starting April 4, 2021, impacting sales recognition compared to prior periods[137] Inventory and Cost of Sales - The company experienced a merchandise inventory loss of $10,262,000 from the sale of logo and emblematic general merchandise inventory during the 52 weeks ended May 1, 2021[41] - The company reported a merchandise inventory loss of $434,000 in the Retail Segment for the 39 weeks ended January 29, 2022[71] - The company’s cost of sales includes merchandise costs, textbook rental amortization, and warehouse costs related to inventory management[48] Seasonal Trends - The company’s business is highly seasonal, with sales generally highest in the second and third fiscal quarters[38] - The business is highly seasonal, with sales typically peaking in the second and third fiscal quarters[118] Impairment and Losses - For the 13 weeks ended January 29, 2022, the company recognized a non-cash impairment loss of $6,411, compared to an impairment loss of $27,630 for the same period in the prior year[53] - An impairment loss of $6.4 million was recognized for certain store-level long-lived assets during the 13 weeks ended January 29, 2022[82] - The company incurred an impairment loss of $6.4 million during the 13 weeks ended January 29, 2022, compared to $27.6 million in the prior year[176] Operating Expenses - Total selling and administrative expenses for the 13 weeks ended January 29, 2022, rose by $8.8 million, or 9.4%, to $101.5 million, compared to $92.7 million in the same period of 2021[157] - Selling and administrative expenses increased to 25.2% of total sales for the 13 weeks ended January 29, 2022, compared to 22.5% in the same period of 2021[128] Cash Flow and Financing - Cash flows from operating activities for the 39 weeks ended January 29, 2022, were $7.9 million, a decrease of $33.3 million compared to $41.2 million for the same period in 2021[188] - The company had $200.4 million outstanding borrowings under the Credit Agreement as of January 29, 2022[184] - The company has a credit facility with a committed principal amount of $400,000, with an option to request an increase of up to $100,000[87] Taxation - The effective income tax rate for the 39 weeks ended January 29, 2022, was (1.4)%, compared to 28.8% for the same period in 2021[170] - The company recorded an income tax expense of $0.6 million on a pre-tax loss of $(36.2) million for the 13 weeks ended January 29, 2022[170] Strategic Initiatives - The company expects gross general merchandise sales to increase over the long term, driven by evolving product assortments and enhanced e-commerce capabilities through the partnership with Fanatics[107] - The company indicated plans for market expansion and new product development in the upcoming quarters[128] Risks and Challenges - The ongoing impact of COVID-19 continues to affect enrollment trends and consumer spending patterns, particularly in community colleges[119] - The company faces risks related to public health crises, such as the COVID-19 pandemic, which could impact demand for its products and services[202] - There is a potential decline in college enrollment and decreased funding available for students, which may adversely affect revenues[202] - The company is exposed to risks associated with technological changes and data privacy, which could impact its operations[202]

Financial Data and Key Metrics Changes - Total sales for Q2 2022 were $627 million, an increase of $31.5 million or 5.3% compared to $595.5 million in the prior year [21] - The retail segment saw a $32.4 million increase, while the wholesale segment decreased by $14.7 million [21] - The consolidated gross margin rate improved to 23.2% from 19.4% in the prior year [26] - Selling and administrative expenses increased by $15.9 million or 17.3% due to store reopenings and increased staffing [27] - Cash balance at the end of the quarter was $11 million, with outstanding borrowings of $183.3 million, up from $99.5 million in the prior year [28] Business Line Data and Key Metrics Changes - Retail gross comparable store sales increased by 13.2% during the quarter [21] - Revenue from First Day Complete and First Day by Course offerings increased by 80% to $96 million [22] - General merchandise sales grew by 78.3%, recovering from a 52% decline in the previous year [22] - DSS revenue grew 39% to $8.3 million, with Bartleby revenue increasing approximately 70% year-over-year [18] Market Data and Key Metrics Changes - Undergraduate enrollment declined by approximately 3% according to the National Student Clearinghouse Research Center [8] - The company experienced challenges with fewer international students and ongoing virtual class offerings at community colleges [8] Company Strategy and Development Direction - The company is focused on executing strategic initiatives that enhance competitive offerings and customer value propositions [10] - The First Day Complete program is gaining traction, with significant growth in student enrollment and positive impacts on academic outcomes [11][14] - The partnership with Fanatics and Lids is expected to enhance merchandise offerings and improve the omni-channel customer experience [15][17] Management's Comments on Operating Environment and Future Outlook - The operating environment remains challenging due to enrollment declines, labor shortages, and supply chain issues, but the company is optimistic about future improvements [9] - Management expressed confidence in the momentum of the First Day offerings and their potential to drive growth [10] - The company anticipates that the current challenges will begin to mitigate as they move into the next fiscal year [9] Other Important Information - The company operates 1,445 college, university, and K-12 school bookstores, including 794 physical bookstores and 651 virtual bookstores [28] - The Bartleby suite of solutions is designed to improve student success and outcomes, with a focus on enhancing product features and customer engagement [56] Q&A Session Summary Question: Performance of First Day Complete offering - Management is pleased with the operational execution of First Day Complete, noting that digital courseware facilitated fulfillment [31] - Financial impact is influenced by enrollments and pricing, with overall performance meeting expectations despite some challenges [32][33] Question: Sales pipeline for First Day Complete - The addition of 10 new stores for the spring semester indicates a strong sales pipeline, with optimism about future enrollments [39] Question: Impact of Fanatics and Lids partnership on merchandise sales - E-commerce sales have significantly improved with the rollout of the Fanatics platform, and management is optimistic about holiday sales performance [42] Question: Bartleby usage and adoption trends - Bartleby has seen good usage and increased metrics for paid subscribers, indicating strong customer engagement [44] Question: Future growth initiatives for Bartleby - The focus will be on enhancing product features and expanding the reach of Bartleby Plus to improve customer engagement [56]

COVID-19 Impact - The COVID-19 pandemic has significantly negatively impacted the company's business, resulting in an unprecedented material decline in revenue since Q4 Fiscal 2020[34] - The impact of COVID-19 has led to significant operational challenges, including campus store closures and uncertainty in enrollment trends[5] - The company continues to evaluate its operations in light of the ongoing COVID-19 pandemic, with uncertainty regarding enrollments and university budgets impacting business operations[34] - The company is experiencing downward enrollment trends, particularly in community colleges, which correlate with economic conditions[14] - The company experienced a significant negative impact from COVID-19, leading to campus store closures and a shift to online sales, which affected overall performance[174] Financial Performance - Total sales for the 26 weeks ended October 30, 2021, were $867,771, an increase of 8.5% compared to $799,499 for the same period in 2020[54] - Total sales for the 13 weeks ended October 30, 2021, were $626.977 million, an increase of 5.5% compared to $595.485 million for the same period in 2020[120] - Net income for the 13 weeks ended October 30, 2021, was $22.528 million, significantly higher than the net income of $7.515 million for the same period in 2020[120] - For the 26 weeks ended October 30, 2021, the net income available to common shareholders was $22,464, compared to a net loss of $(39,137) for the same period in 2020[77] - Adjusted EBITDA for the 13 weeks ended October 30, 2021, was $38.968 million, compared to $24.535 million for the same period in 2020, indicating a growth of 58.9%[120] Revenue Segments - Retail segment sales reached $819,421 for the 26 weeks ended October 30, 2021, up from $735,290 in the prior year, reflecting a growth of 11.4%[54] - The Wholesale segment's sales decreased to $66,153 for the 26 weeks ended October 30, 2021, down from $116,681 in the prior year, a decline of 43.3%[65] - The DSS segment reported sales of $16,582 for the 26 weeks ended October 30, 2021, compared to $11,819 in the same period of 2020, marking an increase of 40.3%[65] - Comparable general merchandise sales increased by 78.3%, compared to a 52.0% decline a year ago, benefiting from the return to on-campus learning[134] Inventory and Goodwill - Merchandise inventories were stated at the lower of cost or market, with a loss of $10,262 recognized on the sale of logo merchandise inventory during the 52 weeks ended May 1, 2021[39] - As of October 30, 2021, the company had $4,700 of goodwill related to its DSS reporting unit, with no impairment recognized during the quarter[48] Cash and Debt Management - As of October 30, 2021, the company reported restricted cash of $12,534, compared to $766 as of October 31, 2020, indicating a substantial increase in segregated funds[38] - The company borrowed $259,720 and repaid $254,020 under the Credit Agreement during the 26 weeks ended October 30, 2021, with outstanding borrowings of $183,300 as of that date[82] - The company has a credit facility with a committed principal amount of $400,000, which can be increased by up to $100,000[82] - As of October 30, 2021, outstanding borrowings under the Credit Facility amounted to $183.3 million, with total borrowings of $259.7 million and repayments of $254.0 million during the 26 weeks[180] Operational Metrics - The company has 1,445 bookstores, including 794 physical and 651 virtual bookstores, enhancing its market presence[59] - The company opened 76 new stores and closed 48 stores during the 26 weeks ended October 30, 2021, ending with a total of 1,445 stores[131] - The company’s fiscal year consists of 52 or 53 weeks, ending on the Saturday closest to the last day of April, affecting the comparability of results across periods[35] Expenses and Charges - Selling and administrative expenses as a percentage of total sales increased to 17.2% for the 13 weeks ended October 30, 2021, from 15.4% in the prior year[121] - The company recognized restructuring and other charges totaling $3,739 during the 26 weeks ended October 30, 2021, compared to $9,058 for the same period in 2020, indicating a decrease of 58.8%[87] - Total compensation expense for long-term incentive awards was $3,930 for the 13 weeks ended October 30, 2021, compared to $1,404 for the same period in 2020, reflecting an increase of 179.0%[93] Tax and Refunds - The company expects to receive additional tax refunds of approximately $22.6 million following a $7.8 million refund received in the second quarter of Fiscal 2022[183] - The company recorded an income tax benefit of $(203) on pre-tax income of $22,325 during the 13 weeks ended October 30, 2021, resulting in an effective tax rate of (0.9)%[95] Non-GAAP Measures - The company emphasized the importance of non-GAAP measures like Adjusted EBITDA for internal performance evaluation and operational management[164] - The company plans to continue using non-GAAP measures to provide a clearer picture of ongoing operational performance and cash flow management[164]