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Barnes & Noble Education(BNED) - 2023 Q2 - Earnings Call Transcript
BNEDBarnes & Noble Education(BNED)2022-12-06 17:15
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Financial Data and Key Metrics Changes - Total sales for Q2 2023 were 617.1million,adeclineof617.1 million, a decline of 9.9 million or 1.6% compared to 627millionintheprioryear[31]−ConsolidatedrevenueandadjustedEBITDAwereessentiallyflatyear−over−year,primarilyduetothegrowthofhighermarginFirstDayComplete(FDC)andgeneralmerchandisebusinesses[13][31]−Thesecondquarterconsolidatedgrossmarginratewas23.5627 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 89.9million,with111campusstoresutilizingFDCforthefallterm,representingapproximately545,000undergraduatestudents[15][32]−Generalmerchandisesalesincreasedby4.589.9 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 21.1million,impactedbysupplyconstraintsandloweroveralldemandduetodecliningenrollment[19][33]−Thedeclineinthetraditionalaˋlacartecoursematerialmodelwasattributedtofacultyassigningfewermaterialsandstudentsoptingnottopurchasematerials[12][14]CompanyStrategyandDevelopmentDirection−ThecompanyisfocusingonacceleratingthetransitiontotheFDCmodel,whichaimstoprovidegreateraccess,affordability,andconvenienceforstudents[11][25]−Costreductioninitiativesarebeingimplementedtostreamlineoperationsandaligncapitalallocationwithhigh−returnopportunities,expectingannualrunratesavingsof21.1 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 35million[10][23]−Thecompanyplanstoreinvestmostofthesavingsintostrategicpriorities,particularlytheFDCmodel[23][64]Management′sCommentsonOperatingEnvironmentandFutureOutlook−Managementnotedongoingchallengesinthehighereducationspace,includingnegativeenrollmenttrendsandrisingoperatingcosts[12][30]−Thecompanyexpressedconfidenceinitsabilitytocreatedurablegrowthandshareholdervaluethroughdecisiveactionsandstrategicinvestments[30][62]OtherImportantInformation−ThecompanyexpectstoachievefreecashflowbreakevenintheDSSsegmentinfiscalyear2024[21]−Thecashbalanceattheendofthequarterwas35 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 252million,anincreasefrom252 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]