Barnes & Noble Education (NYSE: BNED) reported Q3 EPS of $0.02, $0.09 worse than the analyst estimate of $0.11. Revenue for the quarter came in at $550.3 million versus the consensus estimate of $591.13 million.

• Consolidated sales of $550.3 million decreased 8.8%, as compared to the prior year period; year to date consolidated sales of $1,702.6 million decreased 7.8% as compared to the prior year period.
• Consolidated third quarter GAAP net income of $0.8 million, as compared to net loss of $283.2 million in the prior year period; year to date GAAP net income of $21.8 million, as compared to net loss of $269.6 million in the prior year period. The fiscal 2018 third quarter and year to date net loss included a non-cash goodwill impairment charge of $313.1 million in the BNC segment.
• Consolidated third quarter non-GAAP Adjusted Earnings of $3.1 million, as compared to $19.6 million in the prior year period; year to date non-GAAP Adjusted Earnings of $24.6 million, as compared to $39.8 million in the prior year period.
• Consolidated third quarter non-GAAP Adjusted EBITDA of $22.0 million, as compared to $34.6 million in the prior year period; year to date non-GAAP Adjusted EBITDA of $84.9 million, as compared to $104.5 million in the prior year period.

Operational highlights for the third quarter 2019:

• Demonstrated positive leverage of managed store footprint during initial in-store promotional offers of Bartleby, the Company’s digital study product. Bartleby gained more than 50,000 subscribers during the Spring Rush sales period, including the month of February. The Company continues to adjust pricing models and content offerings ahead of the next rush period, and anticipates scaling of this digital offering with meaningful financial impacts over the next 12-18 months.
• Developed and implemented Q&A within Bartleby to provide the best value proposition for students to achieve better success.
• Surpassed one million textbook solutions available through Bartleby. The Company continues to aggressively and strategically expand its catalogue.
• Continued to grow the Company’s First Day™ inclusive access program, with BNC revenue from First Day increasing 133.2% year over year.
• Launched next-generation First Day solution for MBS Direct virtual bookstore clients after completing successful pilot programs. First Day will be available to all MBS Direct clients for the Fall Rush.
• Expanded relationships with Oxford University Press, Wiley and Macmillan Learning through agreements that will make the publishers’ digital content available through inclusive access programs on BNED campuses nationwide.

“In this environment of rapid change, we continued to make significant progress this quarter in strengthening our digital capabilities. The Spring Rush period allowed for our first in-store sales push of Bartleby, and our entire organization is energized by the positive reaction we received from students,” said Michael P. Huseby, Chairman and Chief Executive Officer, BNED. “We are taking steps in each of our segments to ensure we are serving the needs of the education market both today and in the future. The acceleration from physical textbooks to digital offerings contributed to somewhat higher than expected declines in revenue and EBITDA at BNC and MBS. Nonetheless, we are confident in our ability to manage these businesses for margin and cash flow while we invest in and begin to scale high value digital growth platforms and offerings. As we introduce new products and services to meet the changing needs of our customers, we will also continue to optimize our cost structure. We continue to make strides in developing, enhancing and delivering digital products and packages that provide substantial benefits for our campus partners and the students we serve. We expect such digital offerings to scale and contribute to expanded margins and cash flow to drive BNED’s value.”

GUIDANCE:

Barnes & Noble Education sees FY2019 revenue of $2.15-2.2 billion, versus the consensus of $2.1 billion.

For fiscal year 2019, the Company has updated its outlook and currently expects consolidated sales to be in the range of $2.15 billion to $2.2 billion before intercompany eliminations, and consolidated Adjusted EBITDA to be approximately $100 million. Capital expenditures are expected to be approximately $50 million, increasing over fiscal year 2018 primarily due to the Company’s investments in digital content required to develop and offer new DSS products.

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