Meet Barnes & Noble Education

Barnes & Noble Education is counting on growth in a number of digital initiatives, as well as taking over the operation of more college stores, to improve operating results, the company indicated in a prospectus filed late last month in connection with its planned separation from Barnes & Noble Inc. The spin-off of the college bookstore division of B&N is expected to be completed later this year.

Although B&NE offered no predictions about future sales and earnings, the company said that it expects increased use of its new Yuzu digital educational platform to “increase significantly as students and faculty become reliant on online and digital platforms.” The company also noted that the websites it operates for different colleges have been its fastest growing channel in recent years, with sales reaching about $300 million in the fiscal year ended May 3, 2014, when the number transactions rose by more than 10% over the previous year. The websites allow students, parents, and alumni to buy textbooks, course materials, and other products, which can be shipped to consumers or picked up in local college stores.

Over the last four years B&NE has also steadily increased the number of physical stores it operates; it currently runs 714 outlets. It noted in the prospectus that 53% of colleges still operate their own stores, and many may be interested in turning over operation of their outlets to B&NE. In the six months ended Nov. 1, 2104, B&NE opened 33 new stores that will have estimated first year sales of $60 million. Between Nov. 1, 2014, and Feb. 1, 2015, B&NE signed contracts for another 21 stores, worth an estimated $50 million in first-year sales.

Total revenue for B&NE fell slightly between fiscal 2011 and 2014, but in 2014 its net earnings rose 54.6% over 2011. The decline in sales and the increased earnings were due in part to the same factor—the trend among students to rent textbooks rather than buy them. Indeed, rental income rose over 520% in 2014 compared to 2011, even as product sales fell 13.4%. And since renting textbooks is a higher-margin business than selling them, the increase in rental income has improved B&NE’s margins, as has the sale of more general merchandise.

B&NE pointed to results in the first six months of fiscal 2015, which ended Nov. 1, 2014, as more evidence that business trends are in its favor. Revenue in the period rose 1.4% over the first six months of fiscal 2014, to $977.4 million, as higher rental income, increased sales of general merchandise, and new store openings offset a decline in product sales. Comp sales fell 0.2% in the period, its best performance in a number of years.

In fiscal 2014, selling and administrative expenses rose 16% over 2012, to $330.4 million, something B&NE attributed in part to continued investment in Yuzu. Launched in spring 2014, the Yuzu app allows students to access digital content in a variety of ways and lets professors create their own customized text, which can be distributed to students. In fiscal 2014, B&NE invested $23.8 million in Yuzu, up from $7.4 million in fiscal 2013. In the first half of fiscal 2015 it invested another $12.1 million.

B&NE will be run by Max Roberts as CEO, along with Barry Brover, v-p and chief financial officer, and Patrick Maloney, executive v-p and chief operating officer. Roberts had a base salary of $788,019 in fiscal 2014 and earned a total of $4.6 million, taking into account stock awards and incentives, in addition to other compensation. Brover had a base salary of $461,058 and earned a total of $1.4 million, while Maloney had a base salary of $684,385 and took home a total of $2.2 million. The company had 5,300 full-time and “regularly scheduled” part-time employees on Nov. 1, 2014, and hires about another 10,000 employees during rush periods.

Barnes & Noble Education Results, Fiscal 2011–2014

($ in millions)

Source: Barnes & Noble education prospectus.