Barnes & Noble Education, Inc.

Elements of Results of Operations

Our 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, rental and digital textbooks, and 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, and other services.

Our cost of sales primarily includes costs such as merchandise costs, textbook rental 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 merchandising, procurement, field support, and finance and accounting.

Results of Operations Summary - Continuing Operations(a)

For a detailed discussion of Fiscal 2025 and year-over-year comparison to Fiscal 2024, see Results of Operations - Continuing Operations - 53 weeks ended May 3, 2025, compared with the 52 weeks ended April 27, 2024, below.

(a)Adjusted Net Loss -Continuing Operations and Adjusted EBITDA - Continuing Operations are non-GAAP financial measures. See Use of Non-GAAP Measures.

During the fourth quarter of Fiscal 2023, assets related to our Digital Student Solutions ("DSS") Segmentmet the criteria for classification as Assets Held for Sale and Discontinued Operations and is no longer a reportable segment. Certain assets and liabilities associated with the DSS Segment are presented in our Consolidated Balance Sheets as "Assets Held for Sale" and "Liabilities Held for Sale". The results of operations related to the DSS Segment are included in the Consolidated Statements of Operations as "Loss from discontinued operations, net of tax." The cash flows of the DSS Segment are also presented separately in our Consolidated Statements of Cash Flows.

On May 31, 2023, we completed the sale of these assets related to our DSS Segment for cash proceeds of $20 million, net of certain transaction fees, severance costs, escrow, and other considerations. During the 52 weeks ended April 27, 2024, we recorded a Gain on Sale of Business of $3.5 million in Loss from Discontinued Operations, Net, related to the sale. Net cash proceeds from the sale were used for debt repayment and to provide additional funds for working capital needs under our Credit Facility.

(a) During the 52 weeks ended April 27, 2024, we recognized an impairment loss (non-cash) of $0.6 million (both pre-tax and after-tax), comprised of $0.1 million and $0.5 million of property and equipment and operating lease right-of-use assets, respectively, on the Consolidated Statement of Operations as part of discontinued operations.

(b) During the 52 weeks ended April 27, 2024, we recognized restructuring and other charges of $3.3 million, comprised of severance and other employee termination costs, on the Consolidated Statement of Operations as part of discontinued operations.

• 53 weeks ended May 3, 2025, compared with the 52 weeks ended April 27, 2024

Percentage of Total Sales:

Sales

The following table summarizes our sales:

Our total sales increased by $43.0 million, or 2.7%, to $1,610.2 million during the 53 weeks ended May 3, 2025 from $1,567.1 million during the 52 weeks ended April 27, 2024 which is primarily related to improved comp store sales driven by growth in our BNC First Day® programs and general merchandise sales, offset by declines in a la carte course material sales and lower sales as a result of closed stores. The components of the sales variances for the 53 weeks ended versus 52-week period are reflected in the table below.

(a)Logo general merchandise sales recognized on a net basis as commission revenue in the consolidated financial statements. For Gross Comparable Store Sales details, see below.

(b)Other includes inventory liquidation sales to third parties, marketplace sales and certain accounting adjusting items related to return reserves, and other deferred items.

The following is a store count summary for physical stores.

During the 53 weeks ended May 3, 2025, we opened 56 stores and closed 155 physical and virtual stores, with estimated net annual sales of $(53.5) million. The Company’s strategic initiative is to close under-performing and less profitable stores.

Generally, sales are impacted by revenue from net new/closed stores, conversion to BNC First Day® programs, increased campus and eCommerce website traffic, and an increase in the number of on campus activities and events, such as graduations, athletic events, alumni events and prospective student campus tours.

Our total sales increased by $43.0 million, or 2.7%, to $1,610.2 million during the 53 weeks ended May 3, 2025 from $1,567.1 million during the 52 weeks ended April 27, 2024.

•Product sales and other increased by $32.8 million, or 2.3%, to $1,463.2 million during the 53 weeks ended May 3, 2025 from $1,430.5 million during the 52 weeks ended April 27, 2024.

◦Course material product sales increased by $49.5 million, or 5.1%, to $1,021.5 million during the 53 weeks ended May 3, 2025, compared to $972.0 million in the prior year period. The increase was primarily due to the growth of our BNC First Day® programs, which increased by $119.9 million, or 25.3%, to $593.8 million, offset by a decline in a la carte courseware sales, including lower sales resulting from closed stores.

◦General merchandise product net sales decreased by $8.8 million, or 2.4%, to $355.3 million, compared to $364.1 million in the prior year period, primarily due to closed stores, and lower cafe and convenience, trade, and supply product sales, offset by higher graduation product sales and higher emblematic product sales. Gross Comparable Store Sales for general merchandise increased by $10.5 million, or 1.9%, compared to the prior year period as discussed below.

◦Service and other revenue decreased by $7.9 million, or 8.4%, to $86.5 million, compared to $94.4 million in the prior year period, primarily due to higher other income for non-return rental penalty fees, offset by lower partnership marketing and marketplace sales.

•Rental income for course materials increased by $10.2 million, or 7.5%, to $146.9 million during the 53 weeks ended May 3, 2025 from $136.7 million during the 52 weeks ended April 27, 2024, primarily due to the growth of our BNC First Day® programs, offset by closed stores and the shift to digital products.

Gross Comparable Store Sales

To supplement the Total Sales table presented above, the Company uses Gross Comparable Store Sales as a key performance indicator. Gross Comparable Store Sales includes sales from physical and virtual stores that have been open for an entire fiscal year period and does not include sales from permanently closed stores for all periods presented. For Gross Comparable Store Sales, sales for logo general merchandise fulfilled by Lids, Fanatics and digital agency sales are included on a gross basis in Gross Comparable Store Sales compared to a net basis as commission revenue in our consolidated financial statements.

We believe the current Gross Comparable Store Sales calculation method reflects management’s view that such comparable store sales are an important measure of the growth in sales when evaluating how established stores have performed over time. We present this metric as additional useful information about the Company’s operational and financial performance and to allow greater transparency with respect to important metrics used by management for operating and financial decision-making. Gross Comparable Store Sales are also referred to as "same-store" sales by others within the retail industry and the method of calculating comparable store sales varies across the retail industry. As a result, our calculation of comparable store sales is not necessarily comparable to similarly titled measures reported by other companies and is intended only as supplemental information and is not a substitute for net sales presented in accordance with GAAP.

Gross Comparable Store Sales increased by $117.2 million or 7.5% during the 53 weeks ended May 3, 2025. Course Materials sales increased by $106.7 million or 10.6% primarily due to the growth of BNC First Day® affordable access course material programs (as discussed above), offset by declines in a la carte courseware sales. The increase in general merchandise sales are primarily related to higher graduation and supplies product sales and cafe and convenience product sales, with logo product sales remaining flat, offset by lower trade books.

Gross Comparable Store Sales variances by category for the 53 and 52 weeks ended May 3, 2025 and April 27, 2024 are as follows:

Cost of Sales and Gross Margin

Our cost of sales increased as a percentage of sales to 79.0% during the 53 weeks ended May 3, 2025 compared to 78.0% during the 52 weeks ended April 27, 2024. Our gross margin decreased by $7.1 million, or (2.1)%, to $337.8 million, or 21.0% of sales, during the 53 weeks ended May 3, 2025 from $344.9 million, or 22.0% of sales, during the 52 weeks ended April 27, 2024.

The following table summarizes the cost of sales for the 53 and 52 weeks ended May 3, 2025 and April 27, 2024:

The following table summarizes the gross margin for the 53 and 52 weeks ended May 3, 2025 and April 27, 2024:

For the 53 weeks ended May 3, 2025, the gross margin as a percentage of sales decreased as discussed below:

•Product and other gross margin decreased (150 basis points), primarily due to lower margin rates (230 basis points) due to unfavorable non-logo general merchandise, unfavorable shrink reserve, and margin erosion from growth in publisher stock programs, offset by lower contract costs as a percentage of sales (80 basis points) related to our college and university contracts as a result of the shift to digital and First Daymodels.

•Rental gross margin as a percentage of sales increased (250 basis points), driven primarily by higher rental margin rates, higher markdowns, along with lower contract costs as a percentage of sales related to our college and university contracts as a result of the shift to digital, the adoption of our BNC First Day® models.

Selling and Administrative Expenses

During the 53 weeks ended May 3, 2025, selling and administrative expenses decreased by $27.8 million, or 8.9%, to $283.8 million from $311.6 million during the 52 weeks ended April 27, 2024, as a result of our continued cost savings initiatives.

Depreciation and Amortization Expense

Depreciation and amortization expense decreased by $2.6 million to $37.9 million during the 53 weeks ended May 3, 2025 from $40.6 million during the 52 weeks ended April 27, 2024. Capital expenditures decreased by $1.7 million during the 53 weeks ended May 3, 2025 compared to the prior year period and depreciable assets and intangibles were lower due to the store impairment loss recognized during Fiscal 2025 and Fiscal 2024.

Impairment loss (non-cash)

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

During the 53 weeks ended May 3, 2025, we evaluated certain of our store-level long-lived assets for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $1.7 million (both pre-tax and after-tax), comprised of $0.3 million, $0.3 million, and $1.1 million of property and equipment, operating lease right-of-use assets, and amortizable intangibles, respectively, on the Consolidated Statement of Operations.

During the 52 weeks ended April 27, 2024, we evaluated certain of our store-level long-lived assets for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $7.2 million (both pre-tax and after-tax), comprised of $0.4 million, $3.6 million, and $3.2 million of property and equipment, operating lease right-of-use assets, and amortizable intangibles, respectively, on the Consolidated Statement of Operations.

For additional information, see Item 1. Financial Statements -Note 2. Summary of Significant Accounting Policies and Note 7. Fair Value Measurements.

Other (income) and expenses

During the 53 weeks ended May 3, 2025, we recognized other income totaling $1.6 million, comprised primarily of an $8.8 million gain related to the termination of liabilities related to a frozen retirement benefit plan (non-cash), primarily offset by $2.1 million related to severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction initiatives, $2.1 million for legal and advisory professional service costs primarily related to restructuring activities and other charges, of $2.0 million of severance primarily related to the resignation of our former Chief Executive Officer on June 11, 2024, $1.4 million of which is included in accrued liabilities in the Consolidated Balance Sheet as of May 3, 2025, and $1.1 million related to the settlement of a class action lawsuit and related legal fees. We recognized an increase to additional paid in capital on the Consolidated Balance Sheet for the reimbursement of the former Chief Executive Officer severance from VitalSource (a principal stockholder) as part of the June 10, 2024 financing transactions.

During the 52 weeks ended April 27, 2024, we recognized other expense totaling $19.4 million, comprised primarily of $19.6 million, primarily for costs primarily associated with professional service costs for restructuring and process improvements (see next paragraph below) and $1.1 million for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives, partially offset by a $1.3 million in an actuarial gain related to a frozen retirement benefit plan (non-cash).

Pursuant to the July 28, 2023 Credit Agreement amendment, the Board established a committee consisting of three independent directors to explore, consider, solicit expressions of interest or proposals for, respond to any communications, inquiries or proposals regarding, and advise as to all strategic alternatives to effect a “Specified Liquidity Transaction” (as defined in the Credit Agreement). Restructuring and other expenses include costs associated with the costs of this committee, as well as other related professional service costs. On June 10, 2024, we completed the Transactions, including the Rights Offering, the Private Investment, the Term Loan Debt Conversion, and the Credit Facility Refinancing, to substantially deleverage our Consolidated Balance Sheet. These transactions raised additional capital for repayment of indebtedness and provide additional flexibility for working capital needs.

Operating Income (Loss)

Our operating income was $15.9 million during the 53 weeks ended May 3, 2025 compared to operating loss of $33.8 million during the 52 weeks ended April 27, 2024. The improvements in operating results were due to the matters discussed above.

Loss on extinguishment of debt

On June 10, 2024, our existing Term Loan lenders converted approximately $34.0 million of outstanding principal and accrued and unpaid interest into our Common Stock. We recognized a loss on extinguishment of debt of $55.2 million during the 53 weeks ended May 3, 2025 in the Consolidated Statement of Operations in connection with the Term Loan Debt Conversion which represents the difference between the Common Stock fair value issued upon conversion and the net carrying value of the Term Loan, plus unamortized deferred financing costs related to the Term Loan. As a result of the Term Loan Debt Conversion, the Term Loan and its related agreements were terminated. There were no debt conversions in the comparable prior period. See Item 1. Financial Statements -Note 6. Equity and Earnings (Loss) Per Share and Note 9. Debt.

Interest Expense, Net

Net interest expense decreased by $18.1 million to $22.3 million during the 53 weeks ended May 3, 2025 from $40.4 million during the 52 weeks ended April 27, 2024. Interest expense decreased primarily due to lower borrowings, lower interest rates and an $8.0 million decrease in amortization of deferred financing costs. The following table disaggregates interest expense for the 52-week period:

Cash interest paid during the 53 weeks ended May 3, 2025 and the 52 weeks ended April 27, 2024 was $17.9 million and $24.9 million, respectively.

Income Tax Expense

We recorded an income tax expense of $4.3 million on a pre-tax loss of $61.6 million during the 53 weeks ended May 3, 2025, which represented an effective income tax rate of 6.9% and an income tax expense of $0.9 million on a pre-tax loss of $74.2 million during the 52 weeks ended April 27, 2024, which represented an effective income tax rate of 1.2%.

The effective tax rate for the 53 weeks ended May 3, 2025, is higher than the prior year comparable period due to permanent differences related to the debt-to-equity conversion, attribute limitations due to IRC 382, and valuation allowance movement.

Net Loss from Continuing Operations

As a result of the factors discussed above, we reported a net loss from continuing operations of $65.8 million during the 53 weeks ended May 3, 2025, compared with a net loss of $75.0 million during the 52 weeks ended April 27, 2024. Adjusted Net Loss (non-GAAP) - Continuing Operations is $61.7 million during the 53 weeks ended May 3, 2025, compared with a Adjusted Net Loss (non-GAAP) - Continuing Operations of $45.1 million during the 52 weeks ended April 27, 2024. See Adjusted Net Loss (non-GAAP).