What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-09-03 compared with 2020-03-03 · 268 added, 379 removed, 286 unchanged (69% of the section changed)

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Additionally, we offer direct-to-student products and services to help students study more effectively and improve academic performance.

The BNC and MBS brands are virtually synonymous with innovation in bookselling and campus retail, and, we believe, are widely recognized and respected brands in the United States.

Our large college footprint, reputation, and credibility in the marketplace not only support our marketing efforts to universities, students, and faculty, but are also important for leading publishers who rely on us as one of their primary distribution channels, and for being a trusted source for students in our direct-to-student digital solutions business.

For additional information related to our business, see Part I - Item 1.

Business in our Annual Report on Form 10-K for the year ended April 27, 2019.

We offer our BNC First Day ™ inclusive access programs, consisting of First Day and First Day Complete programs in which course materials, including e-content, are offered at a reduced price through a course materials fee, and delivered to students on or before the first day of class.

In August 2019, we announced a new agreement with VitalSource ® , part of Ingram Content Group, to use their technology to power our First Day inclusive access platform, allowing us to increase penetration rates for course material sales, as well as accelerate and optimize First Day implementations.

During the 39 weeks ended January 25, 2020, First Day total revenue increased 99% from the prior year comparative period.

The strengths of our business include our ability to compete by developing new products and solutions to meet market needs, our large operating footprint with direct access to students and faculty, our well-established, deep relationships with academic partners and stable, long-term contracts and our well-recognized brands.

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We expect general merchandise sales to continue to increase over the long term, as our product assortments continue to emphasize and reflect the changing consumer trends, and we evolve our presentation concepts and merchandising of products in stores and online, as we improve our e-commerce capabilities through investments we are making in new systems, processes and people.

As we previously disclosed, we have retained Morgan Stanley & Co.

to serve as a financial advisor in connection with our review of strategic opportunities.

The review is designed to accelerate the execution of customer-focused strategic initiatives and enhance value for our shareholders, including, but not limited to, continued execution of our current business plan, new partnerships, joint ventures and other potential opportunities.

There can be no assurance that the review will result in a transaction or announcement of any kind.

We have not set a timetable for the conclusion of the review.

In February 2020, we implemented a significant cost reduction program designed to streamline our operations, maximize productivity and drive profitability.

Certain elements of this plan have recently been implemented, while other actions are planned for Fiscal 2021, which begins in May 2020.

We anticipate meaningful annualized cost savings from this program, the majority of which is expected to be realized beginning in Fiscal 2021.

As a result of the personnel and related elements of this program, we expect to recognize a restructuring charge of $10 million to $15 million during the fourth quarter of Fiscal 2020.

Prior to the fourth quarter of Fiscal 2019, we had three reportable segments:

BNC, MBS, and Digital Student Solutions (“DSS”).

During the fourth quarter of fiscal year 2019, in an effort to streamline our retail go-to-market strategy, reinforce our company branding, and more efficiently focus our product development efforts, we realigned our business and sales organization into the following three reportable segments:

We believe the BNC and MBS brands are synonymous with innovation in bookselling and campus retail, and are widely recognized and respected brands in the United States.

For additional information related to our business, see Part I - Item 1.

Business in our Annual Report on Form 10-K for the fiscal year ended May 2, 2020.

In August 2020, we expanded our existing strategic partnership with VitalSource® to provide students with increased access to additional learning opportunities through a unique bundle of its bartleby homework help services, bartleby learn ™ and bartleby write ™.

The VitalSource direct-to-student channel will now offer students unique access to the bartleby study bundle™ with the purchase of a qualifying VitalSource eBook.

In Fiscal 2020, we retained Morgan Stanley & Co.

LLC to serve as a financial advisor in connection with our review of strategic opportunities.

The review was designed to accelerate the execution of customer-focused strategic initiatives and enhance value for our shareholders, including, but not limited to, continued execution of our current business plan, new partnerships, joint ventures and other potential opportunities.

On August 24, 2020, we announced that we had concluded our review of strategic opportunities.

After extensive evaluation and deliberation, and in consultation with its financial and legal advisors, the Board unanimously determined that the continued execution of the Company’s current business plan is the best path forward for the Company and its shareholders.

COVID-19 Business Impact

Our business experienced an unprecedented and significant impact as a result of COVID-19 related campus store closures.

Beginning in March 2020, colleges and universities nationwide began to close their campuses in light of safety concerns and as a result of local and state issued stay-at-home orders.

By mid-March, during our fiscal fourth quarter, we closed the majority of our physical campus stores to protect the health and safety of our customers and employees.

While our campus stores were closed, we continued to serve institutions and students through our campus websites, providing free shipping on all orders and an expanded digital content offering to provide immediate access to course materials to students at our campuses that closed due to COVID-19.

We developed and implemented plans to safely reopen our campus stores based on national, state and local guidelines, as well as the campus policies set by the school administration.

Colleges and universities in the United States continue to adjust their plans for the upcoming fall term, with some implementing shortened semesters or choosing to remain fully virtual in order to best protect students and faculty.

The first quarter is historically a low revenue period and our first quarter results were significantly impacted by the COVID-19 pandemic.

As many schools shifted from an on-campus to a remote learning model, we were able to serve students

through our Custom Store Solutions “CSS” model, virtual bookstores, individual school websites and digital offerings to ensure students were equipped with their course materials to continue their education, wherever they may be.

The COVID-19 impact on higher education remains a fluid situation, and we are committed to supporting our campus partners through our flexible offerings and our ability to quickly pivot to ensure uninterrupted service as institutions manage the safety of their campuses.

We have three reportable segments:

Retail, Wholesale and DSS.

The Retail Segment combines the operations of the former BNC segment with MBS Direct (from the former MBS segment), the Wholesale Segment is comprised of the MBS wholesale business (from the former MBS segment), and the DSS Segment remains unchanged.

Additionally, unallocated shared-service costs, which include various corporate level expenses and other governance functions, continue to be presented as “Corporate Services”.

The following discussion summarizes the three segments:

We identify our segments in accordance with the way our business is managed (focusing on the financial information distributed) and the manner in which our chief operating decision maker allocates resources and assesses financial performance.

The following summarizes the three segments.

For additional information about each segment's operations, see Part I - Item 1.

Business in our Annual Report on Form 10-K for the fiscal year ended May 2, 2020 .

Retail Segment

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Additionally, the Wholesale Segment sells hardware and a software suite of applications that provides inventory management and point-of-sale solutions to approximately 400 college bookstores.

The DSS Segment includes direct-to-student products and services to assist students to study more effectively and improve academic performance.

The DSS Segment is comprised of the operations of Student Brands, LLC, a leading direct-to-student subscription-based writing services business, and bartleby , a direct-to-student subscription-based offering providing textbook solutions, expert questions and answers, tutoring and test prep services.

The Digital Student Solutions (“DSS”) Segment includes direct-to-student products and services to assist students to study more effectively and improve academic performance.

The DSS Segment is comprised of the operations of Student Brands, LLC, a leading direct-to-student subscription-based writing services business, and bartleby ® , a direct-to-student subscription-based offering providing textbook solutions, expert questions and answers, writing and tutoring.

Corporate Services represents unallocated shared-service costs which include corporate level expenses and other governance functions, including executive functions, such as accounting, legal, treasury, information technology, and human resources.

For additional information about the Retail, Wholesale and DSS segment operations, see Part I - Item 1.

Business in our Annual Report on Form 10-K for the year ended April 27, 2019.

Our business is highly seasonal.

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Current trends, competition and other factors affecting our business include:

• Overall Economic Environment, College Enrollment and Consumer Spending Patterns.

Our business is affected by the overall economic environment, funding levels at colleges and universities, by changes in enrollments at colleges and universities, and spending on course materials and general merchandise.

• Impact of COVID-19 :

The COVID-19 pandemic has materially and adversely impacted the U.S.

economy and financial markets, with legislative and regulatory responses including unprecedented monetary and fiscal policy actions across all sectors, and there is significant uncertainty as to timing of stabilization and recovery.

Many colleges and K-12 schools have been required to cease in-person classes in an attempt to limit the spread of the COVID-19 pandemic and ensure the safety of their students.

Although many institutions have reopened, academic institutions are considering alternatives to traditional in-person instruction, including on-line learning and significantly reduced classroom size.

• Economic Environment :

Retail general merchandise sales are subject to short-term fluctuations driven by the broader retail environment.

• Enrollment Trends:

The growth of our business depends on our ability to attract new customers and to increase the level of engagement by our current student customers.

We continue to see downward enrollment trends and shrinking resources from state and federal government for colleges and universities.

Enrollment trends, specifically at community colleges, generally correlate with changes in the economy and unemployment factors, e.g.

low unemployment tends to lead to low enrollment and higher unemployment rates tend to lead to higher enrollment trends, as students generally enroll to obtain skills that are in demand in the workforce.

Enrollment trends may be negatively impacted overall by COVID-19 concerns at physical campuses, although there is some preliminary evidence that community college systems that rely more on "commuter" rather than "residential" students may experience less of a negative impact, or some may even experience an increase, in enrollment due to projected high unemployment rates in the Fall of 2021.

A significant reduction in U.S.

economic activity and increased unemployment, which could lead to decreased enrollment and consumer spending.

Additionally, enrollment trends are impacted by the dip in the United States birth rate resulting in fewer students at the traditional 18-24 year-old college age.

Online degree program enrollments continue to grow, even in the face of declining overall higher education enrollment.

• Increased Use of Online and Digital Platforms as Companions or Alternatives to Printed Course Materials.

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Since the demand for used textbooks has historically been greater than the available supply, our financial results are highly dependent upon Wholesale’s ability to build its textbook inventory from suppliers in advance of the selling season.

Some textbook publishers have begun to supply textbooks pursuant to consignment or

rental programs which could impact used textbook supplies in the future.

Some textbook publishers have begun to supply textbooks pursuant to consignment or rental programs which could impact used textbook supplies in the future.

Additionally, Wholesale is a national distributor for rental textbooks offered through McGraw-Hill Education's and Pearson Education’s consignment rental program, both of which are relatively nascent.

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Students purchase textbooks and other course materials from multiple providers, are highly price sensitive, and can easily shift spending from one provider or format to another.

In addition to the competition we face from alternative distribution sources, we also have competition from other college bookstore operators, textbook wholesalers and educational content providers.

We also compete with competitors offering products utilizing open educational resources ("OER") and other expert sources and enhanced with digital content.

Competitors that provide online bookstore solutions to colleges and universities not only compete with our physical bookstore operations, but also compete with Retail's virtual stores.

We also compete with other companies that offer college-themed and other general merchandise.

Our DSS segment faces competition from other digital student solutions providers, including Chegg, Course Hero and others.

• A Large Number of Traditional Campus Bookstores Have Yet to be Outsourced.

• Outsourcing Trends.

We continue to see the trend towards outsourcing in the campus bookstore market, including virtual bookstores and online marketplace websites, and we also continue to see a variety of business models being pursued for the provision of textbooks and other course materials, such as inclusive access and publisher subscription models, and general merchandise.

We continue to see the trend towards outsourcing in the campus bookstore market and also continue to see a variety of business models being pursued for the provision of course materials (such as inclusive access programs and publisher subscription models) and general merchandise.

• New and Existing Bookstore Contracts.

We expect awards of new accounts resulting in new physical and virtual store openings will continue to be an important driver of future growth in our business.

Overall Economic Environment, College Enrollment and Consumer Spending Patterns.

Economic Environment :

Retail general merchandise sales are subject to short-term fluctuations driven by the broader retail environment.

Enrollment Trends.

The growth of our business depends on our ability to attract new customers and to increase the level of engagement by our current student customers.

We continue to see downward enrollment trends and shrinking resources from state and federal government for colleges and universities.

Enrollment trends, specifically at community colleges, continue to decline, led primarily by an improved economy (e.g.

low unemployment) and a dip in the United States birth rate resulting in fewer students at the traditional 18-24 year-old college age.

However, online degree program enrollments continue to grow, even in the face of declining overall higher education enrollment, and consistent with projections from the National Center for Education Statistics, we expect undergraduate enrollment to increase in the long-term.

We also expect that certain less

profitable or essential bookstores we operate may close.

Such stores could be included in contracts for stores we operate that may be deemed non-essential;

and such stores could be operated by others or independently by schools.

The scope of any such store closures remains uncertain at this time, although we are not aware, at this time, of any significant volume of stores which we operate that are likely to close or have informed us of upcoming closures.

For additional discussion of our trends and other factors affecting our business, see Part I - Item 1.

Business in our Annual Report on Form 10-K for the year ended April 27, 2019.

Business in our Annual Report on Form 10-K for the year ended May 2, 2020.

Elements of Results of Operations

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13 weeks ended

39 weeks ended

Dollars in thousands

Dollars in thousands August 1,

2020 July 27,

Product sales and other $ 193,210 $ 302,227

Rental income 10,804 17,430

Net (loss) income

Total sales $ 204,014 $ 319,657

Net loss $ (46,652) $ (32,155)

Adjusted Earnings (non-GAAP) (a)

$ (41,716) $ (30,075)

Adjusted EBITDA (non-GAAP) (a)

Retail $ (40,640) $ (21,492)

Wholesale 12,966 10,159

DSS 1,664 1,028

Corporate Services (5,244) (5,007)

Elimination (6,763) (9,811)

Total Adjusted EBITDA (non-GAAP) $ (38,017) $ (25,123)

Adjusted Earnings and Adjusted EBITDA are non-GAAP financial measures.

(a) Adjusted Earnings and Adjusted EBITDA are non-GAAP financial measures.

See Adjusted Earnings (non-GAAP) and Adjusted EBITDA (non-GAAP) discussion below.

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13 weeks ended

39 weeks ended

2020 July 27,

Product sales and other 94.7 % 94.5 %

Rental income 5.3 5.5

Total sales 100.0 100.0

Cost of sales:

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Total cost of sales 84.9 77.6

Gross margin 15.1 22.4

Selling and administrative expenses 34.3 30.6

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Restructuring and other charges 2.8 0.5

Transaction costs

Operating (loss) income

Represents the percentage these costs bear to the related sales, instead of total sales.

Results of Operations - 13 and 39 weeks ended January 25, 2020 compared with the 13 and 39 weeks ended January 26, 2019

13 weeks ended, January 25, 2020

Dollars in thousands

Corporate Services

Operating loss (28.9) % (13.8) %

(a) Represents the percentage these costs bear to the related sales, instead of total sales.

Results of Operations - 13 weeks ended August 1, 2020 compared with the 13 weeks ended July 27, 2019

13 weeks ended, August 1, 2020

Dollars in thousands Retail Wholesale DSS Corporate Services Eliminations Total

Product sales and other $ 147,972 $ 80,294 $ 5,872 $ — $ (40,928) $ 193,210

Rental income 10,804 — — — — 10,804

Total sales 158,776 80,294 5,872 — (40,928) 204,014

Cost of sales:

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Total cost of sales 142,641 63,537 1,126 — (34,152) 173,152

Gross profit 16,135 16,757 4,746 — (6,776) 30,862

Selling and administrative expenses 56,985 3,791 4,036 5,244 (13) 70,043

Depreciation and amortization expense 10,570 1,295 2,165 33 — 14,063

$ (51,420) $ 11,671 $ (1,455) $ (5,277) $ (6,763) (53,244)

Restructuring and other charges 5,671

Operating loss $ (58,915)

13 weeks ended, January 26, 2019

Dollars in thousands

Corporate Services

13 weeks ended, July 27, 2019

Dollars in thousands Retail Wholesale DSS Corporate Services Eliminations Total

Product sales and other $ 257,226 $ 72,309 $ 5,374 $ — $ (32,682) $ 302,227

Rental income 17,430 — — — — 17,430

Total sales 274,656 72,309 5,374 — (32,682) 319,657

Cost of sales:

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Total cost of sales 212,517 57,391 960 — (22,868) 248,000

Gross profit 62,139 14,918 4,414 — (9,814) 71,657

Selling and administrative expenses 83,815 4,759 4,113 5,007 (3) 97,691

Depreciation and amortization expense 11,977 1,565 2,304 33 — 15,879

$ (33,653) $ 8,594 $ (2,003) $ (5,040) $ (9,811) (41,913)

Restructuring and other charges 1,466

Transaction costs

Operating income

39 weeks ended, January 25, 2020

Dollars in thousands

Corporate Services

Product sales and other

Rental income

Cost of sales:

Product and other cost of sales

Rental cost of sales

Total cost of sales

Selling and administrative expenses

Depreciation and amortization expense

Impairment loss (non-cash) 433

Restructuring and other charges

Operating income

39 weeks ended, January 26, 2019

Dollars in thousands

Corporate Services

Product sales and other

Rental income

Cost of sales:

Product and other cost of sales

Rental cost of sales

Total cost of sales

Selling and administrative expenses

Depreciation and amortization expense

Restructuring and other charges

Transaction costs

Operating income

The following table summarizes our sales for the 13 and 39 weeks ended January 25, 2020 and January 26, 2019 :

13 weeks ended

Operating loss $ (43,812)

The following table summarizes our sales for the 13 ended August 1, 2020 and July 27, 2019:

13 weeks ended

Dollars in thousands

January 25, 2020

January 26, 2019

January 25, 2020

January 26, 2019

Dollars in thousands August 1, 2020 July 27, 2019 %

Product sales and other $ 193,210 $ 302,227 (36.1)%

Rental income 10,804 17,430 (38.0)%

Our sales decreased by $45.7 million, or 8.3%, to $502.3 million during the 13 weeks ended January 25, 2020 from $548.0 million during the 13 weeks ended January 26, 2019 .

Our sales decreased by $106.1 million, or 6.2%, to $1,594.2 million during the 39 weeks ended January 25, 2020 from $1,700.3 million during the 39 weeks ended January 26, 2019 .

The components of the variances for the 13 and 39 week periods are reflected in the table below.

Sales variances

13 weeks ended

39 weeks ended

Dollars in millions

January 25, 2020

January 26, 2019

January 25, 2020

January 26, 2019

Total Sales $ 204,014 $ 319,657 (36.2)%

Our sales decreased by $115.6 million, or 36.2%, to $204.0 million during the 13 weeks ended August 1, 2020 from $319.7 million during the 13 weeks ended July 27, 2019.

The components of the variances for the 13 week periods are reflected in the table below.

Sales variances 13 weeks ended

Dollars in millions August 1, 2020 July 27, 2019

New stores $ 7.9 $ 6.2

Closed stores (5.1) (5.6)

Comparable stores (a)

(106.6) (10.9)

Textbook rental deferral (6.4) 0.8

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Retail sales subtotal:

$ (115.9) $ (12.4)

Wholesale Sales $ 8.0 $ (17.6)

DSS Sales $ 0.5 $ (0.3)

Eliminations (d)

$ (8.2) $ 12.5

Total sales variance:

Comparable store sales includes sales from physical stores that have been open for an entire fiscal year period and virtual store sales for the period, does not include sales from closed stores for all periods presented, and digital agency sales are included on a gross basis.

Service revenue includes Promoversity, brand partnerships, shipping and handling, digital content, software, services, and revenue from other programs.

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

Eliminates Wholesale sales and service fees to Retail and Retail commissions earned from Wholesale.

$ (115.6) $ (17.8)

(a) Comparable store sales includes sales from physical stores that have been open for an entire fiscal year period and virtual store sales for the period, does not include sales from closed stores for all periods presented, and digital agency sales are included on a gross basis.

(b) Service revenue includes Promoversity, brand partnerships, shipping and handling, digital content, software, services, and revenue from other programs.

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

(d) Eliminates Wholesale sales and service fees to Retail and Retail commissions earned from Wholesale.

See discussion of intercompany activities and eliminations below.

Retail sales decreased by $40.1 million, or 8.1%, to $458.0 million during the 13 weeks ended January 25, 2020 from $498.1 million during the 13 weeks ended January 26, 2019 .

Retail sales decreased by $94.7 million, or 6.0%, to $1,474.4 million during the 39 weeks ended January 25, 2020 from $1,569.1 million during the 39 weeks ended January 26, 2019 .

Retail added 107 new stores and closed 119 stores during the 39 weeks ended January 25, 2020 , ending the period with a total of 1,436 stores.

13 weeks ended

Retail sales decreased by $115.9 million, or 42.2%, to $158.8 million during the 13 weeks ended August 1, 2020 from $274.7 million during the 13 weeks ended July 27, 2019.

The first quarter is typically a low sales activity period for Retail.

Retail added 64 new stores and closed 41 stores (not including temporary store closings due to COVID-19) during the 13 weeks ended August 1, 2020, ending the period with a total of 1,442 stores.

13 weeks ended

January 25, 2020

January 26, 2019

January 25, 2020

January 26, 2019

August 1, 2020 July 27, 2019

Number of Stores:

Physical Virtual Physical Virtual

Number of stores at beginning of period 772 647 772 676

Opened 24 40 38 46

Closed 24 17 33 8

Number of stores at end of period 772 670 777 714

Product and other sales for Retail for the 13 weeks ended January 25, 2020 decreased by $32.7 million, or 7.4% to $409.4 million from $442.1 million during the 13 weeks ended January 26, 2019 .

Product and other sales for Retail for the 39 weeks ended January 25, 2020 decreased by $80.2 million, or 5.6% to $1,354.7 million from $1,434.9 million during the 39 weeks ended January 26, 2019 .

Product and other sales are impacted by comparable store sales (as noted in the chart below), new store openings and store closings.

Textbook (Course Materials) revenue for Retail for the 13 and 39 weeks ended January 25, 2020 decreased primarily due to lower new and used textbook and other course materials sales, while First Day, digital and eTextbook revenue increased.

General merchandise sales for Retail decreased for the 13 weeks ended January 25, 2020 primarily due to lower sales for supply products and lower emblematic apparel, partially offset by higher graduation product sales.

General merchandise sales for Retail increased for the 39 weeks ended January 25, 2020 primarily due to higher emblematic apparel and higher graduation product sales, partially offset by lower sales for supply products and dorm furnishings.

Rental income for Retail for the 13 weeks ended January 25, 2020 decreased by $7.4 million, or 13.2% to $48.6 million from $56.0 million during the 13 weeks ended January 26, 2019 .

Rental income for Retail for the 39 weeks ended January 25, 2020 decreased by $14.5 million, or 10.8% to $119.7 million from $134.3 million.

Product and other sales for Retail for the 13 weeks ended August 1, 2020 decreased by $109.2 million, or 42.5% to $148.0 million from $257.2 million during the 13 weeks ended July 27, 2019.

The first quarter is typically a low sales activity period for Retail.

Product and other sales are impacted by comparable store sales (as noted in the chart below), new store openings and store closings, as well as the impact from temporary store closings related to COVID-19.

Textbook (Course Materials) revenue for Retail decreased primarily due to lower new and used textbook and other course materials sales, while First Day, digital and eTextbook revenue increased.

General merchandise sales for Retail decreased primarily due to lower emblematic apparel sales (as many athletic events were canceled due to COVID-19), lower supply product sales and lower graduation product sales (primarily due to COVID-19 related campus closures).

We have made continued progress in the development of our next generation e-commerce platform, which launched in Fiscal 2021 to deliver increased high-margin general merchandise sales.

Rental income for Retail for the 13 weeks ended August 1, 2020 decreased by $6.6 million, or 38.0% to $10.8 million from $17.4 million during the 13 weeks ended July 27, 2019.

Rental income is impacted by comparable store sales, new store openings and store closings.

The decrease in rental income is primarily due to decreased rental activity impacted by increased digital offerings.

Comparable store sales for Retail decreased for the 13 and 39 week sales periods.

Comparable store sales were impacted primarily by a shift to lower cost options and more affordable solutions, including digital offerings, increased consumer purchases directly from publishers and other online providers, and lower student enrollment, specifically in two-year community colleges.

Comparable store sales for Retail decreased for the 13 week sales period.

Comparable store sales were impacted primarily by COVID-19 related campus store closures, a shift to lower cost options and more affordable solutions, including digital offerings, increased consumer purchases directly from publishers and other online providers, lower general merchandise sales (including graduation products and logo products for athletic events) and lower student enrollment, specifically in two-year community colleges.

These decreases were partially offset by increased First Day, digital and eTextbook revenue.

Consistent with prior years, the Spring Rush period extended beyond the quarter due to later school openings and the continued pattern of students buying course materials later in the semester.

Factoring in the fiscal month of February, comparable store sales at BNC decreased 5.7% on a year to date basis.

Comparable store sales variances for Retail by category for the 13 and 39 week periods are as follows:

Comparable Store Sales variances - Retail

13 weeks ended

39 weeks ended

Dollars in millions

January 25, 2020

January 26, 2019

January 25, 2020

January 26, 2019

Comparable store sales variances for Retail by category for the 13 week periods are as follows:

Comparable Store Sales variances - Retail 13 weeks ended

Dollars in millions August 1, 2020 July 27, 2019

Textbooks (Course Materials) $ (11.3) (10.1) % $ (13.7) (11.0) %

General Merchandise (87.6) (68.3) % 5.9 4.9 %

Trade Books (7.7) (85.2) % (1.2) (11.8) %

Total Comparable Store Sales $ (106.6) (42.8) % $ (9.0) (3.5) %

Wholesale sales decreased by $11.5 million, or 14.7%, to $67.0 million during the 13 weeks ended January 25, 2020 from $78.5 million during the 13 weeks ended January 26, 2019 .

Wholesale sales decreased by $29.8 million, or 14.2%, to $179.5 million during the 39 weeks ended January 25, 2020 from $209.3 million during the 39 weeks ended January 26, 2019 .

The decrease is driven primarily due to a shift in buying patterns from physical textbooks to digital products resulting in a decrease in customer demand (including sales to our Retail Segment).

DSS total sales increased by $1.2 million or 22.9% to $6.4 million during the 13 weeks ended January 25, 2020 from $5.2 million during the 13 weeks ended January 26, 2019 .

DSS total sales increased by $1.2 million or 7.4% to $17.0 during the 39 weeks ended January 25, 2020 from $15.8 million during the 39 weeks ended January 26, 2019 .

For both periods, bartleby subscription sales increased and were offset by lower Student Brands sales.

Wholesale sales increased by $8.0 million, or 11.0%, to $80.3 million during the 13 weeks ended August 1, 2020 from $72.3 million during the 13 weeks ended July 27, 2019.

The increase is primarily due to lower returns and allowances as a result of customer sales mix.

During the 13 months ended August 1, 2020, the Wholesale operations assumed direct-to-student fulfillment of course material orders for the Retail Segment campus bookstores that were not fully operational due to COVID-19 campus store closures.

DSS total sales increased by $0.5 million or 9.3% to $5.9 million during the 13 weeks ended August 1, 2020 from $5.4 million during the 13 weeks ended July 27, 2019, primarily due to an increase in bartleby subscription sales, partially offset by lower Student Brands sales.

Cost of Sales and Gross Margin

Our cost of sales increased as a percentage of sales to 76.4% during the 13 weeks ended January 25, 2020 compared to 75.7% during the 13 weeks ended January 26, 2019 .

Our gross margin decreased by $14.4 million, or 10.8%, to $118.5 million, or 23.6% of sales, during the 13 weeks ended January 25, 2020 from $133.0 million, or 24.3% of sales during the 13 weeks ended January 26, 2019 .

Our cost of sales increased as a percentage of sales to 76.3% during the 39 weeks ended January 25, 2020 compared to 75.9% during the 39 weeks ended January 26, 2019 .

Our gross margin decreased by $33.2 million, or 8.1%, to $377.1 million, or 23.7% of sales, during the 39 weeks ended January 25, 2020 from $410.3 million, or 24.1% of sales during the 39 weeks ended January 26, 2019 .

The following table summarizes the Retail cost of sales for the 13 and 39 weeks ended January 25, 2020 and January 26, 2019 :

13 weeks ended

Our cost of sales increased as a percentage of sales to 84.9% during the 13 weeks ended August 1, 2020 compared to 77.6% during the 13 weeks ended July 27, 2019.

Our gross margin decreased by $40.8 million, or 56.9%, to $30.9 million, or 15.1% of sales, during the 13 weeks ended August 1, 2020 from $71.6 million, or 22.4% of sales during the 13 weeks ended July 27, 2019.

The following table summarizes the Retail cost of sales for the 13 weeks ended August 1, 2020 and July 27, 2019:

13 weeks ended

Dollars in thousands

January 25, 2020

Related Sales

January 26, 2019

Related Sales

January 25, 2020

Related Sales

January 26, 2019

Dollars in thousands August 1, 2020 % of

Related Sales July 27, 2019 % of

Related Sales

Product and other cost of sales

$ 135,254 91.4% $ 202,848 78.9%

Rental cost of sales

7,387 68.4% 9,669 55.5%

Total Cost of Sales

The following table summarizes the Retail gross margin for the 13 and 39 weeks ended January 25, 2020 and January 26, 2019 :

13 weeks ended

$ 142,641 89.8% $ 212,517 77.4%

The following table summarizes the Retail gross margin for the 13 weeks ended August 1, 2020 and July 27, 2019:

13 weeks ended

Dollars in thousands

January 25, 2020

Related Sales

January 26, 2019

Related Sales

January 25, 2020

Related Sales

January 26, 2019

Dollars in thousands August 1, 2020 % of

Related Sales July 27, 2019 % of

Related Sales

Product and other gross margin

$ 12,718 8.6% $ 54,378 21.1%

Rental gross margin

For the 13 weeks ended January 25, 2020 , the Retail gross margin as a percentage of sales decreased as discussed below:

Product and other gross margin increased (70 basis points), driven primarily by higher margin rates (70 basis points) due to lower markdowns and a favorable sales mix (30 basis points) due to increased sales of higher margin general merchandise, partially offset by higher costs related to our college and university contracts (40 basis points) resulting from contract renewals and new store contracts.

Rental gross margin decreased (10 basis points), driven primarily by lower rental margin rates (100 basis points), partially offset by lower costs related to our college and university contracts (85 basis points) resulting from contract renewals and new store contracts and favorable rental mix (5 basis points).

For the 39 weeks ended January 25, 2020 , the Retail gross margin as a percentage of sales increased as discussed below:

Product and other gross margin increased (20 basis points), driven primarily by a favorable sales mix (40 basis points) due to increased sales of higher margin general merchandise, partially offset by lower margin rates (15 basis points) due to a shift to lower margin digital products and higher markdowns and higher costs related to our college and university contracts (10 basis points) resulting from contract renewals and new store contracts.

Rental gross margin increased (80 basis points), driven primarily by favorable rental mix (50 basis points) and lower costs related to our college and university contracts (50 basis points) resulting from contract renewals and new store contracts, partially offset by lower rental margin rates (25 basis points).

The cost of sales and gross margin for Wholesale were $52.8 million, or 78.8% of sales, and $14.2 million, or 21.2% of sales, respectively, during the 13 weeks ended January 25, 2020 .

The cost of sales and gross margin for Wholesale was $55.8 million or 71.0% of sales and $22.7 million or 29.0% of sales, respectively, during the 13 weeks ended January 26, 2019 .

The cost of sales and gross margin for Wholesale were $137.8 million, or 76.8% of sales, and $41.7 million, or 23.2% of sales, respectively, during the 39 weeks ended January 25, 2020 .

The cost of sales and gross margin for Wholesale was $152.7 million or 73.0% of sales and $56.6 million or 27.0% of sales, respectively, during the 39 weeks ended January 26, 2019 .

The gross margin decreased during the 13 and 39 weeks ended January 25, 2020 primarily due to an unfavorable sales mix (higher priced inventory sold) and inventory markdowns.

The gross margin for the DSS segment was $5.3 million, or 82.1% of sales, during the 13 weeks ended January 25, 2020 and $5.0 million, or 94.9% of sales, during the 13 weeks ended January 26, 2019 .

The gross margin for the DSS segment was $13.8 million, or 81.3% of sales, during the 39 weeks ended January 25, 2020 and $15.3 million, or 96.6% of sales, during the

39 weeks ended January 26, 2019 .

3,417 31.6% 7,761 44.5%

$ 16,135 10.2% $ 62,139 22.6%

For the 13 weeks ended August 1, 2020, the Retail gross margin as a percentage of sales decreased as discussed below:

• Product and other gross margin decreased (1250 basis points), driven primarily by an unfavorable sales mix (950 basis points) due to lower high-margin general merchandise sales of approximately $87.6 million and the shift to lower margin digital courseware, and lower margin rates (550 basis points) due to higher markdowns, partially offset by lower contract costs as a percentage of sales related to our college and university contracts (255 basis points) resulting from contract renewals and new store contracts.

• Rental gross margin decreased (1290 basis points), driven primarily by higher contract costs as a percentage of sales related to our college and university contracts (1125 basis points) and unfavorable rental mix (255 basis points), partially offset by higher rental margin rates (90 basis points).

The cost of sales and gross margin for Wholesale were $63.5 million, or 79.1% of sales, and $16.8 million, or 20.9% of sales, respectively, during the 13 weeks ended August 1, 2020.

The cost of sales and gross margin for Wholesale was $57.4 million or 79.4% of sales and $14.9 million or 20.6% of sales, respectively, during the 13 weeks ended July 27, 2019.

The gross margin increased during the 13 weeks ended August 1, 2020 primarily due to the Wholesale operations assuming direct-to-student fulfillment of course material orders for the Retail Segment campus bookstores that were not fully operational due to COVID-19 campus store closures.

The gross margin for the DSS segment was $4.7 million, or 80.8% of sales, during the 13 weeks ended August 1, 2020 and $4.4 million, or 82.1% of sales, during the 13 weeks ended July 27, 2019.

The high gross margins are driven primarily by high margin subscription service revenue earned.

The decrease in gross margin for the 13 and 39 weeks ended January 25, 2020 was primarily due to the amortization of content development costs of $0.8 million and $2.4 million, respectively, for bartleby textbook solutions which was launched in the latter half of Fiscal 2019.

The decrease in gross margin is primarily due to increased amortization of content development costs of $0.3 million for bartleby textbook solutions.

Intercompany Eliminations

During the 13 weeks ended January 25, 2020 and January 26, 2019 , our sales eliminations were $(29.1) million and $(33.9) million , respectively.

During the 39 weeks ended January 25, 2020 and January 26, 2019 , our sales eliminations were $(76.8) million and $(94.0) million , respectively.

During the 13 weeks ended August 1, 2020 and July 27, 2019, our sales eliminations were $(40.9) million and $(32.7) million, respectively.

These sales eliminations represent the elimination of Wholesale sales and fulfillment service fees to Retail and the elimination of Retail commissions earned from Wholesale.

During the 13 weeks ended January 25, 2020 and January 26, 2019 , the cost of sales eliminations were $(28.4) million and $(32.9) million , respectively.

During the 39 weeks ended January 25, 2020 and January 26, 2019 , the cost of sales eliminations were $(75.5) million and $(91.0) million , respectively.

During the 13 weeks ended August 1, 2020 and July 27, 2019, the cost of sales eliminations were $(34.2) million and $(22.9) million, respectively.

These cost of sales eliminations represent (i) the recognition of intercompany profit for Retail inventory that was purchased from Wholesale in a prior period that was subsequently sold to external customers during the current period and the elimination of Wholesale service fees charged for fulfillment of inventory for virtual store sales, net of (ii) the elimination of intercompany profit for Wholesale inventory purchases by Retail that remain in ending inventory at the end of the current period.

During the 13 weeks ended January 25, 2020 and January 26, 2019 , the gross margin eliminations were $(0.8) million and $(1.0) million , respectively.

During the 39 weeks ended January 25, 2020 and January 26, 2019 , the gross margin eliminations were $(1.3) million and $(3.0) million , respectively.

During the 13 weeks ended August 1, 2020 and July 27, 2019, the gross margin eliminations were $(6.8) million and $(9.8) million, respectively.

The gross margin eliminations reflect the net impact of the sales eliminations and cost of sales eliminations during the above mentioned reporting periods.

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13 weeks ended

39 weeks ended

Dollars in thousands

January 25, 2020

January 26, 2019

January 25, 2020

January 26, 2019

Dollars in thousands August 1, 2020 % of

Sales July 27, 2019 % of

Total Selling and Administrative Expenses

During the 13 weeks ended January 25, 2020 , selling and administrative expenses decreased by $4.8 million, or 4.3%, to $106.2 million from $110.9 million during the 13 weeks ended January 26, 2019 .

During the 39 weeks ended January 25, 2020 , selling and administrative expenses decreased by $8.1 million, or 2.5%, to $317.3 million from $325.4 million during the 39 weeks ended January 26, 2019 .

$ 70,043 34.3% $ 97,691 30.6%

During the 13 weeks ended August 1, 2020, selling and administrative expenses decreased by $27.7 million, or 28.3%, to $70.0 million from $97.7 million during the 13 weeks ended July 27, 2019.

The variances by segment are as follows:

During the 13 weeks ended January 25, 2020 , Retail selling and administrative expenses decreased by $4.0 million, or 4.2%, to $91.9 million from $95.9 million during the 13 weeks ended January 26, 2019 .

This decrease was primarily due to a $4.5 million decrease in stores payroll and operating expenses, including comparable stores, virtual stores and new/closed stores payroll and operating expenses, partially offset by an increase of $1.1 million in corporate payroll and infrastructure costs and a $0.2 million increase in product development costs and digital operations costs.

During the 39 weeks ended January 25, 2020 , Retail selling and administrative expenses decreased by $7.5 million, or 2.7%, to $274.2 million from $281.7 million during the 39 weeks ended January 26, 2019 .

This decrease was primarily due to an $8.9 million decrease in stores payroll and operating expenses, including comparable stores, virtual stores and new/closed stores payroll and operating expenses, partially offset by an increase of $1.9 million in corporate payroll and infrastructure costs and a $0.5 million increase in product development costs and digital operations costs.

During the 13 weeks ended January 25, 2020 , Wholesale selling and administrative expenses decreased by $1.0 million or 18.3% to $4.3 million from $5.3 million during the 13 weeks ended January 26, 2019 .

During the 39 weeks ended January 25, 2020 , Wholesale selling and administrative expenses decreased by $2.6 million or 16.1% to $13.7 million from $16.3 million during the 39 weeks ended January 26, 2019 .

During the 13 weeks ended August 1, 2020, Retail selling and administrative expenses decreased by $26.8 million, or 32.0%, to $57.0 million from $83.8 million during the 13 weeks ended July 27, 2019.

This decrease was primarily due to a $22.8 million decrease in stores payroll and operating expenses, including comparable stores, primarily due to furloughed store employees, lower virtual stores and new/closed stores payroll and operating expenses, and a decrease of $4.0 million in corporate payroll, infrastructure costs, product development costs and digital operations costs.

During the 13 weeks ended August 1, 2020, Wholesale selling and administrative expenses decreased by $1.0 million or 20.4% to $3.8 million from $4.8 million during the 13 weeks ended July 27, 2019.

The decrease in selling and administrative expenses was primarily driven by lower payroll and operating costs.

During the 13 weeks ended January 25, 2020 , DSS selling and administrative expenses increased by $1.4 million to $5.0 million from $3.6 million during the 13 weeks ended January 26, 2019 .

During the 39 weeks ended January 25, 2020 , DSS selling and administrative expenses increased by $4.0 million to $13.7 million from $9.7 million during the 39 weeks ended January 26, 2019 .

The increase in costs was primarily driven by higher payroll and professional fees related to developing, marketing and selling our student success hub on bartleby which launched during the latter half of Fiscal 2019.

During the 13 weeks ended August 1, 2020, DSS selling and administrative expenses decreased by $0.1 million to $4.0 million from $4.1 million during the 13 weeks ended July 27, 2019.

The decrease in costs was primarily driven by lower payroll.

Corporate Services

During the 13 weeks ended January 25, 2020 , Corporate Services' selling and administrative expenses decreased by $1.0 million or 16.8% to $5.2 million from $6.2 million during the 13 weeks ended January 26, 2019 .

During the 39 weeks ended January 25, 2020 , Corporate Services' selling and administrative expenses decreased by $1.9 million or 10.6% to $15.8 million from $17.7 million during the 39 weeks ended January 26, 2019 .

The decrease was primarily due to lower compensation-related expense and lower operating expenses.

During the 13 weeks ended August 1, 2020, Corporate Services' selling and administrative expenses increased by $0.2 million or 4.7% to $5.2 million from $5.0 million during the 13 weeks ended July 27, 2019.

The increase was primarily due to higher compensation-related expense and higher operating expenses, partially offset by lower stock-based compensation expense.

Depreciation and Amortization Expense

13 weeks ended

39 weeks ended

Dollars in thousands

January 25, 2020

January 26, 2019

January 25, 2020

January 26, 2019

Dollars in thousands August 1, 2020 % of

Sales July 27, 2019 % of

Total Depreciation and Amortization Expense

Depreciation and amortization expense decreased by $1.3 million, or 7.7%, to $15.1 million during the 13 weeks ended January 25, 2020 from $16.4 million during the 13 weeks ended January 26, 2019 .

Depreciation and amortization expense decreased by $2.8 million, or 5.7%, to $46.5 million during the 39 weeks ended January 25, 2020 from $49.3 million during the 39 weeks ended January 26, 2019 .

$ 14,063 6.9% $ 15,879 5.0%

Depreciation and amortization expense decreased by $1.8 million, or 11.4%, to $14.1 million during the 13 weeks ended August 1, 2020 from $15.9 million during the 13 weeks ended July 27, 2019.

The decrease was primarily attributable to lower depreciation related to closed stores and lower capital expenditures.

1 unchanged sentence

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 in accordance with ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets .

During the 39 weeks ended January 25, 2020 , we recognized an impairment loss (non-cash) of $0.4 million in the Retail segment related to net capitalized development costs for a project which are not recoverable.

During the 13 weeks ended July 27, 2019, we recognized an impairment loss (non-cash) of $0.4 million in the Retail segment related to net capitalized development costs for a project which are not recoverable.

Restructuring and other charges

During the 13 and 39 weeks ended January 25, 2020 , we recognized restructuring and other charges totaling $0.2 million and $3.2 million, respectively, comprised primarily of $0 and $0.8 million, respectively, for severance and other employee termination and benefit costs associated with several management changes and the elimination of various positions as part of cost reduction objectives, and $0.2 million and $2.4 million, respectively for professional service costs for restructuring, process improvements, and shareholder activist activities.

During the 13 and 39 weeks ended January 26, 2019, we recognized restructuring and other charges totaling $2.5 million for severance and other employee termination and benefit costs associated with management changes.

In February 2020, we implemented a cost reduction program designed to streamline our operations, maximize productivity and drive profitability.

For additional information, see the Overview discussion above or Item 1.

Financial Statements - Note 15.

Subsequent Event .

Transaction Costs

Transaction costs were $0.1 million and 0.7 million during the 13 and 39 weeks ended January 26, 2019 respectively.

We incur transaction costs for business development and acquisitions.

Operating (Loss) Income

13 weeks ended

During the 13 weeks ended August 1, 2020, we recognized restructuring and other charges totaling $5.7 million comprised of $3.4 million for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives, $2.1 million for professional service costs related to restructuring, process improvements, and shareholder activist activities, and $0.2 million related to liabilities for a facility closure.

During the 13 weeks ended July 27, 2019, we recognized restructuring and other charges totaling $1.5 million comprised of $0.6 million for severance and other employee termination and benefit costs associated with several management changes and the elimination of various positions as part of cost reduction objectives, and $0.7 million related to professional service costs related to restructuring and process improvements.

Operating Loss

13 weeks ended

Dollars in thousands

January 25, 2020

January 26, 2019

January 25, 2020

January 26, 2019

Total Operating (Loss)Income

Our operating loss was $(3.0) million during the 13 weeks ended January 25, 2020 , compared to operating income of $3.0 million during the 13 weeks ended January 26, 2019 .

The decrease is due to the matters discussed above.

For the 13 weeks ended January 25, 2020 , excluding the $0.2 million of restructuring and other charges, discussed above, operating loss was $(2.8) million.

For the 13 weeks ended January 26, 2019 , excluding the $2.5 million of restructuring and other charges and transaction costs of $0.1 million, discussed above, operating income was $5.6 million.

Our operating income was $9.6 million during the 39 weeks ended January 25, 2020 , compared to operating income of $32.4 million during the 39 weeks ended January 26, 2019 .

The decrease is due to the matters discussed above.

For the 39 weeks ended January 25, 2020 , excluding the $3.2 million of restructuring and other charges and impairment loss (non-cash) of $0.4 million, discussed above, operating income was $13.3 million (or 0.8% of sales).

For the 39 weeks ended January 26, 2019 , excluding the $2.5 million of restructuring and other charges and the transaction costs of $0.7 million, discussed above, operating income was $35.6 million (or 2.1% of sales).

Dollars in thousands August 1, 2020 % of

Sales July 27, 2019 % of

Total Operating Loss

$ (58,915) (28.9)% $ (43,812) (13.8)%

Our operating loss was $(58.9) million during the 13 weeks ended August 1, 2020, compared to an operating loss of $(43.8) million during the 13 weeks ended July 27, 2019.

The increase in operating loss is due to the matters discussed above.

For the 13 weeks ended August 1, 2020, excluding the $5.7 million of restructuring and other charges, discussed above, operating loss was $(53.2) million.

For the 13 weeks ended July 27, 2019, excluding the $1.5 million of restructuring and other charges and impairment loss of $0.4 million, discussed above, operating loss was $(41.9) million.

Interest Expense, Net

13 weeks ended

39 weeks ended

Dollars in thousands

January 25, 2020

January 26, 2019

January 25, 2020

January 26, 2019

Dollars in thousands August 1, 2020 July 27, 2019

Interest Expense, Net $ 2,653 $ 2,532

Net interest expense decreased by $0.6 million, or 25.2%, to $1.9 million during the 13 weeks ended January 25, 2020 from $2.5 million during the 13 weeks ended January 26, 2019 .

Net interest expense decreased by $2.0 million, or 25.6%, to $5.9 million during the 39 weeks ended January 25, 2020 from $7.9 million during the 39 weeks ended January 26, 2019 .

The decrease was primarily due to lower borrowings compared to the prior year.

Income Tax (Benefit) Expense

13 weeks ended

39 weeks ended

Dollars in thousands

January 25, 2020

Effective Rate

January 26, 2019

Effective Rate

January 25, 2020

Effective Rate

January 26, 2019

Effective Rate

Income Tax (Benefit) Expense

We recorded an income tax benefit of $(3.2) million on a pre-tax loss of $(4.9) million of during the 13 weeks ended January 25, 2020 , which represented an effective income tax rate of 65.3% and we recorded an income tax benefit of $(0.3) million on pre-tax income of $0.5 million during the 13 weeks ended January 26, 2019 , which represented an effective income tax rate of (61.9)% .

We recorded income tax expense of $1.7 million on pre-tax income of $3.8 million of during the 39 weeks ended January 25, 2020 , which represented an effective income tax rate of 44.7% and we recorded income tax expense of $2.7 million on pre-tax income of $24.5 million during the 39 weeks ended January 26, 2019 , which represented an effective income tax rate of 10.9% .

The effective tax rate for the 13 and 39 weeks ended January 25, 2020 is higher as compared to the comparable prior year due to permanent differences.

Net (Loss) Income

Net interest expense increased by $0.1 million, or 4.8%, to $2.6 million during the 13 weeks ended August 1, 2020 from $2.5 million during the 13 weeks ended July 27, 2019.

The increase was primarily due to higher borrowings compared to the prior year.

Income Tax Benefit

13 weeks ended

Dollars in thousands August 1, 2020 Effective Rate July 27, 2019 Effective Rate

Income Tax Benefit

$ (14,916) 24.2% $ (14,189) 30.6%

We recorded an income tax benefit of $(14.9) million on a pre-tax loss of $(61.6) million of during the 13 weeks ended August 1, 2020, which represented an effective income tax rate of 24.2% and we recorded an income tax benefit of $(14.2) million on a pre-tax loss of $(46.3) million during the 13 weeks ended July 27, 2019, which represented an effective income tax rate of 30.6%.

The effective tax rate for the 13 weeks ended August 1, 2020 is lower as compared to the comparable prior year due to permanent differences.

13 weeks ended

Dollars in thousands

January 25, 2020

January 26, 2019

January 25, 2020

January 26, 2019

Net (loss) income

As a result of the factors discussed above, net loss was $(1.7) million during the 13 weeks ended January 25, 2020 , compared with net income of $0.8 million during the 13 weeks ended January 26, 2019 and net income was $2.1 million during the 39 weeks ended January 25, 2020 compared with net income of $21.8 million during the 39 weeks ended January 26, 2019 .

Adjusted Earnings (non-GAAP) is $(0.7) million during the 13 weeks ended January 25, 2020 , compared with $3.3 million during the 13 weeks ended January 26, 2019 and Adjusted Earnings (non-GAAP) is $7.0 million during the 39 weeks ended January 25, 2020 compared with $24.9 million during the 39 weeks ended January 26, 2019 .

Dollars in thousands August 1, 2020 July 27, 2019

Net loss $ (46,652) $ (32,155)

As a result of the factors discussed above, net loss was $(46.7) million during the 13 weeks ended August 1, 2020, compared with net loss of $(32.2) million during the 13 weeks ended July 27, 2019.

Adjusted Earnings (non-GAAP) is $(41.7) million during the 13 weeks ended August 1, 2020, compared with $(30.1) million during the 13 weeks ended July 27, 2019.

See Adjusted Earnings (non-GAAP) discussion below.

4 unchanged sentences

(2) interest expense and (3) income taxes, (4) as adjusted for items that are subtracted from or added to net income.

To properly and prudently evaluate our business, we encourage you to review our consolidated financial statements included elsewhere in the Form 10-K for the year ended April 27, 2019, the reconciliation of Adjusted Earnings to net income and the reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure presented in accordance with GAAP, set forth in the tables below.

To properly and prudently evaluate our business, we encourage you to review our consolidated financial statements included elsewhere in the Form 10-K for the year ended May 2, 2020, the reconciliation of Adjusted Earnings to net income and the reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure presented in accordance with GAAP, set forth in the tables below.

All of the items included in the reconciliations below are either (i) non-cash items or (ii) items that management does not consider in assessing our on-going operating performance.

8 unchanged sentences

13 weeks ended

39 weeks ended

Dollars in thousands

January 25, 2020

January 26, 2019

January 25, 2020

January 26, 2019

Net (loss) income

Dollars in thousands August 1, 2020 July 27, 2019

Net loss $ (46,652) $ (32,155)

Reconciling items, after-tax (below)

2 unchanged sentences

Impairment loss (non-cash) (a)

Content amortization (non-cash) (b)

Content amortization (non-cash)

Restructuring and other charges (a)

Transaction costs (a)

Reconciling items, pre-tax 6,835 2,810

1 unchanged sentence

Reconciling items, after-tax $ 4,936 $ 2,080

See Management Discussion and Analysis and Results of Operations discussion above.

For the 13 and 39 weeks ended January 25, 2020 , earnings are adjusted for amortization expense (non-cash) related to content development costs which are included in cost of goods sold.

Represents the income tax effects of the non-GAAP items.

(a) See Management Discussion and Analysis and Results of Operations discussion above.

(b) Represents the income tax effects of the non-GAAP items.

Adjusted EBITDA (non-GAAP)

13 weeks ended

39 weeks ended

Dollars in thousands

January 25, 2020

January 26, 2019

January 25, 2020

January 26, 2019

Net (loss) income

Dollars in thousands August 1, 2020 July 27, 2019

Net loss $ (46,652) $ (32,155)

Depreciation and amortization expense 14,063 15,879

Content amortization (non-cash) (a)

Content amortization (non-cash)

Interest expense, net 2,653 2,532

Income tax (benefit) expense

Impairment loss (non-cash) (b)

Restructuring and other charges (b)

Transaction costs (b)

Adjusted EBITDA (non-GAAP) (b)

For the 13 and 39 weeks ended January 25, 2020 , earnings are adjusted for amortization expense (non-cash) related to content development costs which are included in cost of goods sold.

See Management Discussion and Analysis and Results of Operations discussion above.

The following is Adjusted EBITDA by segment for the 13 and 39 weeks ended January 25, 2020 and January 26, 2019 .

Adjusted EBITDA - by Segment

13 weeks ended, January 25, 2020

Dollars in thousands

Corporate Services

Elimination (b)

Cost of sales (a)

Selling and administrative expenses

Adjusted EBITDA (non-GAAP)

Adjusted EBITDA - by Segment

13 weeks ended, January 26, 2019

Dollars in thousands

Corporate Services

Elimination (b)

Cost of sales (a)

Selling and administrative expenses

Adjusted EBITDA (non-GAAP)

Adjusted EBITDA - by Segment

39 weeks ended, January 25, 2020

Dollars in thousands

Corporate Services

Elimination (b)

Income tax benefit (14,916) (14,189)

Impairment loss (non-cash) (a)

Restructuring and other charges (a)

Adjusted EBITDA (non-GAAP) (a)

$ (38,017) $ (25,123)

(a) See Management Discussion and Analysis and Results of Operations discussion above.

The following is Adjusted EBITDA by segment for the 13 weeks ended August 1, 2020 and July 27, 2019.

Adjusted EBITDA - by Segment 13 weeks ended, August 1, 2020

Dollars in thousands Retail Wholesale DSS Corporate Services Elimination (b)

Sales $ 158,776 $ 80,294 $ 5,872 $ — $ (40,928) $ 204,014

Cost of sales (a)

142,431 63,537 172 — (34,152) 171,988

Gross profit 16,345 16,757 5,700 — (6,776) 32,026

Selling and administrative expenses

56,985 3,791 4,036 5,244 (13) 70,043

Adjusted EBITDA (non-GAAP) $ (40,640) $ 12,966 $ 1,664 $ (5,244) $ (6,763) $ (38,017)

Adjusted EBITDA - by Segment

39 weeks ended, January 26, 2019

Dollars in thousands

Corporate Services

Elimination (b)

Adjusted EBITDA - by Segment 13 weeks ended, July 27, 2019

Dollars in thousands Retail Wholesale DSS Corporate Services Elimination (b)

Sales $ 274,656 $ 72,309 $ 5,374 $ — $ (32,682) $ 319,657

Cost of sales (a)

212,333 57,391 233 — (22,868) 247,089

Gross profit 62,323 14,918 5,141 — (9,814) 72,568

Selling and administrative expenses

83,815 4,759 4,113 5,007 (3) 97,691

Adjusted EBITDA (non-GAAP) $ (21,492) $ 10,159 $ 1,028 $ (5,007) $ (9,811) $ (25,123)

(a) For the 13 weeks ended January 25, 2020 , gross margin excludes $0.2 million and $0.9 million of amortization expense (non-cash) related to content development costs in the Retail Segment and DSS Segment, respectively.

For the 39 weeks ended January 25, 2020 , gross margin excludes $0.6 million and $2.4 million of amortization expense (non-cash) related to content development costs in the Retail Segment and DSS Segment, respectively.

For the 13 weeks ended January 26, 2019 , gross margin excludes $0.1 million of amortization expense (non-cash) related to content development costs in both the Retail Segment and DSS Segment, respectively.

For the 39 weeks ended January 26, 2019 , gross margin excludes $0.3 million and $0.1 million of amortization expense (non-cash) related to content development costs in the Retail Segment and DSS Segment, respectively.

See Management Discussion and Analysis and Results of Operations discussion above.

(a) For the 13 weeks ended August 1, 2020, gross margin excludes $0.2 million and $1.0 million of amortization expense (non-cash) related to content development costs in the Retail Segment and DSS Segment, respectively.

For the 13 weeks ended July 27, 2019, gross margin excludes $0.2 million and $0.7 million of amortization expense (non-cash) related to content development costs in the Retail Segment and DSS Segment, respectively.

(b) See Management Discussion and Analysis and Results of Operations discussion above.

Liquidity and Capital Resources

Our primary sources of cash are net cash flows from operating activities, funds available under our credit agreement and short-term vendor financing.

As of January 25, 2020 , we had $65.9 million outstanding borrowings under the Credit Agreement.

As of August 1, 2020, we had $234.6 million outstanding borrowings under the Credit Agreement.

See Financing Arrangements discussion below.

Our business experienced an unprecedented and significant impact as a result of COVID-19 related campus store closures.

Beginning in March 2020, colleges and universities nationwide began to close their campuses in light of safety concerns and as a result of local and state issued stay-at-home orders.

By mid-March, during our fiscal fourth quarter, we closed the majority of our physical campus stores to protect the health and safety of our customers and employees.

We developed and implemented plans to safely reopen our campus stores based on national, state and local guidelines, as well as the campus policies set by the school administration.

The first quarter is historically a low revenue period and our first quarter results were significantly impacted by the COVID-19 pandemic.

As many schools shifted from an on-campus to a remote learning model, we were able to serve students through our Custom Store Solutions “CSS” model, virtual bookstores, individual school websites and digital offerings to ensure students were equipped with their course materials to continue their education, wherever they may be.

We have implemented a significant cost reduction program designed to streamline our operations, maximize productivity and drive profitability.

Certain elements of this plan were implemented in late Fiscal 2020, while other actions are planned for Fiscal 2021.

We anticipate meaningful annualized cost savings from this program, the majority of which is expected to be realized beginning in Fiscal 2021.

Additionally, we currently expect to see the most significant impacts of COVID-19 on our business in the first half of Fiscal 2021.

However, we cannot accurately predict the duration or extent of the impact of COVID-19 on enrollments, university budgets, athletics and other areas that directly affect our business operations.

We believe that our future cash from operations, access to borrowings under the Credit Facility, FILO Facility and short-term vendor financing will provide adequate resources to fund our operating and financing needs for the foreseeable future.

Our future capital requirements will depend on many factors, including, but not limited to, the economy and the outlook for and pace of sustainable growth in our markets, the levels at which we maintain inventory, the number and timing of new store openings, and any potential acquisitions of other brands or companies including digital properties.

To the extent that available funds are insufficient to fund our future activities, we may need to raise additional funds through public or private financing of debt or equity.

Our access to, and the availability of, financing in the future will be impacted by many factors, including the liquidity of the overall capital markets and the current state of the economy.

There can be no assurances that we will have access to capital markets on acceptable terms.

Sources and Uses of Cash Flow

13 weeks ended

Dollars in thousands

January 25, 2020

January 26, 2019

Dollars in thousands August 1, 2020 July 27, 2019

Cash, cash equivalents, and restricted cash at beginning of period $ 9,008 $ 14,768

Net cash flows provided by operating activities

Net cash flows used in operating activities (54,839) (40,243)

Net cash flows used in investing activities (5,450) (6,105)

Net cash flows used in financing activities

Net cash flows provided by financing activities 59,518 40,560

Cash, cash equivalents, and restricted cash at end of period $ 8,237 $ 8,980

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For our wholesale operations, cash flows from operating activities are typically a source of cash in the second and fourth fiscal quarters, as payments are received from the summer and winter selling season when they sell textbooks and other course materials for retail distribution.

For both retail and wholesale, cash flows from

operating activities are typically a use of cash in the fourth fiscal quarter, when sales volumes are materially lower than the other quarters.

For both retail and wholesale, cash flows from operating activities are typically a use of cash in the fourth fiscal quarter, when sales volumes are materially lower than the other quarters.

For our DSS segment, cash flows are not seasonal as cash flows from operating activities are typically consistent throughout the year.

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These shifts in timing may affect the comparability of our results across periods.

Cash flows provided by operating activities during the 39 weeks ended January 25, 2020 were $86.4 million compared to $175.9 million during the 39 weeks ended January 26, 2019 .

This decrease of $89.5 million was primarily due to changes in working capital, the change in operating lease right-of-use assets and lease liabilities, lower net income compared to prior year, and the change in deferred taxes.

Financial Statements - Note 2.

Summary of Significant Accounting Policies and Note 5.

Leases for information regarding the impact of adopting FASB ASC 842, Leases (Topic 842) effective April 28, 2019.

Cash flows used in operating activities during the 13 weeks ended August 1, 2020 were $(54.8) million compared to $(40.2) million during the 13 weeks ended July 27, 2019.

This increase in cash used in operating activities of $14.6 million was primarily due to higher net loss compared to the prior year and changes in working capital.

As discussed above, our operations were highly impacted by COVID-19 related campus store closures.

Cash Flow from Investing Activities

Cash flows used in investing activities during the 39 weeks ended January 25, 2020 were $(21.7) million compared to $(41.7) million during the 39 weeks ended January 26, 2019 .

The decrease is primarily due to the change in other noncurrent assets for contractual obligations and the acquisition of PaperRater.com in Fiscal 2019.

Cash flows used in investing activities during the 13 weeks ended August 1, 2020 were $(5.5) million compared to $(6.1) million during the 13 weeks ended July 27, 2019.

The decrease in cash used in investing activities is primarily due to lower capital expenditures and contractual capital investments associated with content development, digital initiatives, enhancements to internal systems, renewing existing contracts and new store construction and lower payments to acquire businesses and the change in other noncurrent assets for contractual obligations.

Our investing activities consist principally of capital expenditures for contractual capital investments associated with renewing existing contracts, new store construction, digital initiatives and enhancements to internal systems and our website.

Capital expenditures totaled $26.8 million and $31.7 million during the 39 weeks ended January 25, 2020 and January 26, 2019 , respectively.

Capital expenditures totaled $7.1 million and $8.3 million during the 13 weeks ended August 1, 2020 and July 27, 2019, respectively.

Cash Flow from Financing Activities

Cash flows used in financing activities during the 39 weeks ended January 25, 2020 were $(68.9) million compared to $(128.3) million during the 39 weeks ended January 26, 2019 .

This net change of $59.4 million is primarily due to lower net borrowings under the credit agreement.

Cash flows provided by financing activities during the 13 weeks ended August 1, 2020 were $59.5 million compared to $40.6 million during the 13 weeks ended July 27, 2019.

This net change of $18.9 million is primarily due to higher net borrowings under the credit agreement.

Financing Arrangements

We have a credit agreement (the “Credit Agreement”), amended March 1, 2019, under which the lenders committed to provide us with a five-year asset-backed revolving credit facility in an aggregate committed principal amount of $400 million (the “Credit Facility”).

We have a credit agreement (the “Credit Agreement”), amended March 1, 2019, under which the lenders committed to provide us with a 5-year asset-backed revolving credit facility in an aggregate committed principal amount of $400 million (the “Credit Facility”) effective from the date of the amendment.

We have the option to request an increase in commitments under the Credit Facility of up to $100 million, subject to certain restrictions.

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The agreement includes an incremental first in, last out seasonal loan facility (the “FILO Facility”) for a $100 million incremental facility maintaining the maximum availability under the Credit Agreement at $500 million.

As of January 25, 2020, we are in compliance with all debt covenants under the Credit Agreement.

On March 2, 2020, we were granted a waiver to the condition to the upcoming draw under the FILO Facility, scheduled in April 2020, that Consolidated EBITDA (as defined in the Credit Agreement) minus Restricted Payments (as defined in the Credit Agreement) equal at least $90 million.

In connection with the waiver, the applicable margin for credit extensions made under the FILO Facility after March 2, 2020 through the end of 2020 was increased by 0.50% (to 3.25% per annum for LIBO rate loans and 2.25% for base rate loans).

During the 39 weeks ended January 25, 2020 , we borrowed $383.4 million and repaid $451.0 million under the Credit Agreement, with $65.9 million of outstanding borrowings as of January 25, 2020, comprised entirely of outstanding borrowings under the Credit Facility.

During the 39 weeks ended January 26, 2019 , we borrowed $374.0 million and repaid $500.3 million under the Credit Agreement, with $70.1 million of outstanding borrowings as of January 26, 2019, comprised entirely of outstanding borrowings under the Credit Facility.

As of both January 25, 2020 and January 26, 2019 , we have issued $4.8 million in letters of credit under the Credit Facility.

On March 2, 2020, we were granted a waiver to the condition to the upcoming draw under the FILO Facility, scheduled for April 2020, that Consolidated EBITDA (as defined in the Credit Agreement) minus Restricted Payments (as defined in the Credit Agreement) equal at least $90 million.

During the 13 weeks ended August 1, 2020, we borrowed $186.7 million and repaid $126.8 million under the Credit Agreement, with $234.6 million of outstanding borrowings as of August 1, 2020, comprised entirely of outstanding borrowings under the Credit Facility.

During the 13 weeks ended July 27, 2019, we borrowed $120.3 million and repaid $79.7 million under the Credit Agreement, with $174.1 million of outstanding borrowings as of July 27, 2019, comprised of $74.1 million and $100.0 million under the Credit Facility and FILO Facility, respectively.

As of both August 1, 2020 and July 27, 2019, we have issued $4.8 million in letters of credit under the Credit Facility.

For additional information including interest terms and covenant requirements related to the Credit Facility and FILO Facility, refer to Part II - Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources in our Annual Report on Form 10-K for the year ended April 27, 2019.

To the extent that available funds are insufficient to fund our future activities, we may need to raise additional funds through public or private financing of debt or equity.

Our access to, and the availability of, financing in the future will be impacted by many factors, including the liquidity of the overall capital markets and the current state of the economy.

There can be no assurances that we will have access to capital markets on acceptable terms.

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources in our Annual Report on Form 10-K for the fiscal year ended May 2, 2020.

Income Tax Implications on Liquidity

As of January 25, 2020 , other long-term liabilities includes $32.8 million related to the long-term tax payable associated with the LIFO reserve.

As of August 1, 2020, other long-term liabilities includes $25.7 million related to the long-term tax payable associated with the LIFO reserve.

The LIFO reserve is impacted by changes in the consumer price index ("CPI") and is dependent on the inventory levels at the end of our tax year (on or about January 31st) which is in the middle of our second largest selling cycle.

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Any repurchased shares will be held as treasury stock and will be available for general corporate purposes.

During the 39 weeks ended January 25, 2020 , we did not repurchase any of our Common Stock under the stock repurchase program.

As of January 25, 2020 , approximately $26.7 million remains available under the stock repurchase program.

During the 39 weeks ended January 25, 2020 , we repurchased 374,733 shares of our Common Stock outside of the stock repurchase program in connection with employee tax withholding obligations for vested stock awards.

During the 13 weeks ended August 1, 2020, we did not repurchase any of our Common Stock under the stock repurchase program.

As of August 1, 2020, approximately $26.7 million remains available under the stock repurchase program.

During the 13 weeks ended August 1, 2020, we repurchased 178,669 shares of our Common Stock outside of the stock repurchase program in connection with employee tax withholding obligations for vested stock awards.

Contractual Obligations

Our projected contractual obligations are consistent with amounts disclosed in Part II - Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources in our Annual Report on Form 10-K for the year ended April 27, 2019.

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources in our Annual Report on Form 10-K for the fiscal year ended May 2, 2020.

Off-Balance Sheet Arrangements

As of January 25, 2020 , we have no off-balance sheet arrangements as defined in Item 303 of Regulation S-K.

As of August 1, 2020, we have no off-balance sheet arrangements as defined in Item 303 of Regulation S-K.

Critical Accounting Policies

Our policies regarding the use of estimates and other critical accounting policies are consistent with the disclosures in Part II - Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the year ended April 27, 2019.

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the fiscal year ended May 2, 2020.

Recent Accounting Pronouncements

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Such statements reflect our current views with respect to future events, the outcome of which is subject to certain risks, including, among others:

• risks associated with COVID-19 and the governmental responses to it, including its impacts across our businesses on demand and operations, as well as on the operations of our suppliers and other business partners, and the effectiveness of our actions taken in response to these risks;

• general competitive conditions, including actions our competitors and content providers may take to grow their businesses;

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• changes in accounting standards;

the other risks and uncertainties detailed in the section titled “Risk Factors” in Part I - Item 1A in our Annual Report on Form 10-K for the year ended April 27, 2019.

• the other risks and uncertainties detailed in the section titled “Risk Factors” in Part I - Item 1A in our Annual Report on Form 10-K for the fiscal year ended May 2, 2020.

Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described as anticipated, believed, estimated, expected, intended or planned.

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There have been no material changes to the items discussed in Part II - Item 7A.

Quantitative and Qualitative Disclosures About Market Risk in our Annual Report on Form 10-K for the year ended April 27, 2019.

Quantitative and Qualitative Disclosures About Market Risk in our Annual Report on Form 10-K for the fiscal year ended May 2, 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis