What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-12-08 compared with 2020-09-03 · 276 added, 156 removed, 398 unchanged (52% of the section changed)

9 unchanged sentences

We are also one of the largest textbook wholesalers, inventory management hardware and software providers, and a leading provider of digital education solutions.

We operate 1,442 physical, virtual, and custom bookstores and serve more than 6 million students, delivering essential educational content and tools within a dynamic omni channel retail environment.

We operate 1,439 physical, virtual, and custom bookstores and serve more than 6 million students, delivering essential educational content and tools within a dynamic omnichannel retail environment.

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

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.

We expect to continue to introduce scalable and advanced digital solutions focused largely on the student, expand our general merchandise e-commerce capabilities, increase market share with new accounts, and expand our strategic opportunities through acquisitions and partnerships.

We expect to continue to introduce scalable and advanced digital solutions focused largely on the student, expand our e-commerce capabilities, increase market share with new accounts, and expand our strategic opportunities through acquisitions and partnerships.

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.

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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.

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

As many schools adjusted their learning model and curtailed on-campus activities in response to the pandemic, our flexible offerings ensured that students were

equipped with their course materials regardless of whether schools resumed classes on campus, remotely or via a hybrid learning model.

Our fiscal 2021 second quarter results were significantly impacted by the ongoing COVID-19 pandemic, as many schools continued to adjust their learning model and on-campus activities in response to the pandemic.

Fewer students returned to campus this fall, as many schools implemented a remote learning model and curtailed on-campus classes and activities.

While many big athletic conferences resumed their sport activities, fan attendance at the games was either eliminated or severely restricted, which further impacted the company’s high-margin general merchandise business.

Additionally, sales were impacted by overall enrollment declines in higher education.

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.

There is still uncertainty about the duration and extent of the impact of the COVID-19 pandemic.

If economic conditions caused by the pandemic do not recover as currently estimated by management or market factors currently in place change, there could be a further impact to our results of operations, financial condition and cash flows from operations.

We have three reportable segments:

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The majority of the physical campus bookstores have school-branded e-commerce sites which we operate and which offer students access to affordable course materials and affinity products, including emblematic apparel and gifts.

The Retail Segment also offers inclusive access 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.

The Retail Segment also offers inclusive access programs, in which course materials are offered at a reduced price through a fee charged by the institution or included in tuition, and delivered to students on or before the first day of class.

Additionally, the Retail Segment offers a suite of digital content and services to colleges and universities, including a variety of open educational resource-based courseware.

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For our retail operations, sales are generally highest in the second and third fiscal quarters, when students generally purchase and rent textbooks and other course materials, and lowest in the first and fourth fiscal quarters.

Sales attributable to our wholesale business are generally highest in our first, second and third quarter, as it sells textbooks and other course materials for retail distribution.

Sales attributable to

our wholesale business are generally highest in our first, second and third quarter, as it sells textbooks and other course materials for retail distribution.

For our DSS segment, or direct-to-student business, sales and operating profit are realized relatively consistently throughout the year.

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• 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.

Our business is affected by the COVID-19 pandemic, 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.

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

economy, 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.

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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.

Enrollment trends have been negatively impacted overall by COVID-19 concerns at physical campuses.

A significant reduction in U.S.

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

economic activity and increased unemployment 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.

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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.

We also expect that certain less

profitable or essential bookstores we operate may close.

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.

The scope of any such store closures remains uncertain, 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.

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Our selling and administrative expenses consist primarily of store payroll and store operating expenses.

Selling and administrative expenses also include stock-based compensation and general office expenses, such as merchandising, procurement, field support, finance and accounting, and operating costs related to our direct-to-student subscription-based services business.

Selling and administrative expenses also include long-term incentive plan compensation expense and general office expenses, such as merchandising, procurement, field support, finance and accounting, and operating costs related to our direct-to-student subscription-based services business.

Shared-service costs such as human resources, legal, treasury, information technology, and various other corporate level expenses and other governance functions, are not allocated to any specific reporting segment and are recorded in Corporate Services as discussed in the Overview - Segments discussion above.

Results of Operations - Summary

13 weeks ended

Dollars in thousands August 1,

2020 July 27,

13 weeks ended 26 weeks ended

Dollars in thousands October 31,

2020 October 26,

2019 October 31,

2020 October 26,

Product sales and other $ 551,832 $ 718,543 $ 745,042 $ 1,020,770

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Total sales $ 595,485 $ 772,228 $ 799,499 $ 1,091,885

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

Net income (loss) $ 7,515 $ 35,931 $ (39,137) $ 3,776

Adjusted Earnings (non-GAAP) (a)

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The following table sets forth, for the periods indicated, the percentage relationship that certain items bear to total sales:

13 weeks ended

2020 July 27,

13 weeks ended 26 weeks ended

2020 October 26,

2019 October 31,

2020 October 26,

Product sales and other 92.7 % 93.0 % 93.2 % 93.5 %

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Product and other cost of sales (a)

82.0 77.0 83.0 77.5

Rental cost of sales (a)

63.5 60.0 64.5 58.9

Total cost of sales 80.6 75.8 81.7 76.3

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Restructuring and other charges 0.6 0.2 1.1 0.3

Operating loss (28.9) % (13.8) %

Operating income (loss) 1.2 % 7.3 % (6.5) % 1.2 %

(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

Results of Operations - 13 and 26 weeks ended October 31, 2020 compared with the 13 and 26 weeks ended October 26, 2019

13 weeks ended, October 31, 2020

Dollars in thousands Retail Wholesale DSS Corporate Services Eliminations Total

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Restructuring and other charges 3,387

Operating loss $ (58,915)

13 weeks ended, July 27, 2019

Operating income $ 6,733

13 weeks ended, October 26, 2019

Dollars in thousands Retail Wholesale DSS Corporate Services Eliminations Total

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Restructuring and other charges 1,569

Impairment loss (non-cash) 433

Operating income $ 56,431

26 weeks ended, October 31, 2020

Dollars in thousands Retail Wholesale DSS Corporate Services Eliminations Total

Product sales and other $ 680,833 $ 116,681 $ 11,819 $ — $ (64,291) $ 745,042

Rental income 54,457 — — — — 54,457

Total sales 735,290 116,681 11,819 — (64,291) 799,499

Cost of sales:

Product and other cost of sales 588,531 89,210 2,411 — (61,912) 618,240

Rental cost of sales 35,112 — — — — 35,112

Total cost of sales 623,643 89,210 2,411 — (61,912) 653,352

Gross profit 111,647 27,471 9,408 — (2,379) 146,147

Selling and administrative expenses 134,365 7,937 9,039 10,745 (71) 162,015

Depreciation and amortization expense 20,555 2,617 4,020 64 — 27,256

$ (43,273) $ 16,917 $ (3,651) $ (10,809) $ (2,308) (43,124)

Restructuring and other charges 9,058

Operating loss $ (52,182)

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

13 weeks ended

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

26 weeks ended, October 26, 2019

Dollars in thousands Retail Wholesale DSS Corporate Services Eliminations Total

Product sales and other $ 945,310 $ 112,519 $ 10,589 $ — $ (47,648) $ 1,020,770

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Total sales 1,016,425 112,519 10,589 — (47,648) 1,091,885

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

Cost of sales:

Product and other cost of sales 751,469 85,066 2,034 — (47,168) 791,401

Rental cost of sales 41,877 — — — — 41,877

Total cost of sales 793,346 85,066 2,034 — (47,168) 833,278

Gross profit 223,079 27,453 8,555 — (480) 258,607

Selling and administrative expenses 182,393 9,352 8,728 10,675 (53) 211,095

Depreciation and amortization expense 23,673 3,048 4,639 65 — 31,425

$ 17,013 $ 15,053 $ (4,812) $ (10,740) $ (427) 16,087

Impairment loss (non-cash) 433

Restructuring and other charges 3,035

Operating income $ 12,619

The following table summarizes our sales for the 13 and 26 weeks ended October 31, 2020 and October 26, 2019:

13 weeks ended 26 weeks ended

Dollars in thousands October 31, 2020 October 26, 2019 % October 31, 2020 October 26, 2019 %

Product sales and other $ 551,832 $ 718,543 (23.2)% $ 745,042 $ 1,020,770 (27.0)%

Rental income 43,653 53,685 (18.7)% 54,457 71,115 (23.4)%

Total Sales $ 595,485 $ 772,228 (22.9)% $ 799,499 $ 1,091,885 (26.8)%

Sales decreased by $176.7 million, or 22.9%, to $595.5 million during the 13 weeks ended October 31, 2020 from $772.2 million during the 13 weeks ended October 26, 2019.

Sales decreased by $292.4 million, or 26.8%, to $799.5 million during the 26 weeks ended October 31, 2020 from $1,091.9 million during the 26 weeks ended October 26, 2019.

The sales decrease is primarily related to the impact from temporary store closings related to COVID-19, as well as lower in store foot traffic, lower enrollments and fewer on-campus events due to COVID-19.

The components of the variances for the 13 and 16 week periods are reflected in the table below.

Sales variances 13 weeks ended 26 weeks ended

Dollars in millions October 31, 2020 October 26, 2019 October 31, 2020 October 26, 2019

New stores $ 27.6 $ 39.3 $ 35.4 $ 46.7

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Service revenue (b)

1.0 (2.0) (3.7) (2.5)

2.7 (10.9) 1.7 (15.9)

Retail sales subtotal:

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See discussion of intercompany activities and eliminations below.

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

August 1, 2020 July 27, 2019

Retail sales decreased by $165.2 million, or 22.3%, to $576.5 million during the 13 weeks ended October 31, 2020 from $741.8 million during the 13 weeks ended October 26, 2019.

Retail sales decreased by $281.1 million, or 27.7%, to $735.3 million during the 26 weeks ended October 31, 2020 from $1,016.4 million during the 26 weeks ended October 26, 2019.

Retail added 80 new stores and closed 60 stores (not including temporary store closings due to COVID-19) during the 26 weeks ended October 31, 2020, ending the period with a total of 1,439 stores.

13 weeks ended 26 weeks ended

October 31, 2020 October 26, 2019 October 31, 2020 October 26, 2019

Number of Stores:

Physical Virtual Physical Virtual

Physical Virtual Physical Virtual Physical Virtual Physical Virtual

Number of stores at beginning of period 772 670 777 714 772 647 772 676

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Number of stores at end of period 768 671 772 664 768 671 772 664

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.

Product and other sales for Retail for the 13 weeks ended October 31, 2020 decreased by $155.2 million, or 22.6% to $532.9 million from $688.1 million during the 13 weeks ended October 26, 2019.

Product and other sales for Retail for the 26 weeks ended October 31, 2020 decreased by $264.5 million, or 28.0% to $680.8 million from $945.3 million during the 26 weeks ended October 26, 2019.

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 the COVID-19 pandemic.

Sales were impacted by the temporary store closings due to COVID-19 earlier in the fiscal year, as well as the impact of fewer students returning to campus this fall, as many schools implemented a remote learning model and curtailed on-campus classes and activities.

While many big-conferences resumed their sport activities, fan attendance at the games was either eliminated or severely restricted, which further impacted the company’s high-margin general merchandise business.

Additionally, sales were impacted by overall enrollment declines in higher education.

Textbook (Course Materials) revenue for Retail decreased primarily due to lower new and used textbook and other course materials sales, while First Day (our inclusive access program), 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 for Retail for the 13 weeks ended October 31, 2020 decreased by $10.0 million, or 18.7% to $43.7 million from $53.7 million during the 13 weeks ended October 26, 2019.

Rental income for Retail for the 26 weeks ended October 31, 2020 decreased by $16.7 million, or 23.4% to $54.5 million from $71.1 million during the 26 weeks ended October 26, 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 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.

The decrease in rental income is primarily due to decreased rental activity due to the COVID-19 pandemic as discussed above and the impact of increased digital offerings.

Comparable store sales for Retail decreased for the 13 and 26 week sales period.

Comparable store sales were impacted primarily by COVID-19 related campus temporary store closures, lower enrollment and on-campus events (all discussed above), 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).

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

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

Comparable store sales variances for Retail by category for the 13 and 26 week periods are as follows:

Comparable Store Sales variances - Retail 13 weeks ended 26 weeks ended

Dollars in millions October 31, 2020 October 26, 2019 October 31, 2020 October 26, 2019

Textbooks (Course Materials) $ (101.6) (19.0) % $ (43.9) (7.7) % $ (112.5) (17.5) % $ (55.4) (8.0) %

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Total Comparable Store Sales $ (205.1) (28.1) % $ (45.5) (5.9) % $ (311.3) (31.8) % $ (52.3) (5.1) %

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.

Wholesale sales decreased by $3.8 million, or 9.5% to $36.4 million during the 13 weeks ended October 31, 2020 from $40.2 million during the 13 weeks ended October 26, 2019.

The decrease is primarily due to decreased gross sales, partially offset by a lower returns and allowances, both impacted by the COVID-19 pandemic.

Wholesale sales increased by $4.2 million, or 3.7% to $116.7 million during the 26 weeks ended October 31, 2020 from $112.5 million during the 26 weeks ended October 26, 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.

During the 26 months ended October 31, 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 $0.7 million, or 14.0% to $5.9 million during the 13 weeks ended October 31, 2020 from $5.2 million during the 13 weeks ended October 26, 2019.

DSS total sales increased by $1.2 million, or 11.6% to $11.8 million during the 26 weeks ended October 31, 2020 from $10.6 million during the 26 weeks ended October 26, 2019.

Sales increased primarily due to an increase in bartleby subscription sales.

Cost of Sales and Gross Margin

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 August 1, 2020 % of

Related Sales July 27, 2019 % of

Our cost of sales increased as a percentage of sales to 80.6% during the 13 weeks ended October 31, 2020 compared to 75.8% during the 13 weeks ended October 26, 2019.

Our gross margin decreased by $71.7 million, or 38.3%, to $115.3 million, or 19.4% of sales, during the 13 weeks ended October 31, 2020 from $187.0 million, or 24.2% of sales during the 13 weeks ended October 26, 2019.

Our cost of sales increased as a percentage of sales to 81.7% during the 26 weeks ended October 31, 2020 compared to 76.3% during the 26 weeks ended October 26, 2019.

Our gross margin decreased by $112.5 million, or 43.5%, to $146.1 million, or 18.3% of sales, during the 26 weeks ended October 31, 2020 from $258.6 million, or 23.7% of sales during the 26 weeks ended October 26, 2019.

The following table summarizes the Retail cost of sales for the 13 and 26 weeks ended October 31, 2020 and October 26, 2019:

13 weeks ended 26 weeks ended

Dollars in thousands October 31, 2020 % of

Related Sales October 26, 2019 % of

Related Sales October 31, 2020 % of

Related Sales October 26, 2019 % of

Related Sales

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$ 481,002 83.4% $ 580,829 78.3% $ 623,643 84.8% $ 793,346 78.1%

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 August 1, 2020 % of

Related Sales July 27, 2019 % of

The following table summarizes the Retail gross margin for the 13 and 26 weeks ended October 31, 2020 and October 26, 2019:

13 weeks ended 26 weeks ended

Dollars in thousands October 31, 2020 % of

Related Sales October 26, 2019 % of

Related Sales October 31, 2020 % of

Related Sales October 26, 2019 % of

Related Sales

4 unchanged sentences

$ 95,512 16.6% $ 160,940 21.7% $ 111,647 15.2% $ 223,079 21.9%

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

For the 13 weeks ended October 31, 2020, the Retail gross margin as a percentage of sales decreased as discussed below:

• Product and other gross margin decreased (535 basis points), driven primarily by an unfavorable sales mix (355 basis points) due to lower high-margin general merchandise sales of approximately $98.1 million and the shift to lower margin digital courseware, and lower margin rates (220 basis points) due to higher markdowns, partially offset by lower contract costs as a percentage of sales related to our college and university contracts (40 basis points) resulting from contract renewals and new store contracts.

• Rental gross margin decreased (355 basis points), driven primarily by higher contract costs as a percentage of sales related to our college and university contracts (450 basis points), partially offset by higher rental margin rates (95 basis points).

For the 26 weeks ended October 31, 2020, the Retail gross margin as a percentage of sales decreased as discussed below:

• Product and other gross margin decreased (695 basis points), driven primarily by an unfavorable sales mix (485 basis points) due to lower high-margin general merchandise sales of approximately $187.9 million and the shift to lower margin digital courseware, and lower margin rates (295 basis points) due to higher markdowns, partially offset by lower contract costs as a percentage of sales related to our college and university contracts (85 basis points) resulting from contract renewals and new store contracts.

• Rental gross margin decreased (560 basis points), driven primarily by higher contract costs as a percentage of sales related to our college and university contracts (575 basis points) and unfavorable rental mix (75 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 cost of sales and gross margin for Wholesale were $25.7 million, or 70.6% of sales, and $10.7 million, or 29.4% of sales, respectively, during the 13 weeks ended October 31, 2020.

The cost of sales and gross margin for Wholesale was $27.7 million or 68.8% of sales and $12.5 million or 31.2% of sales, respectively, during the 13 weeks ended October 26, 2019.

The cost of sales and gross margin for Wholesale were $89.2 million, or 76.5% of sales, and $27.5 million, or 23.5% of sales, respectively, during the 26 weeks ended October 31, 2020.

The cost of sales and gross margin for Wholesale was $85.1 million or 75.6% of sales and $27.5 million or 24.4% of sales, respectively, during the 26 weeks ended October 26, 2019.

The gross margin rate decreased during the 13 weeks ended October 31, 2020 primarily due to an unfavorable sales mix, partially offset by the favorable impact of returns and allowances and lower markdowns.

The gross margin rate decreased during the 26 weeks ended October 31, 2020 primarily due an unfavorable sales mix and inventory markdowns, partially offset by the favorable impact of returns and allowances.

The gross margin for the DSS segment was $4.7 million, or 78.4% of sales, during the 13 weeks ended October 31, 2020 and $4.1 million, or 79.4% of sales, during the 13 weeks ended October 26, 2019.

The gross margin for the DSS segment was $9.4 million, or 79.6% of sales, during the 26 weeks ended October 31, 2020 and $8.6 million, or 80.8% of sales, during the 26 weeks ended October 26, 2019.

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

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

The decrease in gross margin for the 13 and 26 weeks ended October 31, 2020 is primarily due to increased amortization of content development costs for bartleby textbook solutions of $0.2 million and $0.5 million, respectively.

Intercompany Eliminations

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

During the 13 weeks ended October 31, 2020 and October 26, 2019, our sales eliminations were $(23.4) million and $(15.0) million, respectively.

During the 26 weeks ended October 31, 2020 and October 26, 2019, our sales eliminations were $(64.3) million and $(47.6) 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 August 1, 2020 and July 27, 2019, the cost of sales eliminations were $(34.2) million and $(22.9) million, respectively.

During the 13 weeks ended October 31, 2020 and October 26, 2019, the cost of sales eliminations were $(27.8) million and $(24.3) million, respectively.

During the 26 weeks ended October 31, 2020 and October 26, 2019, the cost of sales eliminations were $(61.9) million and $(47.2) 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 August 1, 2020 and July 27, 2019, the gross margin eliminations were $(6.8) million and $(9.8) million, respectively.

During the 13 weeks ended October 31, 2020 and October 26, 2019, the gross margin eliminations were $4.4 million and $9.3 million, respectively.

During the 26 weeks ended October 31, 2020 and October 26, 2019, the gross margin eliminations were $(2.4) million and $(0.5) 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.

Selling and Administrative Expenses

13 weeks ended

Dollars in thousands August 1, 2020 % of

Sales July 27, 2019 % of

13 weeks ended 26 weeks ended

Dollars in thousands October 31, 2020 % of

Sales October 26, 2019 % of

Sales October 31, 2020 % of

Sales October 26, 2019 % of

Total Selling and Administrative Expenses

$ 91,972 15.4% $ 113,404 14.7% $ 162,015 20.3% $ 211,095 19.3%

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.

During the 13 weeks ended October 31, 2020, selling and administrative expenses decreased by $21.4 million, or 18.9%, to $92.0 million from $113.4 million during the 13 weeks ended October 26, 2019.

During the 26 weeks ended October 31, 2020, selling and administrative expenses decreased by $49.1 million, or 23.3%, to $162.0 million from $211.1 million during the 26 weeks ended October 26, 2019.

The variances by segment are as follows:

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.

During the 13 weeks ended October 31, 2020, Retail selling and administrative expenses decreased by $21.2 million, or 21.5%, to $77.4 million from $98.6 million during the 13 weeks ended October 26, 2019.

This decrease was primarily due to a $17.5 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 $3.7 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 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.

During the 26 weeks ended October 31, 2020, Retail selling and administrative expenses decreased by $48.0 million, or 26.3%, to $134.4 million from $182.4 million during the 26 weeks ended October 26, 2019.

This decrease was primarily due to a $40.4 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 $7.7 million in corporate payroll, infrastructure costs, product development costs and digital operations costs.

During the 13 weeks ended October 31, 2020, Wholesale selling and administrative expenses decreased by $0.5 million or 9.7% to $4.1 million from $4.6 million during the 13 weeks ended October 26, 2019.

During the 26 weeks ended October 31, 2020, Wholesale selling and administrative expenses decreased by $1.4 million or 15.1% to $7.9 million from $9.4 million during the 26 weeks ended October 26, 2019.The decrease in selling and administrative expenses was primarily driven by lower payroll and operating costs.

During the 13 weeks ended October 31, 2020, DSS selling and administrative expenses increased by $0.4 million or 8.4% to $5.0 million from $4.6 million during the 13 weeks ended October 26, 2019.

During the 26 weeks ended October 31, 2020, DSS selling and administrative expenses increased by $0.3 million or 3.6% to $9.0 million from $8.7 million during the 26 weeks ended October 26, 2019.

The increase in costs was primarily driven by higher professional services and advertising costs.

Corporate Services

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.

During the 13 weeks ended October 31, 2020, Corporate Services' selling and administrative expenses decreased by $0.2 million or 2.9% to $5.5 million from $5.7 million during the 13 weeks ended October 26, 2019.

During the 26 weeks ended October 31, 2020, Corporate Services' selling and administrative expenses increased by $0.1 million or 0.7% to $10.8 million from $10.7 million during the 26 weeks ended October 26, 2019.

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

Depreciation and Amortization Expense

13 weeks ended

Dollars in thousands August 1, 2020 % of

Sales July 27, 2019 % of

13 weeks ended 26 weeks ended

Dollars in thousands October 31, 2020 % of

Sales October 26, 2019 % of

Sales October 31, 2020 % of

Sales October 26, 2019 % of

Total Depreciation and Amortization Expense

$ 13,193 2.2% $ 15,546 2.0% $ 27,256 3.4% $ 31,425 2.9%

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.

Depreciation and amortization expense decreased by $2.4 million, or 15.1%, to $13.2 million during the 13 weeks ended October 31, 2020 from $15.5 million during the 13 weeks ended October 26, 2019.

Depreciation and amortization expense decreased by $4.2 million, or 13.3%, to $27.3 million during the 26 weeks ended October 31, 2020 from $31.4 million during the 26 weeks ended October 26, 2019.The decrease was primarily attributable to lower depreciation related to closed stores and lower capital expenditures.

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

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.

During the 26 weeks ended October 26, 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 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 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.

During the 13 and 26 weeks ended October 31, 2020, we recognized restructuring and other charges totaling $3.4 million and $9.1 million, respectively, comprised primarily of $1.1 million and $4.5 million, respectively, for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives, $2.3 million and $4.6 million, respectively, for professional service costs related to restructuring, process improvements, shareholder activist activities, and costs related to liabilities for a facility closure.

During the 13 and 26 weeks ended October 26, 2019, we recognized restructuring and other charges totaling $1.6 million and $3.0 million, respectively, comprised primarily of $0.1 million 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 $1.5 million and $2.2 million, respectively, related to professional service costs related to restructuring, process improvements, shareholder activist activities, and costs related to liabilities for a facility closure.

Operating Income (Loss)

13 weeks ended 26 weeks ended

Dollars in thousands October 31, 2020 % of

Sales October 26, 2019 % of

Sales October 31, 2020 % of

Sales October 26, 2019 % of

Total Operating Income (Loss) $ 6,733 1.2% $ 56,431 7.3% $ (52,182) (6.5)% $ 12,619 1.2%

Our operating income was $6.7 million during the 13 weeks ended October 31, 2020, compared to an operating income of $56.4 million during the 13 weeks ended October 26, 2019.

The decrease in operating income is due to the matters discussed above.

For the 13 weeks ended October 31, 2020, excluding the $3.4 million of restructuring and other charges, discussed above, operating income was $10.1 million (or 1.7%).

For the 13 weeks ended October 26, 2019, excluding the $1.6 million of restructuring and other charges, discussed above, operating income was $58.0 million (or 7.5% of sales).

Our operating loss was $(52.2) million during the 26 weeks ended October 31, 2020, compared to an operating income of $12.6 million during the 26 weeks ended October 26, 2019.

The decrease in operating income is due to the matters discussed above.

For the 26 weeks ended October 31, 2020, excluding the $9.1 million of restructuring and other charges, discussed above, operating loss was $(43.1) million (or 5.4%).

For the 26 weeks ended October 26, 2019, excluding the $3.0 million of restructuring and other charges and impairment loss (non-cash) of $0.4 million, discussed above, operating income was $16.1 million (or 1.5% of sales).

Interest Expense, Net

13 weeks ended

Dollars in thousands August 1, 2020 July 27, 2019

13 weeks ended 26 weeks ended

Dollars in thousands October 31, 2020 October 26, 2019 October 31, 2020 October 26, 2019

Interest Expense, Net $ 912 $ 1,446 $ 3,565 $ 3,978

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 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.

Net interest expense decreased by $0.5 million, or 36.9%, to $0.9 million during the 13 weeks ended October 31, 2020 from $1.4 million during the 13 weeks ended October 26, 2019.

Net interest expense decreased by $0.4 million, or 10.4%, to $3.6 million during the 26 weeks ended October 31, 2020 from $4.0 million during the 26 weeks ended October 26, 2019.

The decrease was primarily due to lower interest rates and lower net borrowings compared to the prior year.

Income Tax (Benefit) Expense

13 weeks ended 26 weeks ended

Dollars in thousands October 31, 2020 Effective Rate October 26, 2019 Effective Rate October 31, 2020 Effective Rate October 26, 2019 Effective Rate

Income Tax (Benefit) Expense $ (1,694) (29.1)% $ 19,054 34.7% $ (16,610) 29.8% $ 4,865 56.3%

We recorded an income tax benefit of $(1.7) million on pre-tax income of $5.8 million of during the 13 weeks ended October 31, 2020, which represented an effective income tax rate of (29.1)% and we recorded income tax expense of $19.1 million on a pre-tax income of $55.0 million during the 13 weeks ended October 26, 2019, which represented an effective income tax rate of 34.7%.

We recorded an income tax benefit of $(16.6) million on a pre-tax loss of $(55.7) million of during the 26 weeks ended October 31, 2020, which represented an effective income tax rate of 29.8% and we recorded income tax expense of $4.9 million on pre-tax income of $8.6 million during the 26 weeks ended October 26, 2019, which represented an effective income tax rate of 56.3%.

The effective tax rate for the 13 and 26 weeks ended October 31, 2020 is lower as compared to the comparable prior year due to permanent differences and the impact of benefits available to the Company as a result of the CARES Act in the current year.

Net Income (Loss)

13 weeks ended 26 weeks ended

Dollars in thousands October 31, 2020 October 26, 2019 October 31, 2020 October 26, 2019

Net income (loss) $ 7,515 $ 35,931 $ (39,137) $ 3,776

As a result of the factors discussed above, net income was $7.5 million during the 13 weeks ended October 31, 2020, compared with net income of $35.9 million during the 13 weeks ended October 26, 2019 and net loss was $(39.1) million

during the 26 weeks ended October 31, 2020, compared with net income of $3.8 million during the 26 weeks ended October 26, 2019.

Adjusted Earnings (non-GAAP) is $11.1 million during the 13 weeks ended October 31, 2020, compared with $37.8 million during the 13 weeks ended October 26, 2019 and Adjusted Earnings (non-GAAP) is $(30.6) million during the 26 weeks ended October 31, 2020, compared with $7.8 million during the 26 weeks ended October 26, 2019.

See Adjusted Earnings (non-GAAP) discussion below.

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Adjusted Earnings (non-GAAP)

13 weeks ended

Dollars in thousands August 1, 2020 July 27, 2019

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

13 weeks ended 26 weeks ended

Dollars in thousands October 31, 2020 October 26, 2019 October 31, 2020 October 26, 2019

Net income (loss) $ 7,515 $ 35,931 $ (39,137) $ 3,776

Reconciling items, after-tax (below)

3,560 1,903 8,496 3,983

Adjusted Earnings (non-GAAP) $ 11,075 $ 37,834 $ (30,641) $ 7,759

1 unchanged sentence

Impairment loss (non-cash) (a)

$ — $ — $ — $ 433

Content amortization (non-cash)

1,222 998 2,386 1,909

Restructuring and other charges (a)

3,387 1,569 9,058 3,035

Reconciling items, pre-tax 4,609 2,567 11,444 5,377

Pro forma income tax impact (b)

1,049 664 2,948 1,394

Reconciling items, after-tax $ 3,560 $ 1,903 $ 8,496 $ 3,983

2 unchanged sentences

Adjusted EBITDA (non-GAAP)

13 weeks ended

Dollars in thousands August 1, 2020 July 27, 2019

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

13 weeks ended 26 weeks ended

Dollars in thousands October 31, 2020 October 26, 2019 October 31, 2020 October 26, 2019

Net income (loss) $ 7,515 $ 35,931 $ (39,137) $ 3,776

Depreciation and amortization expense 13,193 15,546 27,256 31,425

Content amortization (non-cash)

1,222 998 2,386 1,909

Interest expense, net 912 1,446 3,565 3,978

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

Income tax (benefit) expense (1,694) 19,054 (16,610) 4,865

Impairment loss (non-cash) (a)

Restructuring and other charges (a)

3,387 1,569 9,058 3,035

Adjusted EBITDA (non-GAAP) (a)

1 unchanged sentence

(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

The following is Adjusted EBITDA by segment for the 13 and 26 weeks ended October 31, 2020 and October 26, 2019.

Adjusted EBITDA - by Segment 13 weeks ended October 31, 2020

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

6 unchanged sentences

Adjusted EBITDA (non-GAAP) $ 18,324 $ 6,568 $ 689 $ (5,501) $ 4,455 $ 24,535

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

Adjusted EBITDA - by Segment 13 weeks ended October 26, 2019

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

6 unchanged sentences

Adjusted EBITDA (non-GAAP) $ 62,572 $ 7,942 $ 314 $ (5,668) $ 9,384 $ 74,544

(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.

Adjusted EBITDA - by Segment 26 weeks ended October 31, 2020

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

Sales $ 735,290 $ 116,681 $ 11,819 $ — $ (64,291) $ 799,499

Cost of sales (a)

623,241 89,210 427 — (61,912) 650,966

Gross profit 112,049 27,471 11,392 — (2,379) 148,533

Selling and administrative expenses

134,365 7,937 9,039 10,745 (71) 162,015

Adjusted EBITDA (non-GAAP) $ (22,316) $ 19,534 $ 2,353 $ (10,745) $ (2,308) $ (13,482)

Adjusted EBITDA - by Segment 26 weeks ended October 26, 2019

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

Sales $ 1,016,425 $ 112,519 $ 10,589 $ — $ (47,648) $ 1,091,885

Cost of sales (a)

792,952 85,066 519 — (47,168) 831,369

Gross profit 223,473 27,453 10,070 — (480) 260,516

Selling and administrative expenses

182,393 9,352 8,728 10,675 (53) 211,095

Adjusted EBITDA (non-GAAP) $ 41,080 $ 18,101 $ 1,342 $ (10,675) $ (427) $ 49,421

(a) For the 13 weeks ended October 31, 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 26 weeks ended October 31, 2020, gross margin excludes $0.4 million and $2.0 million of amortization expense (non-cash) related to content development costs in the Retail Segment and DSS Segment, respectively.

For the 13 weeks ended October 26, 2019, gross margin excludes $0.2 million and $0.8 million of amortization expense (non-cash) related to content development costs in the Retail Segment and DSS Segment, respectively.

For the 26 weeks ended October 26, 2019, gross margin excludes $0.4 million and $1.5 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.

1 unchanged sentence

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

As of October 31, 2020, we had $99.5 million outstanding borrowings under the Credit Agreement.

See Financing Arrangements discussion below.

4 unchanged sentences

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.

As many schools adjusted their learning model and curtailed on-campus activities in response to the pandemic, our flexible offerings ensured that students were equipped with their course materials regardless of whether schools resumed classes on campus, remotely or via a hybrid learning model.

Fewer students returned to campus this fall, as many schools implemented a remote learning model and curtailed on-campus classes and activities.

Additionally, sales were impacted by overall enrollment declines in higher education.

2 unchanged sentences

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.

The first half of Fiscal 2021 was significantly impacted by COVID-19 related campus store closures, as well as lower enrollments due to COVID-19 and fewer on campus events.

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.

There is still uncertainty about the duration and extent of the impact of the COVID-19 pandemic.

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.

5 unchanged sentences

26 weeks ended

Dollars in thousands August 1, 2020 July 27, 2019

Dollars in thousands October 31, 2020 October 26, 2019

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

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

Net cash flows provided by operating activities 88,143 161,449

Net cash flows used in investing activities (12,951) (16,096)

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

Net cash flows used in financing activities (76,081) (134,765)

Cash, cash equivalents, and restricted cash at end of period $ 8,119 $ 25,356

7 unchanged sentences

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

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.

Cash flows provided by operating activities during the 26 weeks ended October 31, 2020 were $88.1 million compared to $161.4 million during the 26 weeks ended October 26, 2019.

This decrease in cash provided by operating activities of $73.3 million was primarily due to lower net income compared to the prior year and changes in inventory and 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 13 weeks ended August 1, 2020 were $(5.5) million compared to $(6.1) million during the 13 weeks ended July 27, 2019.

Cash flows used in investing activities during the 26 weeks ended October 31, 2020 were $(13.0) million compared to $(16.1) million during the 26 weeks ended October 26, 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 $7.1 million and $8.3 million during the 13 weeks ended August 1, 2020 and July 27, 2019, respectively.

Capital expenditures totaled $16.2 million and $19.3 million during the 26 weeks ended October 31, 2020 and October 26, 2019, respectively.

Cash Flow from Financing Activities

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.

Cash flows used in financing activities during the 26 weeks ended October 31, 2020 were $(76.1) million compared to $(134.8) million during the 26 weeks ended October 26, 2019.

This net change of $58.7 million is primarily due to lower net borrowings under the credit agreement.

Financing Arrangements

4 unchanged sentences

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.

During the 26 weeks ended October 31, 2020, we borrowed $330.8 million and repaid $406.0 million under the Credit Agreement, with $99.5 million of outstanding borrowings as of October 31, 2020, comprised entirely of outstanding borrowings under the Credit Facility.

During the 26 weeks ended October 26, 2019, we borrowed $150.0 million and repaid $283.5 million under the Credit Agreement.

There were no outstanding borrowings as of October 26, 2019 under the Credit Facility and FILO Facility.

As of both October 31, 2020 and October 26, 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.

1 unchanged sentence

Income Tax Implications on Liquidity

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.

As of October 31, 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.

7 unchanged sentences

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

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.

During the 26 weeks ended October 31, 2020, we did not repurchase any of our Common Stock under the stock repurchase program.

As of October 31, 2020, approximately $26.7 million remains available under the stock repurchase program.

During the 26 weeks ended October 31, 2020, we repurchased 410,560 shares of our Common Stock outside of the stock repurchase program in connection with employee tax withholding obligations for vested stock awards.

Contractual Obligations

2 unchanged sentences

Off-Balance Sheet Arrangements

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

As of October 31, 2020, we have no off-balance sheet arrangements as defined in Item 303 of Regulation S-K.

Critical Accounting Policies

12 unchanged sentences

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;

• risks associated with COVID-19 and the governmental responses to it, including its impact 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;

40 unchanged sentences

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