What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-03-08 compared with 2021-11-30 · 336 added, 256 removed, 468 unchanged (56% of the section changed)

11 unchanged sentences

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 e-commerce capabilities and accelerate such capabilities through our recent merchandising partnership with Fanatics Retail Group Fulfillment, LLC, Inc.

We expect to continue to introduce scalable and advanced digital solutions focused largely on the student, expand our e-commerce capabilities and accelerate such capabilities through our merchandising partnership with Fanatics Retail Group Fulfillment, LLC, Inc.

(“Fanatics”) and Fanatics Lids College, Inc.

(“FLC”) (collectively referred to herein as the “FLC Partnership”), increase market share with new accounts, and expand our strategic opportunities through acquisitions and partnerships.

We expect general merchandise sales to increase over the long term, as our product assortments continue to emphasize and reflect changing consumer trends, and we evolve our presentation concepts and merchandising of products in stores and online, which we expect to be further enhanced and accelerated through the FLC Partnership.

We expect gross general merchandise sales to increase over the long term, as our product assortments continue to emphasize and reflect changing consumer trends, and we evolve our presentation concepts and merchandising of products in stores and online, which we expect to be further enhanced and accelerated through the FLC Partnership.

Through this partnership, we receive unparalleled product assortment, e-commerce capabilities and powerful digital marketing tools to drive increased value for customers and accelerate growth of our logo and emblematic general merchandise business.

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Business in our Annual Report on Form 10-K for the fiscal year ended May 1, 2021.

First Day Inclusive Access Programs

We provide product and service offerings designed to address the most pressing issues in higher education, including equitable access, enhanced convenience and improved affordability through innovative course material delivery models designed to drive improved student experiences and outcomes.

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

• Through First Day, digital course materials are adopted by a faculty member for a single course, and students receive their materials through their learning management system.

• First Day Complete is adopted by an institution and includes all classes, providing students both physical and digital materials.

The First Day Complete model drives substantially greater unit sell-through for the bookstore.

Offering courseware sales through our inclusive access First Day and First Day Complete models is a key, and increasingly important strategic initiative of ours to meet the market demands of substantially reduced pricing to students, as well as the opportunity to improve student outcomes, while, at the same time, increasing our market share, revenue and relative gross profits of courseware sales given the higher volumes of units sold in such models as compared to historical sales models that rely on individual student marketing and sales.

We expect these programs to allow us to ultimately reverse historical long-term trends in courseware revenue declines, which has been observed at those schools where such programs have been adopted.

Partnership with Fanatics and FLC

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Fanatics’ cutting-edge e-commerce and technology expertise offers our campus stores expanded product selection, a world-class online and mobile experience, and a progressive direct-to-consumer platform.

Coupled with FLC, the leading standalone brick and mortar retailer focused exclusively on licensed fan and alumni products, our campus stores have improved access to trend and sales performance data on licensees, product styles, and design treatments.

Coupled with Lids (FLC's parent company), the leading standalone brick and mortar retailer focused exclusively on licensed fan and alumni products, our campus stores have improved access to trend and sales performance data on licensees, product styles, and design treatments.

We maintain our relationships with campus partners and remain responsible for staffing and managing the day-to-day operations of our campus bookstores.

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As contemplated by the FLC Partnership's e-commerce agreement, we began to transition certain of our e-commerce sites to Fanatics e-commerce sites for logo and emblematic products during the first quarter of Fiscal 2022.

As the logo and emblematic general merchandise sales are fulfilled by FLC and Fanatics, we recognize commission revenue earned for these sales on a net basis in our condensed

consolidated financial statements, as compared to the recognition of logo and emblematic general merchandise sales on a gross basis in the prior year.

As the logo and emblematic general merchandise sales are fulfilled by FLC and Fanatics, we recognize commission revenue earned for these sales on a net basis in our condensed consolidated financial statements, as compared to the recognition of logo and emblematic general merchandise sales on a gross basis in the prior year.

For additional information, see Item 1.

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Despite the introduction of COVID-19 vaccines, the pandemic remains highly volatile and continues to evolve.

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

Although most four year schools have returned to a traditional on-campus environment for learning in the current Fall semester, as well as hosted traditional on campus sporting activities and events, there is still uncertainty about the duration and extent of the impact of the COVID-19 pandemic, including on enrollments at community colleges and by international students, the continuation of remote and hybrid class offerings, and the effect on our ability to source products, including textbooks and general merchandise offerings.

We cannot accurately predict the duration or extent of the impact of the COVID-19 virus, including variants, on enrollments, campus activities, university budgets, athletics and other areas that directly affect our business operations .

Although most four year schools returned to a traditional on-campus environment for learning in the Fall semester, as well as hosted traditional on campus sporting activities , there is still uncertainty about the duration and extent of the impact of the COVID-19 pandemic, including on enrollments at community colleges and by international students, the continuation of remote and hybrid class offerings, and its effect on our ability to source products, including textbooks and general merchandise offerings.

As we entered the Spring rush period in early January 2022, we continued to experience the ongoing effects of COVID-19 with the surge of the Omicron variant further impacting students return to campus and on-campus activities.

In early January, while the majority of schools brought students back to campus, some schools chose to conduct classes virtually for the beginning of the semester, while other schools chose to delay their start dates (and some schools both delayed the start of the semester and started classes virtually), thus reducing and/or delaying sales later into the quarter or shifting some sales to our fourth quarter.

We will continue to assess our operations and will continue to consider the guidance of local governments and our campus partners to determine how to operate our bookstores in the safest manner for our employees and customers.

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

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.

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.

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

Although many academic institutions have reopened, some are providing alternatives to traditional in-person instruction, including online and hybrid learning options and significantly reduced classroom sizes.

Although many academic institutions have reopened, some are providing alternatives to traditional in-person instruction, including online and hybrid learning options and

significantly reduced classroom sizes.

Additionally, our business, like many others has been affected by the challenging labor market and the ability to recruit employees.

• Economic Environment :

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

The broader macro-economic global supply chain issues may also impact our ability to source school supplies and general merchandise sold in our campus bookstores, including technology-related products and emblematic clothing.

Retail general merchandise sales are subject to short-term fluctuations driven by the broader retail environment and other economic factors, such as interest rate fluctuations and inflationary considerations.

The broader macro-economic global supply chain issues has impacted our ability to source school supplies and general merchandise sold in our campus bookstores, including technology-related products and emblematic clothing.

• 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.

We continue to see downward enrollment trends.

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

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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;

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

Selling and administrative expenses also include long-term incentive plan compensation expense and general office expenses, such as

merchandising, procurement, field support, 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.

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13 weeks ended 39 weeks ended

Dollars in thousands October 30,

2021 October 31,

2020 October 30,

2021 October 31,

Dollars in thousands January 29,

2022 January 30,

2021 January 29,

2022 January 30,

Product sales and other $ 377,713 $ 373,502 $ 1,182,812 $ 1,118,544

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Total sales $ 402,798 $ 411,613 $ 1,270,569 $ 1,211,112

Net income (loss) $ 22,528 $ 7,515 $ (21,818) $ (39,137)

Net loss $ (36,801) $ (48,289) $ (58,619) $ (87,426)

Adjusted Earnings (non-GAAP) (a)

$ (28,946) $ (25,572) $ (44,005) $ (56,213)

Adjusted EBITDA (non-GAAP) (a)

Adjusted EBITDA by Segment (non-GAAP) (a)

Retail $ (15,386) $ (22,222) $ 4,436 $ (44,538)

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Total Adjusted EBITDA (non-GAAP) $ (13,101) $ (20,782) $ 1,370 $ (34,264)

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

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

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

See Use of Non-GAAP Measures discussion below.

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

13 weeks ended 39 weeks ended

2021 October 31,

2020 October 30,

2021 October 31,

2022 January 30,

2021 January 29,

2022 January 30,

Product sales and other 93.8 % 90.7 % 93.1 % 92.4 %

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Total sales 100.0 100.0 100.0 100.0

Cost of sales:

Cost of sales (exclusive of depreciation and amortization expense):

Product and other cost of sales (a)

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Depreciation and amortization expense 3.0 3.2 2.9 3.3

Impairment loss (non-cash) 1.6 6.7 0.5 2.3

Restructuring and other charges — 0.4 0.3 0.9

Operating income (loss) 3.9 % 1.2 % (1.9) % (6.5) %

Operating loss (8.2) % (15.6) % (4.0) % (9.6) %

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

Results of Operations - 13 and 26 weeks ended October 30, 2021 compared with the 13 and 26 weeks ended October 31, 2020

13 weeks ended October 30, 2021

Results of Operations - 13 and 39 weeks ended January 29, 2022 compared with the 13 and 39 weeks ended January 30, 2021

13 weeks ended January 29, 2022

Dollars in thousands Retail Wholesale DSS Corporate Services Eliminations Total

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Total sales 374,740 37,039 9,430 — (18,411) 402,798

Cost of sales:

Cost of sales (exclusive of depreciation and amortization expense):

Product and other cost of sales 287,435 28,935 1,498 — (20,175) 297,693

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(24,404) 2,767 (1,669) (5,172) 1,800 (26,678)

Impairment loss (non-cash) 6,411 — — — — 6,411

Restructuring and other charges 30 — — 16 — 46

Operating income $ 24,589

13 weeks ended October 31, 2020

Operating (loss) income $ (30,845) $ 2,767 $ (1,669) $ (5,188) $ 1,800 $ (33,135)

13 weeks ended January 30, 2021

Dollars in thousands Retail Wholesale DSS Corporate Services Eliminations Total

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Total sales 387,669 39,465 7,206 — (22,727) 411,613

Cost of sales:

Cost of sales (exclusive of depreciation and amortization expense):

Product and other cost of sales 308,752 28,807 1,324 — (23,276) 315,607

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(32,204) 4,708 (1,996) (6,515) 604 (35,403)

Impairment loss (non-cash) 27,630 — — — — 27,630

Restructuring and other charges 162 — 571 936 — 1,669

Operating income $ 6,733

26 weeks ended October 30, 2021

Operating (loss) income $ (59,996) $ 4,708 $ (2,567) $ (7,451) $ 604 $ (64,702)

39 weeks ended January 29, 2022

Dollars in thousands Retail Wholesale DSS Corporate Services Eliminations Total

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Total sales 1,194,161 103,192 26,012 — (52,796) 1,270,569

Cost of sales:

Cost of sales (exclusive of depreciation and amortization expense):

Product and other cost of sales 894,936 79,063 4,144 — (53,219) 924,924

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(23,363) 7,750 (5,286) (19,460) 556 (39,803)

Impairment loss (non-cash) 6,411 — — — — 6,411

Restructuring and other charges 2,831 — — 954 — 3,785

Operating loss $ (16,864)

26 weeks ended, October 31, 2020

Operating (loss) income $ (32,605) $ 7,750 $ (5,286) $ (20,414) $ 556 $ (49,999)

39 weeks ended January 30, 2021

Dollars in thousands Retail Wholesale DSS Corporate Services Eliminations Total

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Total sales 1,122,959 156,146 19,025 — (87,018) 1,211,112

Cost of sales:

Cost of sales (exclusive of depreciation and amortization expense):

Product and other cost of sales 897,283 118,017 3,735 — (85,188) 933,847

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(75,477) 21,625 (5,647) (17,324) (1,704) (78,527)

Impairment loss (non-cash) 27,630 — — — — 27,630

Restructuring and other charges 4,633 — 571 5,523 — 10,727

Operating loss $ (52,182)

The following table summarizes our sales for the 13 and 26 weeks ended October 30, 2021 and October 31, 2020:

Operating (loss) income $ (107,740) $ 21,625 $ (6,218) $ (22,847) $ (1,704) $ (116,884)

The following table summarizes our sales for the 13 and 39 weeks ended January 29, 2022 and January 30, 2021:

13 weeks ended 39 weeks ended

Dollars in thousands October 30, 2021 October 31, 2020 % October 30, 2021 October 31, 2020 %

Dollars in thousands January 29, 2022 January 30, 2021 % January 29, 2022 January 30, 2021 %

Product sales and other $ 377,713 $ 373,502 1.1% $ 1,182,812 $ 1,118,544 5.7%

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Total Sales $ 402,798 $ 411,613 (2.1)% $ 1,270,569 $ 1,211,112 4.9%

Sales increased by $31.5 million, or 5.3%, to $627.0 million during the 13 weeks ended October 30, 2021 from $595.5 million during the 13 weeks ended October 31, 2020.

Sales increased by $68.3 million, or 8.5%, to $867.8 million during the 26 weeks ended October 30, 2021 from $799.5 million during the 26 weeks ended October 31, 2020.

Sales decreased by $8.8 million, or 2.1%, to $402.8 million during the 13 weeks ended January 29, 2022 from $411.6 million during the 13 weeks ended January 30, 2021.

The decrease is related to lower course material sales primarily due to lower enrollments, primarily at community colleges and by international students, and the continuation of remote and hybrid class offerings in response to the latest COVID variant.

The decrease in sales is also due to lower logo and emblematic sales as they are reflected in sales on a net basis in our condensed consolidated financial statements, as compared to the recognition of logo and emblematic sales on a gross basis in the periods prior to April 4, 2021.

For additional information, see Retail Sales discussion below.

Sales increased by $59.5 million, or 4.9%, to $1,270.6 million during the 39 weeks ended January 29, 2022 from $1,211.1 million during the 39 weeks ended January 30, 2021.

The sales increase is primarily related to the impact from re-opening stores that had temporarily closed due to the COVID-19 pandemic in the prior year.

The increase is offset by lower sales primarily due to lower enrollments, primarily at community colleges and by international students, the continuation of remote and hybrid class offerings and lower logo and emblematic sales as they are reflected in sales on a net basis in our condensed consolidated financial statements, as compared to the recognition of logo and emblematic sales on a gross basis in the periods prior to April 4, 2021.

For additional information, see Retail Sales discussion below.

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 October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020

Dollars in millions January 29, 2022 January 30, 2021 January 29, 2022 January 30, 2021

New stores $ 17.3 $ 17.3 $ 53.9 $ 52.7

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$ (8.8) $ (90.7) $ 59.5 $ (383.1)

(a) Effective April 2021, as contemplated by the FLC Partnership's merchandising agreement, logo and emblematic general merchandise sales were fulfilled by FLC.

During the first quarter of Fiscal 2022, as contemplated by the FLC Partnership's e-commerce agreement, we began to transition certain of our e-commerce sites to Fanatics e-commerce sites for logo and emblematic products.

For Comparable Store Sales details, see below.

(a) In December 2020, we entered into merchandising partnership with Fanatics Retail Group Fulfillment, LLC, Inc.

(“Fanatics”) and Fanatics Lids College, Inc.

(“FLC”) (collectively referred to herein as the “FLC Partnership”).

Effective April 4, 2021, as contemplated by the FLC Partnership's merchandising agreement and e-commerce agreement, we began to transition the fulfillment of logo and emblematic general merchandise sales to FLC and Fanatics.

As the logo and emblematic general merchandise sales are fulfilled by FLC and Fanatics, we recognize commission revenue earned for these sales on a net basis in our condensed consolidated financial statements, as compared to the recognition of logo and emblematic sales on a gross basis in the periods prior to April 4, 202 1.

For Retail Gross Comparable Store Sales details, see below.

(b) Service revenue includes brand partnerships, shipping and handling, and revenue from other programs.

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See discussion of intercompany activities and eliminations below.

Retail sales increased by $32.4 million, or 5.6%, to $608.9 million during the 13 weeks ended October 30, 2021 from $576.5 million during the 13 weeks ended October 31, 2020.

Retail sales increased by $84.1 million, or 11.4%, to $819.4 million during the 26 weeks ended October 30, 2021 from $735.3 million during the 26 weeks ended October 31, 2020.

Retail added 76 new stores and closed 48 stores during the 26 weeks ended October 30, 2021, ending the period with a total of 1,445 stores.

Retail sales decreased by $12.9 million, or 3.3%, to $374.7 million during the 13 weeks ended January 29, 2022 from $387.7 million during the 13 weeks ended January 30, 2021.

Retail sales increased by $71.2 million, or 6.3%, to $1,194.2 million during the 39 weeks ended January 29, 2022 from $1,123.0 million during the 39 weeks ended January 30, 2021.

Retail added 82 new stores and closed 58 stores during the 39 weeks ended January 29, 2022, ending the period with a total of 1,441 stores.

13 weeks ended 39 weeks ended

October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020

January 29, 2022 January 30, 2021 January 29, 2022 January 30, 2021

Number of Stores:

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Number of stores at end of period 799 642 765 676 799 642 765 676

Product and other sales for Retail for the 13 weeks ended October 30, 2021 increased by $26.4 million, or 5.0% to $559.3 million from $532.9 million during the 13 weeks ended October 31, 2020.

Product and other sales for Retail for the 26 weeks ended October 30, 2021 increased by $75.9 million, or 11.2% to $756.7 million from $680.8 million during the 26 weeks ended October 31, 2020.

The sales increase is primarily related to the impact from re-opening stores that had temporarily closed due to the COVID-19 pandemic in the prior year.

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.

Comparable textbook sales remained essentially flat, as compared to a 19% decline a year ago, as enrollment declines were mitigated by the growth of First Day (our inclusive access program).

Revenue for First Day programs grew 80% to $96 million during the quarter.

Comparable general merchandise sales increased 78.3%, as compared to a 52.0% decline a year ago, benefiting greatly from the return to an on campus learning experience and the resumption of many activities and events.

Sales for general merchandise, including on-campus cafe and convenience products, and trade merchandise have increased compared to the prior year, when sales were impacted by the temporary store closings due to the COVID-19 pandemic, as well as the impact of fewer students returning to campus, as many schools implemented a remote learning model and curtailed on-campus classes and activities.

Product and other sales and Rental income are impacted by comparable store sales, the growth of First Day Complete, new store openings and store closings, as well as the impact from the COVID-19 pandemic.

Sales were impacted by overall enrollment declines in higher education.

While many big-conferences resumed their sport activities, other on campus events, such as Parent's Weekends or Alumni events, continue to be either eliminated or severely restricted, which further impacted the company’s general merchandise business.

First Day (our inclusive access program), digital and eTextbook revenue increased, due to a shift to lower cost options and more affordable solutions, including digital offerings.

To supplement the Total Sales table presented above in accordance with generally accepted accounting principles (“GAAP”), the Company uses the non-GAAP financial measure of Retail Gross Comparable Store Sales.

Retail Gross Comparable Store Sales (non-GAAP) includes sales from physical and virtual stores that have been open for an entire fiscal year period and does not include sales from closed stores for all periods presented.

As contemplated by the FLC Partnership's merchandising agreement and e-commerce agreement, we began to transition the fulfillment of logo and emblematic general merchandise sales to FLC and Fanatics.

For Retail Gross Comparable Store Sales (non-GAAP), sales for logo and emblematic general merchandise fulfilled by FLC, Fanatics and digital agency sales are included on a gross basis.

We believe the current Retail Gross Comparable Store Sales (non-GAAP) calculation method reflects the manner in which management views comparable sales, as well as the seasonal nature of our business.

Retail Gross Comparable Store Sales (non-GAAP) variances for Retail by category for the 13 and 26 week periods are as follows:

Retail Gross Comparable Store Sales (non-GAAP) variances

Although most four year schools returned to a traditional on-campus environment for learning in the Fall semester, as well as hosted traditional on campus sporting activities, there is still uncertainty about the duration and extent of the impact of the COVID-19 pandemic, including on enrollments at community colleges and by international students, and the continuation of remote and hybrid class offerings.

While many conferences resumed their sport activities, other on campus events, such as Parent's Weekends or Alumni events, continue to be either eliminated or severely

restricted, which further impacted the company’s general merchandise business.

Product and other sales for Retail for the 13 weeks ended January 29, 2022 remained flat at $349.6 million during the 13 weeks ended January 30, 2021.

Rental income for Retail for the 13 weeks ended January 29, 2022 decreased by $13.0 million, or 34.2% to $25.1 million from $38.1 million during the 13 weeks ended January 30, 2021.

During the 13 weeks ended January 29, 2022, course material sales and rentals were impacted by lower enrollments, primarily at community colleges and by international students, and the continuation of remote and hybrid class offerings, which was somewhat mitigated by the growth of First Day Complete.

Product and other sales for Retail for the 39 weeks ended January 29, 2022 increased by $76.0 million, or 7.4% to $1,106.4 million from $1,030.4 million during the 39 weeks ended January 30, 2021.

Rental income for Retail for the 39 weeks ended January 29, 2022 decreased by $4.8 million, or 5.2% to $87.8 million from $92.6 million during the 39 weeks ended January 30, 2021.

The overall Retail sales increase is primarily related to the impact from re-opening stores that had temporarily closed due to the COVID-19 pandemic in the prior year.

Course material sales were also impacted by to lower enrollments, primarily at community colleges and by international students, and the continuation of remote and hybrid class offerings.

During the 13 weeks ended January 29, 2022, Retail Gross Comparable Store textbook sales decreased by 4.0%, as compared to an 8.1% decline a year ago.

During the 39 weeks ended January 29, 2022, Retail Gross Comparable Store textbook sales increased by 2.0%, as compared to a 14.3% decline a year ago, when the majority of our stores had temporarily closed due to the COVID-19 pandemic.

See Retail Gross Comparable Store Sales discussion below.

Course material declines were mitigated by the growth of First Day (our inclusive access program), digital and eTextbook revenue increases, due to a shift to lower cost options and more affordable solutions, including digital offerings.

For the 2022 Spring term, First Day Complete was offered through 76 campus bookstores compared to 14 campus bookstores in the prior year, at schools with over 380,000 in total undergraduate enrollment, up from approximately 62,000 in total undergraduate enrollment in the 2021 Spring term.

Revenue for both of our First Day models increased to $76.1 million during the third quarter of Fiscal 2022, as compared to $46.4 million in the prior year period.

Revenue for both of our First Day models increased to $199.2 million during Fiscal 2022, as compared to $108.9 million in the prior year period.

During the 13 and 39 weeks ended January 29, 2022, logo and emblematic sales are reflected in sales on a net basis in our condensed consolidated financial statements, as compared to the recognition of logo and emblematic sales on a gross basis in the prior year period.

See Retail Gross Comparable Store Sales discussion below.

During the 13 weeks ended January 29, 2022, Retail Gross Comparable Store general merchandise sales increased by 59.1%, as compared to a 45.8% decline a year ago.

During the 39 weeks ended January 29, 2022, Retail Gross Comparable Store general merchandise sales increased by 82.0%, as compared to a 54.9% decline a year ago.

Both results during both periods benefited greatly from the return to an on campus learning experience and the resumption of many activities and events.

However, general merchandise sales are still impacted by fewer students returning to campus, as many schools implemented a remote or hybrid learning model and curtailed on-campus classes and activities.

Retail Gross Comparable Store Sales

To supplement the Total Sales table presented above, the Company uses Retail Gross Comparable Store Sales as a key performance indicator.

Retail Gross Comparable Store Sales includes sales from physical and virtual stores that have been open for an entire fiscal year period and does not include sales from permanently closed stores for all periods presented.

For Retail Gross Comparable Store Sales, sales for logo and emblematic general merchandise fulfilled by FLC, Fanatics and digital agency sales are included on a gross basis for consistent year-over-year comparison.

As the logo and emblematic general merchandise sales are fulfilled by FLC and Fanatics, we recognize commission revenue earned for these sales on a net basis in our condensed consolidated financial statements, as compared to the recognition of logo and emblematic sales on a gross basis in the periods prior to April 4, 2021.

We believe the current Retail Gross Comparable Store Sales calculation method reflects management’s view that such comparable store sales are an important measure of the growth in sales when evaluating how established stores have performed over time.

We present this metric as additional useful information about the Company’s operational and financial performance and to allow greater transparency with respect to important metrics used by management for operating and financial decision-

Retail Gross Comparable Store Sales are also referred to as "same-store" sales by others within the retail industry and the method of calculating comparable store sales varies across the retail industry.

As a result, our calculation of comparable store sales is not necessarily comparable to similarly titled measures reported by other companies and is intended only as supplemental information and is not a substitute for net sales presented in accordance with GAAP.

Retail Gross Comparable Store Sales variances for Retail by category for the 13 and 39 week periods are as follows:

13 weeks ended 39 weeks ended

Dollars in millions October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020

Dollars in millions January 29, 2022 January 30, 2021 January 29, 2022 January 30, 2021

Textbooks (Course Materials) $ (11.9) (4.0) % $ (25.0) (8.1) % $ 17.4 2.0 % $ (136.1) (14.3) %

1 unchanged sentence

Trade Books 1.6 48.5 % (5.5) (61.1) % 5.0 61.6 % (19.4) (69.3) %

Total Retail Gross Comparable Store Sales (non-GAAP) $ 73.5 13.2 % $ (205.1) (28.1) % $ 147.6 21.0 % $ (311.3) (31.8) %

Rental income for Retail for the 13 weeks ended October 30, 2021 increased by $6.0 million, or 13.7% to $49.6 million from $43.7 million during the 13 weeks ended October 31, 2020.

Rental income for Retail for the 26 weeks ended October 30, 2021 increased by $8.2 million, or 15.1% to $62.7 million from $54.5 million during the 26 weeks ended October 31, 2020.

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

The increase in rental income is primarily due to increased rental activity due to the temporary store closings due the COVID-19 pandemic in the prior year discussed above.

Wholesale sales decreased by $14.7 million, or 40.5% to $21.7 million during the 13 weeks ended October 30, 2021 from $36.4 million during the 13 weeks ended October 31, 2020.

Wholesale sales decreased by $50.5 million, or 43.3% to $66.2 million during the 26 weeks ended October 30, 2021 from $116.7 million during the 26 weeks ended October 31, 2020.

The decrease is primarily due to lower gross sales impacted by the COVID-19 pandemic, including supply constraints resulting from the lack of on campus textbook buyback opportunities during the prior fiscal year, a decrease in customer demand resulting from a shift in buying patterns from physical textbooks to digital products, and lower demand from other third-party clients, partially offset by a lower returns and allowances.

Total Retail Gross Comparable Store Sales $ 30.9 8.4 % $ (88.5) (19.9) % $ 186.9 17.6 % $ (397.7) (28.0) %

Consistent with prior years and further exacerbated by some delayed start dates, the Spring Rush period extended beyond the quarter into the fourth quarter.

Factoring in the fiscal month of February into the third quarter, which includes rental deferred revenue for our First Day programs, Retail gross comparable store sales increased by approximately 18.8%.

Wholesale sales decreased by $2.4 million, or 6.1% to $37.0 million during the 13 weeks ended January 29, 2022 from $39.5 million during the 13 weeks ended January 30, 2021.

Wholesale sales decreased by $53.0 million, or 33.9% to $103.2 million during the 39 weeks ended January 29, 2022 from $156.1 million during the 39 weeks ended January 30, 2021.

During the prior year period, 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, whereas the sales shifted back to the physical bookstores in the current period.

DSS total sales increased by $2.3 million, or 39.2% to $8.3 million during the 13 weeks ended October 30, 2021 from $6.0 million during the 13 weeks ended October 31, 2020.

DSS total sales increased by $4.8 million, or 40.3% to $16.6 million during the 26 weeks ended October 30, 2021 from $11.8 million during the 26 weeks ended October 31, 2020.

DSS total sales increased by $2.2 million, or 30.9% to $9.4 million during the 13 weeks ended January 29, 2022 from $7.2 million during the 13 weeks ended January 30, 2021.

DSS total sales increased by $7.0 million, or 36.7% to $26.0 million during the 39 weeks ended January 29, 2022 from $19.0 million during the 39 weeks ended January 30, 2021.

Sales increased primarily due to an increase in subscription sales.

Cost of Sales and Gross Margin

Our cost of sales decreased as a percentage of sales to 76.8% during the 13 weeks ended October 30, 2021 compared to 80.6% during the 13 weeks ended October 31, 2020.

Our gross margin increased by $30.3 million, or 26.3%, to $145.6 million, or 23.2% of sales, during the 13 weeks ended October 30, 2021 from $115.3 million, or 19.4% of sales during the 13 weeks ended October 31, 2020.

Our cost of sales decreased as a percentage of sales to 76.3% during the 26 weeks ended October 30, 2021 compared to 81.7% during the 26 weeks ended October 31, 2020.

Our gross margin increased by $59.4 million, or 40.7%, to $205.6 million, or 23.7% of sales, during the 26 weeks ended October 30, 2021 from $146.1 million, or 18.3% of sales during the 26 weeks ended October 31, 2020.

During the 26 weeks ended October 30, 2021, we recognized a merchandise inventory loss of $0.4 million in cost of goods sold in the Retail Segment discussed below.

Our cost of sales decreased as a percentage of sales to 78.4% during the 13 weeks ended January 29, 2022 compared to 82.8% during the 13 weeks ended January 30, 2021.

Our gross margin increased by $16.4 million, or 23.2%, to $87.0 million, or 21.6% of sales, during the 13 weeks ended January 29, 2022 from $70.6 million, or 17.2% of sales during the 13 weeks ended January 30, 2021.

Our cost of sales decreased as a percentage of sales to 77.0% during the 39 weeks ended January 29, 2022 compared to 82.1% during the 39 weeks ended January 30, 2021.

Our gross margin increased by $75.8 million, or 35.0%, to $292.5 million, or 23.0% of sales, during the 39 weeks ended January 29, 2022 from $216.7 million, or 17.9% of sales during the 39 weeks ended January 30, 2021.

During the 39 weeks ended January 29, 2022, we recognized a merchandise inventory loss of $0.4 million in cost of goods sold in the Retail Segment discussed below.

For additional information, see Item 1.

1 unchanged sentence

Summary of Significant Accounting Policies - Merchandise Inventories.

The following table summarizes the Retail cost of sales for the 13 and 26 weeks ended October 30, 2021 and October 31, 2020:

The following table summarizes the Retail cost of sales for the 13 and 39 weeks ended January 29, 2022 and January 30, 2021:

13 weeks ended 39 weeks ended

Dollars in thousands October 30, 2021 % of

Related Sales October 31, 2020 % of

Related Sales October 30, 2021 % of

Related Sales October 31, 2020 % of

Dollars in thousands January 29, 2022 % of

Related Sales January 30, 2021 % of

Related Sales January 29, 2022 % of

Related Sales January 30, 2021 % of

Related Sales

5 unchanged sentences

$ 305,579 81.5% $ 334,146 86.2% $ 948,032 79.4% $ 957,789 85.3%

The following table summarizes the Retail gross margin for the 13 and 26 weeks ended October 30, 2021 and October 31, 2020:

The following table summarizes the Retail gross margin for the 13 and 39 weeks ended January 29, 2022 and January 30, 2021:

13 weeks ended 39 weeks ended

Dollars in thousands October 30, 2021 % of

Related Sales October 31, 2020 % of

Related Sales October 30, 2021 % of

Related Sales October 31, 2020 % of

Dollars in thousands January 29, 2022 % of

Related Sales January 30, 2021 % of

Related Sales January 29, 2022 % of

Related Sales January 30, 2021 % of

Related Sales

4 unchanged sentences

$ 69,161 18.5% $ 53,523 13.8% $ 246,129 20.6% $ 165,170 14.7%

For the 13 weeks ended October 30, 2021, the Retail gross margin as a percentage of sales increased as discussed below:

• Product and other gross margin increased (430 basis points), driven primarily by a favorable sales mix (400 basis points) due to higher general merchandise sales, lower contract costs as a percentage of sales related to our college and university contracts (25 basis points) resulting from contract renewals and new store contracts, and higher margin rates (5 basis points) due to lower inventory reserves and lower markdowns.

• Rental gross margin increased (640 basis points), driven primarily by higher rental margin rates (595 basis points) and lower contract costs as a percentage of sales related to our college and university contracts (285 basis points), partially offset by an unfavorable rental mix (240 basis points).

For the 26 weeks ended October 30, 2021, the Retail gross margin as a percentage of sales increased as discussed below:

• Product and other gross margin increased (610 basis points), driven primarily by a favorable sales mix (475 basis points) due to higher general merchandise sales, higher margin rates (130 basis points) due to lower inventory reserves and lower markdowns, and lower contract costs as a percentage of sales related to our college and university contracts (5 basis points) resulting from contract renewals and new store contracts, partially offset by an inventory merchandise loss of $0.4 million (5 basis points) related to the final sale of our logo and emblematic general merchandise inventory below

• Rental gross margin increased (870 basis points), driven primarily by higher rental margin rates (590 basis points) and lower contract costs as a percentage of sales related to our college and university contracts (470 basis points), partially offset by an unfavorable rental mix (190 basis points).

The cost of sales and gross margin for Wholesale were $16.1 million, or 74.1% of sales, and $5.6 million, or 25.9% of sales, respectively, during the 13 weeks ended October 30, 2021.

The cost of sales and gross margin for Wholesale was $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 gross margin rate decreased during the 13 weeks ended October 30, 2021 primarily due to higher markdowns, partially offset by a favorable sales mix.

The cost of sales and gross margin for Wholesale were $50.1 million, or 75.8% of sales, and $16.0 million, or 24.2% of sales, respectively, during the 26 weeks ended October 30, 2021.

The cost of sales and gross margin for Wholesale was $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 gross margin rate increased during the 26 weeks ended October 30, 2021 primarily due to a favorable sales mix and lower markdowns, partially offset by the unfavorable impact of returns and allowances.

The gross margin for the DSS segment was $6.9 million, or 83.4% of sales, during the 13 weeks ended October 30, 2021 and $4.7 million, or 78.4% of sales, during the 13 weeks ended October 31, 2020.

The gross margin for the DSS segment was $13.9 million, or 84.0% of sales, during the 26 weeks ended October 30, 2021 and $9.4 million, or 79.6% of sales, during the 26 weeks ended October 31, 2020.

For the 13 weeks ended January 29, 2022, the Retail gross margin as a percentage of sales increased as discussed below:

• Product and other gross margin increased (610 basis points), driven primarily by a favorable sales mix (450 basis points) due to higher general merchandise sales, higher margin rates (295 basis points) due to lower inventory reserves and lower markdowns, partially offset by higher contract costs as a percentage of sales related to our college and university contracts (135 basis points) resulting from contract renewals and new store contracts.

• Rental gross margin decreased (570 basis points), driven primarily by lower rental margin rates (1,380 basis points) and unfavorable rental mix (275 basis points), partially offset by lower contract costs as a percentage of sales related to our college and university contracts (1,080 basis points).

For the 39 weeks ended January 29, 2022, the Retail gross margin as a percentage of sales increased as discussed below:

• Product and other gross margin increased (620 basis points), driven primarily by a favorable sales mix (465 basis points) due to higher general merchandise sales, higher margin rates (200 basis points) due to lower inventory reserves and lower markdowns, partially offset by higher 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 and an inventory merchandise loss of $0.4 million (5 basis points) related to the final sale of our logo and emblematic general merchandise inventory below cost to FLC.

• Rental gross margin increased (490 basis points), driven primarily by lower contract costs as a percentage of sales related to our college and university contracts (685 basis points) and a favorable rental mix (45 basis points), partially offset by lower rental margin rates (240 basis points).

The cost of sales and gross margin for Wholesale were $28.9 million, or 78.1% of sales, and $8.1 million, or 21.9% of sales, respectively, during the 13 weeks ended January 29, 2022.

The cost of sales and gross margin for Wholesale was $28.8 million or 73.0% of sales and $10.7 million or 27.0% of sales, respectively, during the 13 weeks ended January 30, 2021.

The cost of sales and gross margin for Wholesale were $79.1 million, or 76.6% of sales, and $24.1 million, or 23.4% of sales, respectively, during the 39 weeks ended January 29, 2022.

The cost of sales and gross margin for Wholesale was $118.0 million or 75.6% of sales and $38.1 million or 24.4% of sales, respectively, during the 39 weeks ended January 30, 2021.

The gross margin rate decreased during the 13 and 39 weeks ended January 29, 2022 primarily due to the unfavorable impact of returns and allowances and higher markdowns, partially offset by a favorable sales mix.

The gross margin for the DSS segment was $7.9 million, or 84.1% of sales, during the 13 weeks ended January 29, 2022 and $5.9 million, or 81.6% of sales, during the 13 weeks ended January 30, 2021.

The gross margin for the DSS segment was $21.9 million, or 84.1% of sales, during the 39 weeks ended January 29, 2022 and $15.3 million, or 80.4% of sales, during the 39 weeks ended January 30, 2021.

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

Intercompany Eliminations

During the 13 weeks ended October 30, 2021 and October 31, 2020, our sales eliminations were $(11.9) million and $(23.4) million, respectively.

During the 26 weeks ended October 30, 2021 and October 31, 2020, our sales eliminations were $(34.4) million and $(64.3) million, respectively.

During the 13 weeks ended January 29, 2022 and January 30, 2021, our sales eliminations were $(18.4) million and $(22.7) million, respectively.

During the 39 weeks ended January 29, 2022 and January 30, 2021, our sales eliminations were $(52.8) million and $(87.0) 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 October 30, 2021 and October 31, 2020, the cost of sales eliminations were $(16.1) million and $(27.8) million, respectively.

During the 26 weeks ended October 30, 2021 and October 31, 2020, the cost of sales eliminations were $(33.0) million and $(61.9) 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 October 30, 2021 and October 31, 2020, the gross margin eliminations were $4.2 million and $4.4 million, respectively.

During the 26 weeks ended October 30, 2021 and October 31, 2020, the gross margin eliminations were $(1.3) million and $(2.4) million, respectively.

During the 13 weeks ended January 29, 2022 and January 30, 2021, the cost of sales eliminations were $(20.2) million and $(23.3) million, respectively.

During the 39 weeks ended January 29, 2022 and January 30, 2021, the cost of sales eliminations were $(53.2) million and $(85.2) 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 January 29, 2022 and January 30, 2021, the gross margin eliminations were $1.8 million and $0.5 million, respectively.

During the 39 weeks ended January 29, 2022 and January 30, 2021, the gross margin eliminations were $0.4 million and $(1.8) 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.

1 unchanged sentence

13 weeks ended 39 weeks ended

Dollars in thousands October 30, 2021 % of

Sales October 31, 2020 % of

Sales October 30, 2021 % of

Sales October 31, 2020 % of

Dollars in thousands January 29, 2022 % of

Sales January 30, 2021 % of

Sales January 29, 2022 % of

Sales January 30, 2021 % of

Total Selling and Administrative Expenses

$ 101,460 25.2% $ 92,708 22.5% $ 295,597 23.3% $ 254,723 21.0%

During the 13 weeks ended October 30, 2021, selling and administrative expenses increased by $15.9 million, or 17.3%, to $107.9 million from $92.0 million during the 13 weeks ended October 31, 2020.

During the 26 weeks ended October 30, 2021, selling and administrative expenses increased by $32.1 million, or 19.8%, to $194.1 million from $162.0 million during the 26 weeks ended October 31, 2020.

During the 13 weeks ended January 29, 2022, selling and administrative expenses increased by $8.8 million, or 9.4%, to $101.5 million from $92.7 million during the 13 weeks ended January 30, 2021.

During the 39 weeks ended January 29, 2022, selling and administrative expenses increased by $40.9 million, or 16.0%, to $295.6 million from $254.7 million during the 39 weeks ended January 30, 2021.

The variances by segment are discussed by segment below.

The increase in selling and administrative expenses is primarily related to the impact from re-opening stores that had temporarily closed due to the COVID-19 pandemic in the prior year.

Additionally, during the 13 and 26 weeks ended October 30, 2021, long-term incentive compensation expense increased by $2.5 million and $4.6 million, respectively, primarily related to cash-settled phantom share unit awards which are remeasured at the end of each reporting period to reflect current assumptions, including changes in the our common stock price.

During the 13 weeks ended October 30, 2021, Retail selling and administrative expenses increased by $12.1 million, or 15.6%, to $89.5 million from $77.4 million during the 13 weeks ended October 31, 2020.

This increase was primarily due to a $10.2 million increase in stores payroll and operating expenses including comparable stores, virtual stores and new/closed stores payroll and operating expenses, a $1.3 million increase in corporate payroll, infrastructure and product development costs and $0.6 million increase in incentive plan compensation expense related to phantom share awards as discussed above.

Additionally, during the 13 and 39 weeks ended January 29, 2022, long-term incentive compensation expense decreased by $0.6 million and increased by $4.0 million, respectively, primarily related to cash-settled phantom share unit awards which are remeasured at the end of each reporting period to reflect current assumptions, including changes in the our common stock price.

During the 13 weeks ended January 29, 2022, Retail selling and administrative expenses increased by $8.7 million, or 11.5%, to $84.6 million from $75.9 million during the 13 weeks ended January 30, 2021.

This increase was primarily due to a $7.4 million increase in stores payroll and operating expenses including comparable stores, virtual stores and new/closed stores payroll and operating expenses, and a $1.3 million increase in corporate payroll, infrastructure and product development costs.

The payroll increase is primarily related to the impact from re-opening stores that had temporarily closed due to the COVID-19 pandemic in the prior year.

During the 26 weeks ended October 30, 2021, Retail selling and administrative expenses increased by $23.5 million, or 17.5%, to $157.9 million from $134.4 million during the 26 weeks ended October 31, 2020.

During the 39 weeks ended January 29, 2022, Retail selling and administrative expenses increased by $32.2 million, or 15.3%, to $242.5 million from $210.3 million during the 39 weeks ended January 30, 2021.

This increase was primarily due to a $29.8 million increase in stores payroll and operating expenses including comparable stores, virtual stores and new/closed stores payroll and operating expenses, a $0.9 million increase in incentive plan compensation expense related to phantom share awards as discussed above, and a $1.5 million increase in corporate payroll, infrastructure and product development costs.

The payroll increase is primarily related to the impact from re-opening stores that had temporarily closed due to the COVID-19 pandemic in the prior year.

Wholesale selling and administrative expenses increased by $0.3 million, or 5.8%, to $4.4 million from $4.1 million during the 13 weeks ended October 31, 2020.

Wholesale selling and administrative expenses increased by $0.5 million, or 5.6%, to $8.4 million from $7.9 million during the 26 weeks ended October 31, 2020.

The increase in selling and administrative expenses was primarily driven by higher incentive plan compensation expense related to phantom share awards, as discussed above.

During the 13 weeks ended October 30, 2021, DSS selling and administrative expenses increased by $2.3 million, or 46.0%, to $7.3 million from $5.0 million during the 13 weeks ended October 31, 2020.

During the 26 weeks ended October 30, 2021, DSS selling and administrative expenses increased by $4.7 million, or 52.1%, to $13.8 million from $9.0 million during the 26 weeks ended October 31, 2020.

The increase in costs was primarily driven by higher operating costs invested in the business associated with higher product development and sales costs aimed at increasing revenue, and higher incentive plan compensation expense related to phantom share awards, as discussed above.

Wholesale selling and administrative expenses decreased by $0.4 million, or 9.1%, to $3.9 million from $4.3 million during the 13 weeks ended January 30, 2021, primarily driven by lower payroll and operating costs.

Wholesale selling and administrative expenses remained flat at $12.3 million for both the 39 weeks ended January 29, 2022 and January 30, 2021, as lower payroll and operating costs were offset by higher incentive plan compensation expense related to phantom share awards, as discussed above.

During the 13 weeks ended January 29, 2022, DSS selling and administrative expenses increased by $1.8 million, or 29.3%, to $7.8 million from $6.0 million during the 13 weeks ended January 30, 2021.

During the 39 weeks ended January 29, 2022, DSS selling and administrative expenses increased by $6.5 million, or 43.0%, to $21.5 million from $15.0 million during the 39 weeks ended January 30, 2021.

The increase in costs was primarily driven by higher compensation-related expense, higher operating costs invested in the business associated with higher product development and sales costs aimed at increasing revenue, and higher incentive plan compensation expense related to phantom share awards, as discussed above.

Corporate Services

During the 13 weeks ended October 30, 2021, Corporate Services' selling and administrative expenses increased by $1.3 million, or 23.8%, to $6.8 million from $5.5 million during the 13 weeks ended October 31, 2020.

The increase was primarily due to higher incentive plan compensation expense related to phantom share awards of $1.6 million, as discussed above, partially offset by lower operating costs of $0.3 million.

During the 26 weeks ended October 30, 2021, Corporate Services' selling and administrative expenses increased by $3.5 million, or 32.6%, to $14.3 million from $10.8 million during the 26 weeks ended October 31, 2020.

The increase was primarily due to higher incentive plan compensation expense related to phantom share awards of $3.0 million, as discussed above, and higher operating expenses of $0.5 million.

During the 13 weeks ended January 29, 2022, Corporate Services' selling and administrative expenses decreased by $1.3 million, or 20.6%, to $5.2 million during the 13 weeks ended January 29, 2022 from $6.5 million during the 13 weeks ended January 30, 2021.

The decrease was primarily due to lower compensation-related expense of $1.5 million and lower incentive plan compensation expense related to phantom share awards of $0.4 million, as discussed above, partially offset by higher operating costs of $0.6 million.

During the 39 weeks ended January 29, 2022, Corporate Services' selling and administrative expenses increased by $2.2 million, or 12.6%, to $19.4 million from $17.2 million during the 39 weeks ended January 30, 2021.

The increase was primarily due to higher incentive plan compensation expense related to phantom share awards of $2.6 million, as discussed above, and higher operating costs of $1.1 million, partially offset by lower compensation-related expense of $1.5 million.

Depreciation and Amortization Expense

13 weeks ended 39 weeks ended

Dollars in thousands October 30, 2021 % of

Sales October 31, 2020 % of

Sales October 30, 2021 % of

Sales October 31, 2020 % of

Dollars in thousands January 29, 2022 % of

Sales January 30, 2021 % of

Sales January 29, 2022 % of

Sales January 30, 2021 % of

Total Depreciation and Amortization Expense

$ 12,179 3.0% $ 13,307 3.2% $ 36,755 2.9% $ 40,563 3.3%

Depreciation and amortization expense decreased by $1.2 million, or 9.4%, to $12.0 million during the 13 weeks ended October 30, 2021 from $13.2 million during the 13 weeks ended October 31, 2020.

Depreciation and amortization expense decreased by $2.7 million, or 9.8%, to $24.6 million during the 26 weeks ended October 30, 2021 from $27.3 million during the 26 weeks ended October 31, 2020.The decrease was primarily attributable to lower depreciable assets and intangibles due to the store impairment loss recognized during the third quarter of Fiscal 2021.

Depreciation and amortization expense decreased by $1.1 million, or 8.5%, to $12.2 million during the 13 weeks ended January 29, 2022 from $13.3 million during the 13 weeks ended January 30, 2021.

Depreciation and amortization expense decreased by $3.8 million, or 9.4%, to $36.8 million during the 39 weeks ended January 29, 2022 from $40.6 million during the 39 weeks ended January 30, 2021.The decrease was primarily attributable to lower depreciable assets and intangibles due to the store impairment loss recognized during the third quarter of Fiscal 2021.

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 and 39 weeks ended January 29, 2022, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment.

Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $6.4 million (both pre-tax and after-tax), comprised of $0.7 million, $1.8 million, $3.7 million and $0.2 million of property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets, respectively, on the condensed consolidated statement of operations.

During the 13 and 39 weeks ended January 30, 2021, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment.

Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $27.6 million ($20.5 million after-tax), comprised of $5.1 million, $13.3 million, $6.3 million and $2.9 million of property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets, respectively, on the condensed consolidated statement of operations.

For additional information, see Item 1.

Financial Statements - Note 2.

Summary of Significant Accounting Policies and Note 6.

Fair Value Measurements .

Restructuring and other charges

During the 13 and 26 weeks ended October 30, 2021, we recognized restructuring and other charges totaling $1.1 million and $3.7 million, respectively, comprised primarily of $0.4 million and $2.0 million, respectively, for severance and other

employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives, $0.7 million and $1.7 million, respectively, for costs associated with professional service costs for restructuring, process improvements, development and integration associated with the FLC Partnership, shareholder activist activities, and liabilities for a facility closure.

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 costs associated with professional service costs for restructuring, process improvements, shareholder activist activities, and liabilities for a facility closure.

Operating Income (Loss)

During the 39 weeks ended January 29, 2022, we recognized restructuring and other charges totaling $3.8 million, comprised primarily of $2.0 million for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives and $1.8 million for costs associated with professional service costs for restructuring, process improvements, development and integration associated with the FLC Partnership, shareholder activist activities, and liabilities for a facility closure.

During the 13 and 39 weeks ended January 30, 2021, we recognized restructuring and other charges totaling $1.7 million and $10.7 million, respectively, comprised primarily of $1.3 million and $5.8 million, respectively, for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives, and $0.4 million and $4.9 million, respectively, for costs associated with professional service costs for restructuring, process improvements, development and integration associated with the FLC Partnership, shareholder activist activities, and liabilities for a facility closure.

Operating Loss

13 weeks ended 39 weeks ended

Dollars in thousands October 30, 2021 % of

Sales October 31, 2020 % of

Sales October 30, 2021 % of

Sales October 31, 2020 % of

Total Operating Income (Loss) $ 24,589 3.9% $ 6,733 1.2% $ (16,864) (1.9)% $ (52,182) (6.5)%

Our operating income was $24.6 million during the 13 weeks ended October 30, 2021, compared to operating income of $6.7 million during the 13 weeks ended October 31, 2020.

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

For the 13 weeks ended October 30, 2021, excluding the $1.1 million of restructuring and other charges discussed above, operating income was $25.7 million (or 4.1% of sales).

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% of sales).

Our operating loss was $(16.9) million during the 26 weeks ended October 30, 2021, compared to an operating loss of $(52.2) million during the 26 weeks ended October 31, 2020.

Dollars in thousands January 29, 2022 % of

Sales January 30, 2021 % of

Sales January 29, 2022 % of

Sales January 30, 2021 % of

Total Operating Loss $ (33,135) (8.2)% $ (64,702) (15.6)% $ (49,999) (4.0)% $ (116,884) (9.6)%

Our operating loss was $(33.1) million during the 13 weeks ended January 29, 2022, compared to operating loss of $(64.7) million during the 13 weeks ended January 30, 2021.

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

For the 26 weeks ended October 30, 2021, excluding the $0.4 million of merchandise inventory loss and the $3.7 million of restructuring and other charges discussed above, operating loss was $(12.7) million (or (1.5)% of sales).

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)% of sales).

For the 13 weeks ended January 29, 2022, excluding the $6.4 million of impairment loss (non-cash) discussed above, operating loss was $(26.7) million (or (6.6)% of sales).

For the 13 weeks ended January 30, 2021, excluding the $27.6 million of impairment loss (non-cash) and the $1.7 million of restructuring and other charges, discussed above, operating loss was $(35.4) million (or (8.6)% of sales).

Our operating loss was $(50.0) million during the 39 weeks ended January 29, 2022, compared to an operating loss of $(116.9) million during the 39 weeks ended January 30, 2021.

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

For the 39 weeks ended January 29, 2022, excluding the $0.4 million of merchandise inventory loss, $6.4 million of impairment loss (non-cash), and the $3.8 million of restructuring and other charges discussed above, operating loss was $(39.4) million (or (3.1)% of sales).

For the 39 weeks ended January 30, 2021, excluding the $27.6 million of impairment loss (non-cash) and the $10.7 million of restructuring and other charges, discussed above, operating loss was $(78.5) million (or (6.5)% of sales).

Interest Expense, Net

13 weeks ended 39 weeks ended

Dollars in thousands October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020

Dollars in thousands January 29, 2022 January 30, 2021 January 29, 2022 January 30, 2021

Interest Expense, Net $ 3,051 $ 2,311 $ 7,809 $ 5,876

Net interest expense increased by $1.4 million, or 148.4%, to $2.3 million during the 13 weeks ended October 30, 2021 from $0.9 million during the 13 weeks ended October 31, 2020.

Net interest expense increased by $1.2 million, or 33.5%, to $4.8 million during the 13 weeks ended October 30, 2021 from $3.6 million during the 13 weeks ended October 31, 2020.

Net interest expense increased by $0.7 million, or 32.0%, to $3.1 million during the 13 weeks ended January 29, 2022 from $2.3 million during the 13 weeks ended January 30, 2021.

Net interest expense increased by $1.9 million, or 32.9%, to $7.8 million during the 39 weeks ended January 29, 2022 from $5.9 million during the 39 weeks ended January 30, 2021.

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

Income Tax (Benefit) Expense

Income Tax Expense (Benefit)

13 weeks ended 39 weeks ended

Dollars in thousands October 30, 2021 Effective Rate October 31, 2020 Effective Rate October 30, 2021 Effective Rate October 31, 2020 Effective Rate

Income Tax (Benefit) Expense $ (203) (0.9)% $ (1,694) (29.1)% $ 196 (0.9)% $ (16,610) 29.8%

We recorded an income tax benefit of $(0.2) million on pre-tax income of $22.3 million during the 13 weeks ended October 30, 2021, which represented an effective income tax rate of (0.9)% and we recorded an income tax benefit of $(1.7) million on a pre-tax income of $5.8 million during the 13 weeks ended October 31, 2020, which represented an effective income tax rate of (29.1)%.

We recorded income tax expense of $0.2 million on a pre-tax loss of $(21.6) million during the 26 weeks ended October 30, 2021, which represented an effective income tax rate of (0.9)% and we recorded an income tax benefit of $(16.6) million on a pre-tax loss of $(55.7) million during the 26 weeks ended October 31, 2020, which represented an effective income tax rate of 29.8%.

The effective tax rate for the 26 weeks ended October 30, 2021 is lower as compared to the comparable prior year due to the assessment of the realization of deferred tax assets and loss carrybacks recorded in the prior year.

Net Income (Loss)

Dollars in thousands January 29, 2022 Effective Rate January 30, 2021 Effective Rate January 29, 2022 Effective Rate January 30, 2021 Effective Rate

Income Tax Expense (Benefit) $ 615 (1.7)% $ (18,724) 27.9% $ 811 (1.4)% $ (35,334) 28.8%

We recorded an income tax expense of $0.6 million on pre-tax loss of $(36.2) million during the 13 weeks ended January 29, 2022, which represented an effective income tax rate of (1.7)% and we recorded an income tax benefit of $(18.7) million on a pre-tax loss of $(67.0) million during the 13 weeks ended January 30, 2021, which represented an effective income tax rate of 27.9%.

We recorded income tax expense of $0.8 million on a pre-tax loss of $(57.8) million during the 39 weeks ended January 29, 2022, which represented an effective income tax rate of (1.4)% and we recorded an income tax benefit of $(35.3) million on a pre-tax loss of $(122.8) million during the 39 weeks ended January 30, 2021, which represented an effective income tax rate of 28.8%.

The effective tax rate for the 13 and 39 weeks ended January 29, 2022 is lower as compared to the comparable prior year due to the assessment of the realization of deferred tax assets and loss carrybacks recorded in the prior year.

13 weeks ended 39 weeks ended

Dollars in thousands October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020

Net income (loss) $ 22,528 $ 7,515 $ (21,818) $ (39,137)

As a result of the factors discussed above, net income was $22.5 million during the 13 weeks ended October 30, 2021, compared with net income of $7.5 million during the 13 weeks ended October 31, 2020.

As a result of the factors discussed above, net loss was $(21.8) million during the 26 weeks ended October 30, 2021, compared with net loss of $(39.1) million during the 26 weeks ended October 31, 2020.

Adjusted Earnings (non-GAAP) is $25.0 million during the 13 weeks ended October 30, 2021, compared with $11.1 million during the 13 weeks ended October 31, 2020.

Adjusted Earnings (non-GAAP) is $(15.1) million during the 26 weeks ended October 30, 2021, compared with $(30.6) million during the 26 weeks ended October 31, 2020.

Dollars in thousands January 29, 2022 January 30, 2021 January 29, 2022 January 30, 2021

Net loss $ (36,801) $ (48,289) $ (58,619) $ (87,426)

As a result of the factors discussed above, net loss was $(36.8) million during the 13 weeks ended January 29, 2022, compared with net loss of $(48.3) million during the 13 weeks ended January 30, 2021.

As a result of the factors discussed above, net loss was $(58.6) million during the 39 weeks ended January 29, 2022, compared with net loss of $(87.4) million during the 39 weeks ended January 30, 2021.

Adjusted Earnings (non-GAAP) is $(28.9) million during the 13 weeks ended January 29, 2022, compared with $(25.6) million during the 13 weeks ended January 30, 2021.

Adjusted Earnings (non-GAAP) is $(44.0) million during the 39 weeks ended January 29, 2022, compared with $(56.2) million during the 39 weeks ended January 30, 2021.

See Adjusted Earnings (non-GAAP) discussion below.

Use of Non-GAAP Measures - Adjusted Earnings, Adjusted EBITDA and Free Cash Flow

To supplement our results prepared in accordance with generally accepted accounting principles (“GAAP”), we use the measure of Adjusted Earnings, Adjusted EBITDA, and Free Cash Flow, which are non-GAAP financial measures under Securities and Exchange Commission (the “SEC”) regulations.

We define Adjusted Earnings as net income adjusted for certain reconciling items that are subtracted from or added to net income.

We define Adjusted EBITDA as net income plus (1) depreciation and amortization;

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

We define Free Cash Flow as Adjusted EBITDA less capital expenditures, cash interest and cash taxes.

To properly and prudently evaluate our business, we encourage you to review our condensed consolidated financial statements included elsewhere in this Form 10-K, 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.

Use of Non-GAAP Measures - Adjusted Earnings, Adjusted EBITDA, Adjusted EBITDA by Segment, and Free Cash Flow

To supplement our results prepared in accordance with generally accepted accounting principles (“GAAP”), we use the measure of Adjusted Earnings, Adjusted EBITDA, Adjusted EBITDA by Segment, and Free Cash Flow, which are non-GAAP financial measures under Securities and Exchange Commission (the “SEC”) regulations.

We define Adjusted Earnings as net income adjusted for certain reconciling items that are subtracted from or added to net income (loss).

We define Adjusted EBITDA as net income (loss) plus (1) depreciation and amortization;

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

We define Free Cash Flow as Cash Flows from Operating Activities less capital expenditures, cash interest and cash taxes.

To properly and prudently evaluate our business, we encourage you to review our condensed consolidated financial statements included elsewhere in this Form 10-Q, the reconciliation of Adjusted Earnings to net income (loss), the reconciliation of consolidated Adjusted EBITDA to consolidated net income (loss), and the reconciliation of Adjusted EBITDA by Segment to net income (loss) by segment, 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.

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In addition, our use of these non-GAAP financial measures may be different from similarly named measures used by other companies, limiting their usefulness for comparison purposes.

We review these non-GAAP financial measures as internal measures to evaluate our performance and manage our operations.

We review these non-GAAP financial measures as internal measures to evaluate our performance at a consolidated level and at a segment level and manage our operations.

We believe that these measures are useful performance measures which are used by us to facilitate a comparison of our on-going operating performance on a consistent basis from period-to-period.

We believe that these non-GAAP financial measures provide for a more complete understanding of factors and trends affecting our business than measures under GAAP can provide alone, as they exclude certain items that do not reflect the ordinary earnings of our operations.

Our Board of Directors and management also use Adjusted EBITDA as one of the primary methods for planning and forecasting overall expected performance, for evaluating on a quarterly and annual basis actual results against such expectations, and as a measure for performance incentive plans.

We believe that the inclusion of Adjusted Earnings and Adjusted EBITDA results provides investors useful and important information regarding our operating results.

We believe that these non-GAAP financial measures provide for a more complete understanding of factors and trends affecting our business than measures under GAAP can provide alone, as they exclude certain items that management believes do not reflect the ordinary performance of our operations in a particular period.

Our Board of Directors and management also use Adjusted EBITDA and Adjusted EBITDA by Segment, at a consolidated and at a segment level, as one of the primary methods for planning and forecasting expected performance, for evaluating on a quarterly and annual basis actual results against such expectations, and as a measure for performance incentive plans.

Management also uses Adjusted EBITDA by Segment to determine segment capital allocations.

We believe that the inclusion of Adjusted Earnings, Adjusted EBITDA, and Adjusted EBITDA by Segment results provides investors useful and important information regarding our operating results, in a manner that is consistent with management's evaluation of business performance.

We believe that Free Cash Flow provides useful additional information concerning cash flow available to meet future debt service obligations and working capital requirements and assists investors in their understanding of our operating profitability and liquidity as we manage the business to maximize margin and cash flow.

Adjusted Earnings (non-GAAP)

Consolidated Adjusted Earnings (non-GAAP)

13 weeks ended 39 weeks ended

Dollars in thousands October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020

Net income (loss) $ 22,528 $ 7,515 $ (21,818) $ (39,137)

Dollars in thousands January 29, 2022 January 30, 2021 January 29, 2022 January 30, 2021

Net loss $ (36,801) $ (48,289) $ (58,619) $ (87,426)

Reconciling items, after-tax (below)

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Reconciling items, pre-tax

Merchandise inventory loss (a)

Impairment loss (non-cash) (a)

$ 6,411 $ 27,630 $ 6,411 $ 27,630

Merchandise inventory loss (a)

Content amortization (non-cash)

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

Adjusted EBITDA (non-GAAP)

Consolidated Adjusted EBITDA (non-GAAP)

13 weeks ended 39 weeks ended

Dollars in thousands October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020

Net income (loss) $ 22,528 $ 7,515 $ (21,818) $ (39,137)

Dollars in thousands January 29, 2022 January 30, 2021 January 29, 2022 January 30, 2021

Net loss $ (36,801) $ (48,289) $ (58,619) $ (87,426)

Depreciation and amortization expense 12,179 13,307 36,755 40,563

Interest expense, net 3,051 2,311 7,809 5,876

Income tax (benefit) expense (203) (1,694) 196 (16,610)

Income tax expense (benefit) 615 (18,724) 811 (35,334)

Impairment loss (non-cash) (a)

6,411 27,630 6,411 27,630

Merchandise inventory loss (a)

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46 1,669 3,785 10,727

Adjusted EBITDA (non-GAAP) (a)

$ 38,968 $ 24,535 $ 14,471 $ (13,482)

Adjusted EBITDA (non-GAAP) $ (13,101) $ (20,782) $ 1,370 $ (34,264)

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

The following is Adjusted EBITDA by segment for the 13 and 26 weeks ended October 30, 2021 and October 31, 2020.

Adjusted EBITDA - by Segment 13 weeks ended October 30, 2021

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

Sales $ 608,952 $ 21,669 $ 8,279 $ — $ (11,923) $ 626,977

Cost of sales (a)

The following is Adjusted EBITDA by segment for the 13 and 39 weeks ended January 29, 2022 and January 30, 2021.

Adjusted EBITDA - by Segment 13 weeks ended January 29, 2022

Dollars in thousands Retail Wholesale DSS Corporate Services (a)

Eliminations Total

Net (loss) income $ (30,845) $ 2,767 $ (1,669) $ (8,854) $ 1,800 $ (36,801)

Depreciation and amortization expense 8,939 1,396 1,826 18 — 12,179

Interest expense, net — — — 3,051 — 3,051

Income tax expense — — — 615 — 615

Impairment loss (non-cash) (a)

6,411 — — — — 6,411

Gross profit 128,930 5,620 8,112 — 4,208 $ 146,870

Selling and administrative expenses

Merchandise inventory loss (a)

Content amortization (non-cash) 79 — 1,319 — — 1,398

Restructuring and other charges (a)

30 — — 16 — 46

Adjusted EBITDA (non-GAAP) $ (15,386) $ 4,163 $ 1,476 $ (5,154) $ 1,800 $ (13,101)

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

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

Sales $ 576,514 $ 36,387 $ 5,947 $ — $ (23,363) $ 595,485

Cost of sales (a)

Adjusted EBITDA - by Segment 13 weeks ended January 30, 2021

Dollars in thousands Retail Wholesale DSS Corporate Services (a)

Eliminations Total

Net (loss) income $ (59,996) $ 4,708 $ (2,567) $ 8,962 $ 604 $ (48,289)

Depreciation and amortization expense 9,806 1,614 1,863 24 — 13,307

Interest expense, net — — — 2,311 — 2,311

Income tax benefit — — — (18,724) — (18,724)

Impairment loss (non-cash) (a)

27,630 — — — — 27,630

Gross profit 95,704 10,714 5,692 — 4,397 116,507

Selling and administrative expenses

Merchandise inventory loss (a)

Content amortization (non-cash) 176 — 1,138 — — 1,314

Restructuring and other charges (a)

162 — 571 936 — 1,669

Adjusted EBITDA (non-GAAP) $ (22,222) $ 6,322 $ 1,005 $ (6,491) $ 604 $ (20,782)

Adjusted EBITDA - by Segment 26 weeks ended October 30, 2021

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

Sales $ 819,421 $ 66,153 $ 16,582 $ — $ (34,385) $ 867,771

Cost of sales (a)

Adjusted EBITDA - by Segment 39 weeks ended January 29, 2022

Dollars in thousands Retail Wholesale DSS Corporate Services (a)

Eliminations Total

Net (loss) income $ (32,605) $ 7,750 $ (5,286) $ (29,034) $ 556 $ (58,619)

Depreciation and amortization expense 27,015 4,060 5,627 53 — 36,755

Interest expense, net — — — 7,809 — 7,809

Income tax expense — — — 811 — 811

Impairment loss (non-cash) (a)

6,411 — — — — 6,411

Gross profit 177,673 16,025 16,251 — (1,341) $ 208,608

Selling and administrative expenses

Merchandise inventory loss (a)

434 — — — — 434

Content amortization (non-cash) 350 — 3,634 — — 3,984

Restructuring and other charges (a)

2,831 — — 954 — 3,785

Adjusted EBITDA (non-GAAP) $ 4,436 $ 11,810 $ 3,975 $ (19,407) $ 556 $ 1,370

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)

Adjusted EBITDA - by Segment 39 weeks ended January 30, 2021

Dollars in thousands Retail Wholesale DSS Corporate Services (a)

Eliminations Total

Net (loss) income $ (107,740) $ 21,625 $ (6,218) $ 6,611 $ (1,704) $ (87,426)

Depreciation and amortization expense 30,361 4,231 5,883 88 — 40,563

Interest expense, net — — — 5,876 — 5,876

Income tax benefit — — — (35,334) — (35,334)

Impairment loss (non-cash) (a)

27,630 — — — — 27,630

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

Selling and administrative expenses

Merchandise inventory loss (a)

Content amortization (non-cash) 578 — 3,122 — — 3,700

Restructuring and other charges (a)

4,633 — 571 5,523 — 10,727

Adjusted EBITDA (non-GAAP) $ (44,538) $ 25,856 $ 3,358 $ (17,236) $ (1,704) $ (34,264)

(a) For the 13 and 26 weeks ended October 30, 2021, the Retail Segment gross margin excludes $0.1 million and $0.3 million, respectively, of amortization expense (non-cash) related to content development costs.

Additionally, for the 26 weeks ended October 30, 2021, gross margin excludes a merchandise inventory loss of $0.4 million in the Retail Segment related to the sale of our logo and emblematic general merchandise inventory below cost to FLC.

For the 13 and 26 weeks ended October 31, 2020, the Retail Segment gross margin excludes $0.2 million and $0.4 million, respectively, of amortization expense (non-cash) related to content development costs.

For the 13 and 26 weeks ended October 30, 2021, the DSS Segment gross margin excludes $1.2 million and $2.3 million, respectively, of amortization expense (non-cash) related to content development costs.

For the 13 and 26 weeks ended October 31, 2020, the DSS Segment gross margin excludes $1.0 million and $2.0 million, respectively of amortization expense (non-cash) related to content development costs.

(a) Interest expense is reflected in Corporate Services as it is primarily related to our Credit Agreement which funds our operating and financing needs across the organization.

Income taxes are reflected in Corporate Services as we record our income tax provision on a consolidated basis.

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

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13 weeks ended 39 weeks ended

Dollars in thousands October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020

Adjusted EBITDA (non-GAAP) $ 38,968 $ 24,535 $ 14,471 $ (13,482)

Dollars in thousands January 29, 2022 January 30, 2021 January 29, 2022 January 30, 2021

Net cash flows (used in) provided by operating activities $ (16,241) $ (50,213) $ 7,901 $ 41,173

Capital expenditures (a)

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Capital Expenditures 13 weeks ended 39 weeks ended

Dollars in thousands October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020

Dollars in thousands January 29, 2022 January 30, 2021 January 29, 2022 January 30, 2021

Physical store capital expenditures $ 5,081 $ 1,238 $ 12,561 $ 7,200

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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 October 30, 2021, we had $183.3 million outstanding borrowings under the Credit Agreement.

As of January 29, 2022, we had $200.4 million outstanding borrowings under the Credit Agreement.

See Financing Arrangements discussion below.

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Despite the introduction of COVID-19 vaccines, the pandemic remains highly volatile and continues to evolve.

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39 weeks ended

Dollars in thousands October 30, 2021 October 31, 2020

Dollars in thousands January 29, 2022 January 30, 2021

Cash, cash equivalents, and restricted cash at beginning of period $ 16,814 $ 9,008

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Cash, cash equivalents, and restricted cash at end of period $ 12,742 $ 10,681

As of October 30, 2021 and October 31, 2020, we had restricted cash of $12.5 million and $0.8 million, respectively, comprised of $11.6 million and $0, respectively, in prepaid and other current assets in the consolidated balance sheet related to segregated funds for commission due to FLC for logo merchandise sales as per the FLC Partnership's merchandising agreement and $0.9 million and $0.8 million, respectively, in other noncurrent assets in the condensed consolidated balance sheet related to amounts held in trust for future distributions related to employee benefit plans.

As of January 29, 2022 and January 30, 2021, we had restricted cash of $2.8 million and $0.8 million, respectively, comprised of $1.9 million and $0, respectively, in prepaid and other current assets in the consolidated balance sheet related to segregated funds for commission due to FLC for logo merchandise sales as per the FLC Partnership's merchandising agreement

and $0.9 million and $0.8 million, respectively, in other noncurrent assets in the condensed consolidated balance sheet related to amounts held in trust for future distributions related to employee benefit plans.

Cash Flow from Operating Activities

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For our retail operations, cash flows from operating activities are typically a source of cash in the second and third fiscal quarters, when students generally purchase and rent textbooks and other course materials for the upcoming semesters based on the typical academic semester.

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.

When a school adopts our First Day inclusive access offerings, cash collection from the school generally occurs after the student drop/add dates, which is later in the working capital cycle, as compared to direct-to-student point-of-sale transactions where cash is generally collected during the point-of-sale transaction or within a few days from the credit card processor.

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.

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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 26 weeks ended October 30, 2021 were $24.1 million compared to $91.4 million during the 26 weeks ended October 31, 2020.

Cash flows provided by operating activities during the 39 weeks ended January 29, 2022 were $7.9 million compared to $41.2 million during the 39 weeks ended January 30, 2021.

This decrease in cash used in operating activities of $33.3 million was primarily due to changes in working capital, including higher accounts receivables and higher inventory purchases, partially offset by higher earnings of $28.8 million in the current year period compared to the prior year period and lower tax payments of $13.8 million compared to the prior year period as discussed below.

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Cash Flow from Investing Activities

Cash flows used in investing activities during the 26 weeks ended October 30, 2021 were $(20.8) million compared to $(16.2) million during the 26 weeks ended October 31, 2020.

Cash flows used in investing activities during the 39 weeks ended January 29, 2022 were $(32.7) million compared to $(25.6) million during the 39 weeks ended January 30, 2021.

The increase in cash used in investing activities is primarily due to higher capital expenditures and contractual capital investments associated with content development, digital initiatives, enhancements to internal systems and websites, renewing existing contracts and new store construction.

Capital expenditures totaled $21.3 million and $16.2 million during the 26 weeks ended October 30, 2021 and October 31, 2020, respectively.

Capital expenditures totaled $33.4 million and $25.9 million during the 39 weeks ended January 29, 2022 and January 30, 2021, respectively.

Cash Flow from Financing Activities

Cash flows provided by financing activities during the 26 weeks ended October 30, 2021 were $3.4 million compared to cash flows used in financing activities of $(76.1) million during the 26 weeks ended October 31, 2020.

This net change of $79.5 million is primarily due to higher net borrowings under the credit agreement.

Cash flows provided by financing activities during the 39 weeks ended January 29, 2022 were $20.7 million compared to cash flows used in financing activities of $(13.9) million during the 39 weeks ended January 30, 2021.

This net change of $34.6 million is primarily due to higher net borrowings under the credit agreement, offset by the sale of treasury shares of $10.9 million during the 39 weeks ended January 30, 2021.

Financing Arrangements

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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.

On March 31, 2021, we were granted a waiver to the availability test condition to the current draw under the FILO Facility.

During the 26 weeks ended October 30, 2021, we borrowed $259.7 million and repaid $254.0 million under the Credit Agreement, with $183.3 million of outstanding borrowings as of October 30, 2021, comprised entirely of borrowings 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.

As of both October 30, 2021 and October 31, 2020, we have issued $4.8 million in letters of credit under the Credit Facility.

As of January 29, 2022, we were in compliance with all debt covenants under the Credit Agreement.

On March 4, 2022, we were granted a waiver to the condition to the upcoming draw under the FILO Facility, scheduled for April 2022, that Consolidated EBITDA (as defined in the Credit Agreement) minus Restricted Payments (as defined in the Credit Agreement) equal at least $110.0 million.

Under the waiver amendment, the commitment under the FILO Facility of $25.0 million was increased to $40.0 million, with all remaining terms unchanged.

During the 39 weeks ended January 29, 2022, we borrowed $463.2 million and repaid $440.4 million under the Credit Agreement, with $200.4 million of outstanding borrowings as of January 29, 2022, comprised entirely of borrowings under the Credit Facility.

During the 39 weeks ended January 30, 2021, we borrowed $547.6 million and repaid $571.5 million under the Credit Agreement, with $150.8 million of outstanding borrowings as of January 30, 2021, comprised entirely of outstanding borrowings under the Credit Facility.

As of both January 29, 2022 and January 30, 2021, 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.

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Income Tax Implications on Liquidity

As of October 30, 2021, other long-term liabilities includes $25.3 million related to the long-term tax payable associated with the LIFO reserve.

As of January 29, 2022, other long-term liabilities includes $25.3 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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We have filed our federal income tax returns for the tax year ended January 2021, as well claims for refunds for cash taxes paid in prior years.

We received a $7.8 million refund in the second quarter of Fiscal 2022 and expect to receive an additional refunds of approximately $22.6 million.

We received a $7.8 million refund in the second quarter of Fiscal 2022 and expect to receive additional refunds of approximately $22.6 million.

Sale of Treasury Shares

In December 2020, we entered into a new merchandising partnership with Fanatics and FLC which included a strategic equity investment in the Company.

Fanatics, Inc.

and Lids Holdings, Inc.

jointly purchased an aggregate 2,307,692 of our common shares (issued from treasury shares) for $15 million, representing a share price of $6.50 per share.

The premium price paid above the fair market value of our common stock at closing was approximately $4.1 million and was recognized as a contract liability which is expected to be earned over the term of the merchandising contracts for Fanatics and FLC ($0.2 million and $0.2 million, respectively, in accrued liabilities, and $3.8 million and $4.0 million, respectively, as of January 29, 2022 and January 30, 2021, in other long-term liabilities our condensed consolidated balance sheet).

Share Repurchases

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

During the 13 weeks ended October 30, 2021, we did not repurchase any of our Common Stock under the stock repurchase program.

As of October 30, 2021, approximately $26.7 million remains available under the stock repurchase program.

During the 26 weeks ended October 30, 2021, we repurchased 238,170 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 January 29, 2022, we did not repurchase any of our Common Stock under the stock repurchase program.

As of January 29, 2022, approximately $26.7 million remains available under the stock repurchase program.

During the 39 weeks ended January 29, 2022, we repurchased 239,751 shares of our Common Stock outside of the stock repurchase program in connection with employee tax withholding obligations for vested stock awards.

Contractual Obligations

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Off-Balance Sheet Arrangements

As of October 30, 2021, we have no off-balance sheet arrangements as defined in Item 303 of Regulation S-K.

As of January 29, 2022, we have no off-balance sheet arrangements as defined in Item 303 of Regulation S-K.

Critical Accounting Policies

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New risks emerge from time to time.

It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make.

It is not possible for our management

to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make.

In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

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 public health crises, epidemics, and pandemics, such as the COVID-19 pandemic, including the duration, spread, severity, and any recurrences thereof, and the impact such public health crises have on the overall demand for BNED products and services, our operations, the operations of our suppliers and other business partners, and the effectiveness of our response to these risks;

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

40 unchanged sentences

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What changed 10-Q

Item 2. Management’s Discussion and Analysis