What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-12-06 compared with 2022-08-31 · 313 added, 165 removed, 459 unchanged (51% of the section changed)

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Business in our Annual Report on Form 10-K for the fiscal year ended April 30, 2022.

First Day Inclusive Access Programs

Cost Savings Initiative

On December 2, 2022, the Board of Directors approved a company-wide initiative to drive efficiencies, streamline operations, simplify the organizational structure and further reduce non-essential costs.

These actions are expected to be substantially implemented within thirty days.

The Company expects to incur restructuring charges, primarily related to severance, of approximately $5 million to $6 million in the third quarter of fiscal 2023 and expects to save $10 million to $15 million in fiscal year 2023.

These initiatives are expected to provide annualized savings of $30 million to $35 million once fully implemented.

The restructuring charges are excluded from non-GAAP adjusted EBITDA and from the annualized and fiscal year 2023 savings.

First Day Inclusive and Equitable 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.

We offer our BNC First Day ® inclusive and equitable access programs, consisting of First Day Complete and First Day , 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.

• 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 sales and 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.

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

Offering courseware sales through our inclusive and equitable access First Day Complete and First Day 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.

We are moving quickly and decisively to accelerate our First Day Complete strategy.

We plan to move many institutions to First Day Complete for the Fall of 2023 and the majority of schools by Fall 2024.

Approximately 111 campus stores adopted our First Day Complete course materials delivery program for the 2022 Fall Term, representing approximately 545,000 (as reported by National Center for Education Statistics) in total undergraduate student enrollment, a growth rate of 85% over Fall 2021.

During the 13 weeks ended October 29, 2022, First Day Complete sales increased by $44.3 million to $89.9 million, or 97%, as compared to $45.6 million in the prior year period.

During the 26 weeks ended October 29, 2022, First Day Complete sales increased by $54.7 million to $106.3 million, or 106%, as compared to $51.6 million in the prior year period.

Partnership with Fanatics and FLC

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We leverage Fanatics’ e-commerce technology and expertise for the operational management of the emblematic merchandise and gift sections of our campus store websites.

FLC manages in-store assortment planning and merchandising of emblematic apparel, headwear, and gift products for our partner campus stores.

FLC manages in-store assortment planning and merchandising of emblematic apparel, headwear, and gift products for our partner campus stores, and FLC owns the inventory it manages, relieving us of the obligation to finance inventory purchases from working capital.

COVID-19 Business Impact

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The majority of the physical campus bookstores have school-branded e-commerce websites which we operate independently or along with our merchant partners, and which offer students access to affordable course materials and affinity products, including emblematic apparel and gifts.

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

The Retail Segment also offers inclusive and equitable access programs, in which

course materials are offered at a reduced price through a fee charged by the institution or included in tuition, and delivered to students on or before the first day of class.

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

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

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

Our business is affected by the impact of the COVID-19 pandemic, the overall economic environment, funding levels at colleges and universities, by changes in enrollments at colleges and universities, and spending on course materials and general merchandise.

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

Our business is affected by the impact of the COVID-19 pandemic, the overall economic environment, capital markets, funding levels at colleges and universities, by changes in enrollments at colleges and universities, and spending on course materials and general merchandise.

• Impact of the COVID-19 Pandemic :

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

The impact of COVID-19 store closings during Fiscal 2021 to Fiscal 2022 resulted in the loss of cash flow and increased borrowings that we would not otherwise have expected to incur.

• Economic Environment:

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economic activity could lead to decreased consumer spending.

• Capital Market Trends :

We may require additional capital in the future to sustain or grow our business.

The future availability of financing will depend on a variety of factors, such as economic and market conditions, and the

availability of credit.

These factors could materially adversely affect our costs of borrowing, and our financial position and results of operations would be adversely impacted.

Volatility in global financial markets may also limit our ability to access the capital markets at a time when we would like, or need, to raise capital, which could have an impact on our ability to react to changing economic and business conditions.

• Enrollment Trends:

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• Outsourcing Trends.

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

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

• New and Existing Bookstore Contracts .

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

We also expect that certain less profitable or essential bookstores we operate may close.

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

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

Offering courseware sales through our inclusive and equitable access First Day Complete and First Day models is a key, and increasingly important, strategic initiative of ours to meet the market demands of substantially reduced pricing to students.

Our First Day Complete and First Day programs contribute to improved student outcomes, while 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.

We are moving quickly and decisively to accelerate our First Day Complete strategy.

While we plan to move many institutions to First Day Complete for the Fall of 2023, and the majority of our schools by Fall 2024, we cannot guarantee that we will be able to achieve these plans within these timeframes or at all.

We also expect that certain less profitable or non-essential bookstores we operate may close.

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

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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.

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

Results of Operations - Summary

13 weeks ended

Dollars in thousands July 30,

2022 July 31,

13 weeks ended 26 weeks ended

Dollars in thousands October 29,

2022 October 30,

2021 October 29,

2022 October 30,

Product sales and other (a)

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Total sales $ 617,098 $ 626,977 $ 880,956 $ 867,771

Net loss $ (52,707) $ (43,628)

Net income (loss) $ 22,144 $ 22,528 $ (30,563) $ (21,100)

Adjusted Earnings (non-GAAP) (b)

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(a) Effective in April 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.

The transition to FLC for campus stores was effective in April 2021, and the e-commerce websites transitioned to Fanatics throughout Fiscal 2022.

The transition to FLC for campus

stores was effective in April 2021, and the e-commerce websites transitioned to Fanatics throughout 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 consolidated financial statements, as compared to the recognition of logo and emblematic sales on a gross basis in the periods prior to the transition.

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

13 weeks ended

2022 July 31,

13 weeks ended 26 weeks ended

2022 October 30,

2021 October 29,

2022 October 30,

Product sales and other 93.3 % 92.1 % 94.1 % 92.8 %

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Product and other cost of sales (a)

78.0 78.5 77.6 77.9

Rental cost of sales (a)

55.5 57.1 55.9 55.8

Total cost of sales 76.5 76.8 76.4 76.3

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Restructuring and other charges — 0.2 0.1 0.3

Operating loss (18.0) % (16.9) %

Operating income (loss) 4.4 % 3.9 % (2.4) % (1.8) %

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

Results of Operations - 13 weeks ended July 30, 2022 compared with the 13 weeks ended July 31, 2021

13 weeks ended July 30, 2022

Results of Operations - 13 and 26 weeks ended October 29, 2022 compared with the 13 and 26 weeks ended October 30, 2021

13 weeks ended October 29, 2022

Dollars in thousands Retail Wholesale DSS Corporate Services Eliminations Total

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Depreciation and amortization expense 8,869 1,370 503 17 — 10,759

(34,540) 1,419 (2,299) (7,232) (4,879) (47,531)

Restructuring and other charges — — — 260 — 260

Operating income (loss) $ 30,547 $ 218 $ (1,941) $ (5,352) $ 3,258 $ 26,730

13 weeks ended October 30, 2021

Dollars in thousands Retail Wholesale DSS Corporate Services Eliminations Total

Product sales and other $ 559,304 $ 21,669 $ 8,279 $ — $ (11,923) $ 577,329

Rental income 49,648 — — — — 49,648

Total sales 608,952 21,669 8,279 — (11,923) 626,977

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

Product and other cost of sales 451,779 16,049 1,373 — (16,131) 453,070

Rental cost of sales 28,348 — — — — 28,348

Total cost of sales 480,127 16,049 1,373 — (16,131) 481,418

Gross profit 128,825 5,620 6,906 — 4,208 145,559

Selling and administrative expenses 89,486 4,387 7,305 6,809 (85) 107,902

Depreciation and amortization expense 8,669 1,364 1,902 17 — 11,952

Restructuring and other charges 1,075 — — 41 — 1,116

Operating income (loss) $ 29,595 $ (131) $ (2,301) $ (6,867) $ 4,293 $ 24,589

26 weeks ended October 29, 2022

Dollars in thousands Retail Wholesale DSS Corporate Services Eliminations Total

Product sales and other $ 782,871 $ 58,203 $ 17,649 $ — $ (30,013) $ 828,710

Rental income 52,246 — — — — 52,246

Total sales 835,117 58,203 17,649 — (30,013) 880,956

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

Product and other cost of sales 622,416 45,849 3,472 — (28,310) 643,427

Rental cost of sales 29,206 — — — — 29,206

Total cost of sales 651,622 45,849 3,472 — (28,310) 672,633

Gross profit 183,495 12,354 14,177 — (1,703) 208,323

Selling and administrative expenses 169,090 7,998 16,277 12,289 (82) 205,572

Depreciation and amortization expense 18,398 2,719 2,140 35 — 23,292

Restructuring and other charges — — — 635 — 635

Operating (loss) income $ (3,993) $ 1,637 $ (4,240) $ (12,959) $ (1,621) $ (21,176)

13 weeks ended July 31, 2021

26 weeks ended October 30, 2021

Dollars in thousands Retail Wholesale DSS Corporate Services Eliminations Total

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Depreciation and amortization expense 18,076 2,664 3,801 35 — 24,576

(29,629) 5,114 (1,316) (7,462) (5,537) (38,830)

Restructuring and other charges 2,083 — — 938 — 3,021

Operating (loss) income $ (1,042) $ 4,983 $ (3,617) $ (15,226) $ (1,244) $ (16,146)

The following table summarizes our sales for the 13 weeks ended July 30, 2022 and July 31, 2021:

13 weeks ended

Dollars in thousands July 30, 2022 July 31, 2021 %

The following table summarizes our sales for the 13 and 26 weeks ended October 29, 2022 and October 30, 2021:

13 weeks ended 26 weeks ended

Dollars in thousands October 29, 2022 October 30, 2021 Var $ Var % October 29, 2022 October 30, 2021 Var $ Var %

Product sales and other $ 575,764 $ 577,329 $ (1,565) (0.3)% $ 828,710 $ 805,099 $ 23,611 2.9%

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Total Sales $ 617,098 $ 626,977 $ (9,879) (1.6)% $ 880,956 $ 867,771 $ 13,185 1.5%

Sales increased by $23.1 million, or 9.6%, to $263.9 million during the 13 weeks ended July 30, 2022 from $240.8 million during the 13 weeks ended July 31, 2021.

The sales increase is primarily related to higher general merchandise sales as many schools approach a more traditional on campus learning experience.

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

Sales variances 13 weeks ended

Dollars in millions July 30, 2022 July 31, 2021

The sales decrease during the 13 weeks ended October 29, 2022 is primarily related to lower course material sales primarily due to the shift to more digital course materials, partially offset by higher general merchandise sales as many schools approach a more traditional on campus learning experience.

The sales increase during the 26 weeks ended October 29, 2022 is primarily related to higher general merchandise sales as many schools approach a more traditional on campus learning experience, partially offset by lower course material sales primarily due to the shift to more digital course materials.

The components of the variances for the 13 and 26 week periods are reflected in the table below.

Sales variances 13 weeks ended 26 weeks ended

Dollars in millions October 29, 2022 October 29, 2022

New stores $ 40.1 $ 51.9

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See discussion of intercompany activities and eliminations below.

Retail sales increased by $26.0 million, or 12.4%, to $236.5 million during the 13 weeks ended July 30, 2022 from $210.5 million during the 13 weeks ended July 31, 2021.

The comparability of Products and other sales, specifically logo and emblematic sales, is impacted by the recognition of logo and emblematic sales on a net basis in our condensed consolidated financial statements during the 13 weeks ended July 30, 2022, as compared to on a gross basis for the majority of our e-commerce websites during the 13 weeks ended July 31, 2021.

See the Retail Gross Comparable Store Sales discussion below.

Retail added 40 new stores and closed 61 stores during the 13 weeks ended July 30, 2022, ending the period with a total of 1,406 stores.

The following is a store count summary for physical stores and virtual stores.

Many of the store closings relate to closing less profitable stores, including satellite store locations.

13 weeks ended

July 30, 2022 July 31, 2021

13 weeks ended 26 weeks ended

October 29, 2022 October 30, 2021 October 29, 2022 October 30, 2021

Number of Stores:

Physical Virtual Physical Virtual

Number of stores at beginning of period 805 622 769 648

Physical Virtual Total Physical Virtual Total Physical Virtual Total Physical Virtual Total

Beginning of period 793 613 1,406 784 645 1,429 805 622 1,427 769 648 1,417

Opened 8 10 18 11 12 23 34 24 58 41 35 76

Closed 8 17 25 1 6 7 46 40 86 16 32 48

Number of stores at end of period 793 613 784 645

Product and other sales for Retail increased by $28.1 million, or 14.3%, to $225.6 million during the 13 weeks ended July 30, 2022 from $197.5 million during the 13 weeks ended July 31, 2021.

During the 13 weeks ended July 30, 2022, total general merchandise product sales increased by $23.4 million, or 35.8%, to $88.8 million, total course material product sales increased by $5.3 million, or 4.3%, to $127.5 million, offset by a decrease in service and other revenue of $0.5 million, or 5.4%, to $9.3 million.

Total course material rental income for Retail decreased by $2.1 million, or 16.2%, to $10.9 million during the 13 weeks ended July 30, 2022 from $13.0 million during the 13 weeks ended July 31, 2021 primarily due to the shift to more digital course materials.

The overall Retail sales increase is primarily related to revenue from net new/closed stores, increased campus traffic, and an increase in the number of on campus activities and events, such as graduations, alumni events and prospective student campus tours, as schools approach a more traditional campus experience.

End of period 793 606 1,399 794 651 1,445 793 606 1,399 794 651 1,445

Generally, sales are impacted by revenue from net new/closed stores, increased campus traffic, and an increase in the number of on campus activities and events, such as graduations, alumni events and prospective student campus tours, as schools approach a more traditional campus experience.

We continued to experience higher general merchandise sales, especially for graduation products, logo and emblematic products, and cafe and convenience products, as on campus traffic continues to grow compared to the prior year.

Sales were also negatively impacted by lower enrollments, primarily at community colleges and by international students, and the continuation of remote and hybrid class offerings.

During the 13 weeks ended July 30, 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 for the majority of our e-commerce websites during the 13 weeks ended July 31, 2021.

See Retail Gross Comparable Store Sales discussion below.

During the 13 weeks ended July 30, 2022, Retail Gross Comparable Store general merchandise sales increased by 34.0%.

During the 13 weeks ended July 30, 2022, Retail Gross Comparable Store course material sales increased by 1.5%.

See Retail Gross Comparable Store Sales discussion below.

The increase in course material sales was reflective of the growth of First Day inclusive access programs, digital and eTextbook revenue increases, due to a shift to lower cost options and more affordable solutions, including digital offerings.

During the 13 weeks ended July 30, 2022, revenue for both of our First Day models increased to $45.0 million, or 67%, as compared to $27.0 million in the prior year period.

Retail sales decreased by $10.3 million, or 1.7%, to $598.6 million during the 13 weeks ended October 29, 2022 from $608.9 million during the 13 weeks ended October 30, 2021.

• Product sales and other decreased by $2.0 million, or 0.4%, to $557.3 million during the 13 weeks ended October 29, 2022 from $559.3 million during the 13 weeks ended October 30, 2021.

During the 13 weeks ended October 29, 2022, total course material product sales decreased by $13.9 million, or 3.2%, to $419.9 million;

and service and other revenue decreased by $4.6 million, or 23.9%, to $14.7 million primarily due to lower shipping and handling income resulting from increased in-store order fulfillment;

partially offset by an increase in total general merchandise product sales of $16.4 million, or 15.5%, to $122.7 million as students return to on campus activities.

• Course material product sales decreased primarily due to the shift to more digital course materials.

Additionally, the First Day programs increased rental textbook activity, increasing deferred revenue for the Fall term into the third quarter.

Revenue from both of our First Day models offset this decline with increased total revenue of $47.2 million to $143.2 million, or 49%, during the 13 weeks ended October 29, 2022, as compared to $96.0 million during the 13 weeks ended October 30, 2021.

Specifically, First Day Complete total sales increased by $44.3 million to $89.9 million, or 97%, during the 13 weeks ended October 29, 2022, as compared to $45.6 million during the 13 weeks ended October 30, 2021.

• Total course material rental income decreased by $8.3 million, or 16.7%, to $41.3 million during the 13 weeks ended October 29, 2022 from $49.6 million during the 13 weeks ended October 30, 2021 primarily due to the shift to more digital course materials.

Retail sales increased by $15.7 million, or 1.9%, to $835.1 million during the 26 weeks ended October 29, 2022 from $819.4 million during the 26 weeks ended October 30, 2021.

• Product sales and other increased by $26.1 million, or 3.5%, to $782.9 million during the 26 weeks ended October 29, 2022 from $756.7 million during the 26 weeks ended October 30, 2021.

During the 26 weeks ended October 29, 2022, total general merchandise product sales increased by $39.8 million, or 23.2%, to $211.5 million as students return to on campus activities;

offset by a decrease in total course material product sales of $8.5 million, or 1.5%, to $547.5 million;

and a decrease in service and other revenue of $5.2 million, or 18.0%, to $23.9 million, primarily due to lower shipping and handling income resulting from increased in-store order fulfillment.

• Course material product sales decreased primarily due to the shift to more digital course materials.

Additionally, the First Day programs increased rental textbook activity, increasing deferred revenue for the Fall term into the third quarter.

Revenue from both of our First Day models offset this decline with increased total revenue of $65.2 million to $188.2 million, or 53%, during the 26 weeks ended October 29, 2022, as compared to $123.0 million during the 26 weeks ended October 30, 2021.

Specifically, First Day Complete total sales increased by $54.7 million to $106.3 million, or 106%, during the 26 weeks ended October 29, 2022, as compared to $51.6 million during the 26 weeks ended October 30, 2021.

• Total course material rental income decreased by $10.4 million, or 16.6%, to $52.2 million during the 26 weeks ended October 29, 2022 from $62.7 million during the 26 weeks ended October 30, 2021 primarily due to the shift to more digital course materials.

Retail Gross Comparable Store Sales

During the 13 and 26 weeks ended October 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 for the majority of our e-commerce websites during the 26 weeks ended October 30, 2021.

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

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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 week periods are as follows:

13 weeks ended

Dollars in millions July 30, 2022 July 31, 2021

During the 13 and 26 weeks ended October 29, 2022, Retail Gross Comparable Store general merchandise sales increased by 4.5% and 14.9%, respectively.

During the 13 and 26 weeks ended October 29, 2022, Retail Gross Comparable Store course material sales decreased by 4.6% and 3.2%, respectively.

The decrease in course material sales was primarily due to a shift to lower cost options and more affordable solutions, including digital offerings, offset by the growth of First Day inclusive and equitable access programs, digital and eTextbook revenue increases.

Revenue from both of our First Day models offset the course materials declines.

Total revenue from our First Day models increased by $47.2 million to $143.2 million, or 49%, during the 13 weeks ended October 29, 2022, as compared to $96.0 million during the 13 weeks ended October 30, 2021.

Total revenue from our First Day models increased by $65.2 million to $188.2 million, or 53%, during the 26 weeks ended October 29, 2022, as compared to $123.0 million during the 26 weeks ended October 30, 2021.

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

13 weeks ended 26 weeks ended

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

Textbooks (Course Materials) $ (21.8) (4.6) % $ (0.5) (0.1) % $ (19.5) (3.2) % $ 22.9 4.1 %

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Total Retail Gross Comparable Store Sales $ (14.1) (2.2) % $ 73.5 13.2 % $ 19.7 2.3 % $ 147.6 21.0 %

Wholesale sales decreased by $7.4 million, or 16.6% to $37.1 million during the 13 weeks ended July 30, 2022 from $44.5 million during the 13 weeks ended July 31, 2021.

Wholesale sales decreased by $0.6 million, or 2.5% to $21.1 million during the 13 weeks ended October 29, 2022 from $21.7 million during the 13 weeks ended October 30, 2021.

Wholesale sales decreased by $8.0 million, or 12.0% to $58.2 million during the 26 weeks ended October 29, 2022 from $66.2 million during the 26 weeks ended October 30, 2021.

The decrease is primarily due to lower gross sales impacted by supply constraints resulting from the lack of textbook purchasing 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 lower returns and allowances.

DSS total sales increased by $0.9 million, or 10.6% to $9.2 million during the 13 weeks ended July 30, 2022 from $8.3 million during the 13 weeks ended July 31, 2021.

Sales increased primarily due to an increase in subscription sales.

DSS total sales increased by $0.2 million, or 2.3% to $8.5 million during the 13 weeks ended October 29, 2022 from $8.3 million during the 13 weeks ended October 30, 2021.

DSS total sales increased by $1.1 million, or 6.4% to $17.6 million during the 26 weeks ended October 29, 2022 from $16.6 million during the 26 weeks ended October 30, 2021.

Sales increased primarily due to an increase in Student Brands subscription sales.

Cost of Sales and Gross Margin

Our cost of sales increased as a percentage of sales to 75.9% during the 13 weeks ended July 30, 2022 compared to 75.1% during the 13 weeks ended July 31, 2021.

Our gross margin increased by $3.5 million, or 5.8%, to $63.5 million, or 24.1% of sales, during the 13 weeks ended July 30, 2022 from $60.0 million, or 24.9% of sales during the 13 weeks ended July 31, 2021.

During the 13 weeks ended July 31, 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 76.5% during the 13 weeks ended October 29, 2022 compared to 76.8% during the 13 weeks ended October 30, 2021.

Our gross margin decreased by $0.7 million, or 0.5%, to $144.8 million, or 23.5% of sales, during the 13 weeks ended October 29, 2022 from $145.6 million, or 23.2% of sales during the 13 weeks ended October 30, 2021.

Our cost of sales increased as a percentage of sales to 76.4% during the 26 weeks ended October 29, 2022 compared to 76.3% during the 26 weeks ended October 30, 2021.

Our gross margin increased by $2.7 million, or 1.3%, to $208.3 million, or 23.6% of sales, during the 26 weeks ended October 29, 2022 from $205.6 million, or 23.7% of sales during the 13 weeks ended October 30, 2021.

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.

For additional information, see Item 1.

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Summary of Significant Accounting Policies - Merchandise Inventories.

The following table summarizes the Retail cost of sales for the 13 weeks ended July 30, 2022 and July 31, 2021:

13 weeks ended

Dollars in thousands July 30, 2022 % of

Related Sales July 31, 2021 % of

The following table summarizes the Retail cost of sales for the 13 and 26 weeks ended October 29, 2022 and October 30, 2021:

13 weeks ended 26 weeks ended

Dollars in thousands October 29, 2022 % of

Related Sales October 30, 2021 % of

Related Sales October 29, 2022 % of

Related Sales October 30, 2021 % of

Related Sales

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$ 469,108 78.4% $ 480,127 78.8% $ 651,622 78.0% $ 642,453 78.4%

The following table summarizes the Retail gross margin for the 13 weeks ended July 30, 2022 and July 31, 2021:

13 weeks ended

Dollars in thousands July 30, 2022 % of

Related Sales July 31, 2021 % of

The following table summarizes the Retail gross margin for the 13 and 26 weeks ended October 29, 2022 and October 30, 2021:

13 weeks ended 26 weeks ended

Dollars in thousands October 29, 2022 % of

Related Sales October 30, 2021 % of

Related Sales October 29, 2022 % of

Related Sales October 30, 2021 % of

Related Sales

4 unchanged sentences

$ 129,502 21.6% $ 128,825 21.2% $ 183,495 22.0% $ 176,968 21.6%

For the 13 weeks ended July 30, 2022, the Retail gross margin as a percentage of sales decreased as discussed below:

• Product and other gross margin increased (80 basis points), driven primarily by a favorable sales mix (340 basis points) due to higher general merchandise sales and higher margin rates (250 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 (510 basis points) resulting from contract renewals and new store contracts.

• Rental gross margin decreased (670 basis points), driven primarily by higher contract costs as a percentage of sales related to our college and university contracts (555 basis points) resulting from contract renewals and new store contracts, an unfavorable rental mix (95 basis points) and lower rental margin rates (20 basis points).

The cost of sales and gross margin for Wholesale were $30.2 million, or 81.4% of sales, and $6.9 million, or 18.6% of sales, respectively, during the 13 weeks ended July 30, 2022.

The cost of sales and gross margin for Wholesale was $34.1 million or 76.6% of sales and $10.4 million or 23.4% of sales, respectively, during the 13 weeks ended July 31, 2021.

The gross margin rate decreased during the 13 weeks ended July 30, 2022 primarily due to higher markdowns.

The gross margin for the DSS segment was $7.5 million, or 81.5% of sales, during the 13 weeks ended July 30, 2022 and $7.0 million, or 84.7% of sales, during the 13 weeks ended July 31, 2021.

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

• Product and other gross margin increased (70 basis points), driven primarily by a favorable sales mix (75 basis points) due to higher general merchandise sales and higher margin rates (5 basis points) due to lower markdowns, partially offset by higher contract costs as a percentage of sales related to our college and university contracts (10 basis points) resulting from contract renewals and new store contracts.

• Rental gross margin increased (160 basis points), driven primarily by a favorable rental mix (205 basis points), and higher margin rates (85 basis points), partially offset by higher contract costs as a percentage of sales related to our college and university contracts (125 basis points) resulting from contract renewals and new store contracts.

For the 26 weeks ended October 29, 2022, the Retail gross margin as a percentage of sales increased as discussed below:

• Product and other gross margin increased (80 basis points), driven primarily by a favorable sales mix (155 basis points) due to higher general merchandise sales and higher margin rates (70 basis points) due to lower markdowns, partially offset by higher contract costs as a percentage of sales related to our college and university contracts (150 basis points) resulting from contract renewals and new store contracts.

• Rental gross margin decreased (10 basis points), driven primarily by higher contract costs as a percentage of sales related to our college and university contracts (215 basis points) resulting from contract renewals and new store contracts, partially offset by a favorable rental mix (160 basis points) and higher rental margin rates (45 basis points).

The cost of sales and gross margin for Wholesale were $15.7 million, or 74.2% of sales, and $5.5 million, or 25.8% of sales, respectively, during the 13 weeks ended October 29, 2022.

The cost of sales and gross margin for Wholesale was $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 gross margin rate decreased during the 13 weeks ended October 29, 2022 primarily due to higher markdowns.

The cost of sales and gross margin for Wholesale were $45.8 million, or 78.8% of sales, and $12.4 million, or 21.2% of sales, respectively, during the 26 weeks ended October 29, 2022.

The cost of sales and gross margin for Wholesale was $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 gross margin rate decreased during the 26 weeks ended October 29, 2022 primarily due to higher markdowns.

The gross margin for the DSS segment was $6.7 million, or 79.1% of sales, during the 13 weeks ended October 29, 2022 and $6.9 million, or 83.4% of sales, during the 13 weeks ended October 30, 2021.

The gross margin for the DSS segment was $14.2 million, or 80.3% of sales, during the 26 weeks ended October 29, 2022 and $13.9 million, or 84.0% of sales, during the 26 weeks ended October 30, 2021.

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

Intercompany Eliminations

During the 13 weeks ended July 30, 2022 and July 31, 2021, our sales eliminations were $(18.9) million and $(22.5) million, respectively.

During the 13 weeks ended October 29, 2022 and October 30, 2021, our sales eliminations were $(11.1) million and $(11.9) million, respectively.

During the 26 weeks ended October 29, 2022 and October 30, 2021, our sales eliminations were $(30.0) million and $(34.4) 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 July 30, 2022 and July 31, 2021, the cost of sales eliminations were $(14.0) million and $(16.9) million, respectively.

During the 13 weeks ended October 29, 2022 and October 30, 2021, the cost of sales eliminations were $(14.3) million and $(16.1) million, respectively.

During the 26 weeks ended October 29, 2022 and October 30, 2021, the cost of sales eliminations were $(28.3) million and $(33.0) 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 July 30, 2022 and July 31, 2021, the gross margin eliminations were $(4.9) million and $(5.5) million, respectively.

During the 13 weeks ended October 29, 2022 and October 30, 2021, the gross margin eliminations were $3.2 million and $4.2 million, respectively.

During the 26 weeks ended October 29, 2022 and October 30, 2021, the gross margin eliminations were $(1.7) million and $(1.3) million, respectively.

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

Selling and Administrative Expenses

13 weeks ended

Dollars in thousands July 30, 2022 % of

Sales July 31, 2021 % of

13 weeks ended 26 weeks ended

Dollars in thousands October 29, 2022 % of

Sales October 30, 2021 % of

Sales October 29, 2022 % of

Sales October 30, 2021 % of

Total Selling and Administrative Expenses

$ 107,086 17.4% $ 107,902 17.2% $ 205,572 23.3% $ 194,137 22.4%

During the 13 weeks ended July 30, 2022, selling and administrative expenses increased by $12.3 million, or 14.2%, to $98.5 million from $86.2 million during the 13 weeks ended July 31, 2021.

During the 13 weeks ended October 29, 2022, selling and administrative expenses decreased by $0.8 million, or 0.8%, to $107.1 million from $107.9 million during the 13 weeks ended October 30, 2021.

During the 26 weeks ended October 29, 2022, selling and administrative expenses increased by $11.4 million, or 5.9%, to $205.6 million from $194.1 million during the 26 weeks ended October 30, 2021.

The variances by segment are discussed by segment below.

During the 13 weeks ended July 30, 2022, Retail selling and administrative expenses increased by $10.6 million, or 15.6%, to $79.0 million from $68.4 million during the 13 weeks ended July 31, 2021.

This increase was primarily due to a $4.3 million increase in stores payroll and operating expenses including comparable stores, virtual stores and new/closed stores payroll and operating expenses, and a $6.3 million increase in corporate payroll, infrastructure and product development costs.

During the 13 weeks ended October 29, 2022, Retail selling and administrative expenses increased by $0.6 million, or 0.7%, to $90.1 million from $89.5 million during the 13 weeks ended October 30, 2021.

This increase was primarily due to a $3.2 million increase in store payroll and operating costs primarily at new/closed stores and a $3.3 million increase in corporate payroll, infrastructure and product development costs, partially offset by a $5.9 million decrease in incentive plan compensation expense, including compensation expense related to phantom share awards.

During the 26 weeks ended October 29, 2022, Retail selling and administrative expenses increased by $11.2 million, or 7.1%, to $169.1 million from $157.9 million during the 26 weeks ended October 30, 2021.

This increase was primarily due to a $9.6 million increase in store payroll and operating costs primarily at new/closed stores and a $7.9 million increase in corporate payroll, infrastructure and product development costs, partially offset by a $6.3 million decrease in incentive plan compensation expense, including compensation expense related to phantom share awards.

The payroll increase is primarily related to increased staffing at stores that had temporarily or partially closed due to limited on campus activities related to the COVID-19 pandemic in the prior year.

The increase is also due to greater on campus activity and related sales during the 13 weeks ended July 30, 2022 and costs incurred in preparation for the anticipated increased activity, including support for the growth in First Day programs, in the upcoming peak fall term in the second quarter of Fiscal 2023.

Wholesale selling and administrative expenses increased by $0.1 million, or 3.5%, to $4.1 million from $4.0 million during the 13 weeks ended July 31, 2021, primarily driven by higher operating costs.

During the 13 weeks ended July 30, 2022, DSS selling and administrative expenses increased by $1.7 million, or 26.3%, to $8.1 million from $6.4 million during the 13 weeks ended July 31, 2021.

The increase in costs was primarily driven by higher compensation expense, higher operating costs invested in the business associated with higher product development and sales costs infrastructure costs aimed at increasing revenue.

The increase is also due to greater on campus activity and related sales during the 26 weeks ended October 29, 2022 and costs to support the growth in First Day programs.

Wholesale selling and administrative expenses decreased by $0.5 million, or 11.8%, to $3.9 million from $4.4 million during the 13 weeks ended October 30, 2021.

Wholesale selling and administrative expenses decreased by $0.4 million, or 4.5%, to $8.0 million from $8.4 million during the 26 weeks ended October 30, 2021.

For the 13 and 26 week periods, the decreases were primarily driven by lower compensation expense, including incentive plan compensation expense of $0.2 million and $0.3 million, respectively, partially offset by higher operating costs.

During the 13 weeks ended October 29, 2022, DSS selling and administrative expenses increased by $0.8 million, or 11.3%, to $8.1 million from $7.3 million during the 13 weeks ended October 30, 2021.

The increase in costs was primarily driven by an increase of $1.1 million in operating costs invested in the business associated with product development, sales and infrastructure costs aimed at increasing revenue, and an increase of $1.0 million in compensation expense, partially offset by lower incentive plan compensation expense of $1.3 million.

During the 26 weeks ended October 29, 2022, DSS selling and administrative expenses increased by $2.5 million, or 18.4%, to $16.3 million from $13.8 million during the 26 weeks ended October 30, 2021.

The increase in costs was primarily driven by an increase of $2.3 million in compensation expense and an increase of $1.4 million in operating costs invested in the business associated with product development, sales and infrastructure costs aimed at increasing revenue, partially offset by lower incentive plan compensation expense of $1.2 million.

DSS has begun to adjust its cost structure, particularly within its Bartleby organization, to focus on enhanced profitability and sustainable growth.

Corporate Services

During the 13 weeks ended July 30, 2022, Corporate Services' selling and administrative expenses decreased by $0.2 million, or 3.1%, to $7.2 million during the 13 weeks ended July 29, 2022 from $7.4 million during the 13 weeks ended July 31, 2021.

The decrease was primarily due to lower compensation costs, partially offset by higher professional service costs.

During the 13 weeks ended October 29, 2022, Corporate Services' selling and administrative expenses decreased by $1.7 million, or 25.5%, to $5.1 million from $6.8 million during the 13 weeks ended October 30, 2021.

During the 26 weeks ended October 29, 2022, Corporate Services' selling and administrative expenses decreased by $2.0 million, or 13.8%, to $12.3 million from $14.3 million during the 26 weeks ended October 30, 2021.

The decrease in costs was primarily due to lower incentive plan compensation costs, including incentive plan compensation expense related to phantom share awards.

Depreciation and Amortization Expense

13 weeks ended

Dollars in thousands July 30, 2022 % of

Sales July 31, 2021 % of

13 weeks ended 26 weeks ended

Dollars in thousands October 29, 2022 % of

Sales October 30, 2021 % of

Sales October 29, 2022 % of

Sales October 30, 2021 % of

Total Depreciation and Amortization Expense

$ 10,759 1.7% $ 11,952 1.9% $ 23,292 2.6% $ 24,576 2.8%

Depreciation and amortization expense decreased by $0.1 million, or 0.7%, to $12.5 million during the 13 weeks ended July 30, 2022 from $12.6 million during the 13 weeks ended July 31, 2021.

Depreciation and amortization expense decreased by $1.2 million, or 10.0%, to $10.8 million during the 13 weeks ended October 29, 2022 from $12.0 million during the 13 weeks ended October 30, 2021.

Depreciation and amortization expense decreased by $1.3 million, or 5.2%, to $23.3 million during the 26 weeks ended October 29, 2022 from $24.6 million during the 26 weeks ended October 30, 2021.

The decrease was primarily attributable to lower depreciable assets and intangibles due to the store impairment loss recognized during Fiscal 2022.

Restructuring and other charges

During the 13 weeks ended July 30, 2022, we recognized restructuring and other charges totaling $0.4 million comprised primarily of professional service costs for restructuring and process improvements.

During the 13 weeks ended July 31, 2021, we recognized restructuring and other charges totaling $1.9 million comprised primarily of $0.8 million for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives, and $1.1 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.

Operating Loss

13 weeks ended

Dollars in thousands July 30, 2022 % of

Sales July 31, 2021 % of

Total Operating Loss $ (47,906) (18.0)% $ (40,735) (16.9)%

Our operating loss was $(47.9) million during the 13 weeks ended July 30, 2022, compared to operating loss of $(40.7) million during the 13 weeks ended July 31, 2021.

During the 13 and 26 weeks ended October 29, 2022, we recognized restructuring and other charges totaling $0.3 million and $0.6 million, respectively, comprised primarily of professional service costs for restructuring and process improvements.

During the 13 and 26 weeks ended October 30, 2021, we recognized restructuring and other charges totaling $1.1 million and $3.0 million, respectively, comprised primarily of $0.4 million and $1.3 million, respectively, for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives, and $0.7 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.

Operating Income (Loss)

13 weeks ended 26 weeks ended

Dollars in thousands October 29, 2022 % of

Sales October 30, 2021 % of

Sales October 29, 2022 % of

Sales October 30, 2021 % of

Total Operating Income (Loss) $ 26,730 4.4% $ 24,589 3.9% $ (21,176) (2.4)% $ (16,146) (1.8)%

Our operating income was $26.7 million during the 13 weeks ended October 29, 2022, compared to operating income of $24.6 million during the 13 weeks ended October 30, 2021.

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

For the 13 weeks ended October 29, 2022, excluding the $0.3 million of restructuring and other charges, discussed above, operating income was $27.0 million (or 4.4% of sales).

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).

Our operating loss was $(21.2) million during the 26 weeks ended October 29, 2022, compared to operating loss of $(16.1) million during the 26 weeks ended October 30, 2021.

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

For the 13 weeks ended July 30, 2022, excluding the $0.4 million of restructuring and other charges, discussed above, operating loss was $(47.5) million (or (18.0)% of sales).

For the 13 weeks ended July 31, 2021, excluding the $1.9 million of restructuring and other charges, discussed above, operating loss was $(38.8) million (or (16.1)% of sales).

For the 26 weeks ended October 29, 2022, excluding the $0.6 million of restructuring and other charges, discussed above, operating loss was $(20.5) million (or (2.3)% of sales).

For the 26 weeks ended October 30, 2021, excluding the $0.4 million of merchandise inventory loss and the $3.0 million of restructuring and other charges, discussed above, operating loss was $(12.7) million (or (1.5)% of sales).

Interest Expense, Net

13 weeks ended

Dollars in thousands July 30, 2022 July 31, 2021

13 weeks ended 26 weeks ended

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

Interest Expense, Net $ 4,886 $ 2,264 $ 8,754 $ 4,758

Net interest expense increased by $1.4 million, or 55.1%, to $3.9 million during the 13 weeks ended July 30, 2022 from $2.5 million during the 13 weeks ended July 31, 2021.

Net interest expense increased by $2.6 million to $4.9 million during the 13 weeks ended October 29, 2022 from $2.3 million during the 13 weeks ended October 30, 2021.

Net interest expense increased by $4.0 million to $8.8 million during the 26 weeks ended October 29, 2022 from $4.8 million during the 26 weeks ended October 30, 2021.

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

Income Tax Expense

13 weeks ended

Dollars in thousands July 30, 2022 Effective Rate July 31, 2021 Effective Rate

Income Tax Expense $ 933 (1.8)% $ 399 (0.9)%

We recorded an income tax expense of $0.9 million on pre-tax loss of $(51.8) million during the 13 weeks ended July 30, 2022, which represented an effective income tax rate of (1.8)% and we recorded an income tax expense of $0.4 million on a pre-tax loss of $(43.2) million during the 13 weeks ended July 31, 2021, which represented an effective income tax rate of (0.9)%.

The effective tax rate for the 13 weeks ended July 30, 2022 is higher as compared to the prior year comparable period due to foreign taxes and lower projected annual taxable loss in the current year.

13 weeks ended

Dollars in thousands July 30, 2022 July 31, 2021

Net loss $ (52,707) $ (43,628)

As a result of the factors discussed above, net loss was $(52.7) million during the 13 weeks ended July 30, 2022, compared with net loss of $(43.6) million during the 13 weeks ended July 31, 2021.

Adjusted Earnings (non-GAAP) is $(50.8) million during the 13 weeks ended July 30, 2022, compared with $(40.0) million during the 13 weeks ended July 31, 2021.

Income Tax (Benefit) Expense

13 weeks ended 26 weeks ended

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

Income Tax Expense (Benefit) $ (300) (1.4)% $ (203) (0.9)% $ 633 (2.1)% $ 196 (0.9)%

We recorded an income tax benefit of $(0.3) million on pre-tax income of $21.8 million during the 13 weeks ended October 29, 2022, which represented an effective income tax rate of (1.4)% and we recorded an income tax benefit of $(0.2) million on a 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)%.

We recorded an income tax expense of $0.6 million on pre-tax loss of $(29.9) million during the 26 weeks ended October 29, 2022, which represented an effective income tax rate of (2.1)% and we recorded an income tax expense of $0.2 million on a pre-tax loss of $(20.9) million during the 26 weeks ended October 30, 2021, which represented an effective income tax rate of (0.9)%.

The effective tax rate for the 13 and 26 weeks ended October 29, 2022 is lower as compared to the prior year comparable period due to foreign taxes and lower projected annual taxable loss in the current year.

Net Income (Loss)

13 weeks ended 26 weeks ended

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

Net income (loss) $ 22,144 $ 22,528 $ (30,563) $ (21,100)

As a result of the factors discussed above, net income was $22.1 million during the 13 weeks ended October 29, 2022, compared with net income of $22.5 million during the 13 weeks ended October 30, 2021.

As a result of the factors discussed

above, net loss was $(30.6) million during the 26 weeks ended October 29, 2022, compared with net loss of $(21.1) million during the 26 weeks ended October 30, 2021.

Adjusted Earnings (non-GAAP) is $24.0 million during the 13 weeks ended October 29, 2022, compared with $25.0 million during the 13 weeks ended October 30, 2021.

Adjusted Earnings (non-GAAP) is $(26.7) million during the 26 weeks ended October 29, 2022, compared with $(15.1) million during the 26 weeks ended October 30, 2021.

See Adjusted Earnings (non-GAAP) discussion below.

17 unchanged sentences

Consolidated Adjusted Earnings (non-GAAP)

13 weeks ended

Dollars in thousands July 30, 2022 July 31, 2021

Net loss $ (52,707) $ (43,628)

13 weeks ended 26 weeks ended

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

Net income (loss) $ 22,144 $ 22,528 $ (30,563) $ (21,100)

Reconciling items, after-tax (below)

1,878 2,427 3,830 6,041

Adjusted Earnings (non-GAAP) $ 24,022 $ 24,955 $ (26,733) $ (15,059)

1 unchanged sentence

Merchandise inventory loss (a)

$ — $ — — 434

Content amortization (non-cash)

1,618 1,311 3,195 2,586

Restructuring and other charges (a)

260 1,116 635 3,021

Reconciling items, pre-tax 1,878 2,427 3,830 6,041

4 unchanged sentences

Consolidated Adjusted EBITDA (non-GAAP)

13 weeks ended

Dollars in thousands July 30, 2022 July 31, 2021

Net loss $ (52,707) $ (43,628)

13 weeks ended 26 weeks ended

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

Net income (loss) $ 22,144 $ 22,528 $ (30,563) $ (21,100)

Depreciation and amortization expense 10,759 11,952 23,292 24,576

Interest expense, net 4,886 2,264 8,754 4,758

Income tax expense 933 399

Income tax (benefit) expense (300) (203) 633 196

Merchandise inventory loss (a)

Content amortization (non-cash)

1,618 1,311 3,195 2,586

Restructuring and other charges (a)

260 1,116 635 3,021

Adjusted EBITDA (non-GAAP) $ 39,367 $ 38,968 $ 5,946 $ 14,471

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

The following is Adjusted EBITDA by segment for the 13 weeks ended July 30, 2022 and July 31, 2021.

Adjusted EBITDA - by Segment 13 weeks ended July 30, 2022

The following is Adjusted EBITDA by segment for the 13 and 26 weeks ended October 29, 2022 and October 30, 2021.

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

Dollars in thousands Retail Wholesale DSS Corporate Services (a)

Eliminations Total

Net income (loss) $ 30,547 $ 218 $ (1,941) $ (9,938) $ 3,258 $ 22,144

Depreciation and amortization expense 8,869 1,370 503 17 — 10,759

Interest expense, net — — — 4,886 — 4,886

Income tax benefit — — — (300) — (300)

Content amortization (non-cash) — — 1,618 — — 1,618

Restructuring and other charges (b)

— — — 260 — 260

Adjusted EBITDA (non-GAAP) $ 39,416 $ 1,588 $ 180 $ (5,075) $ 3,258 $ 39,367

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

Dollars in thousands Retail Wholesale DSS Corporate Services (a)

Eliminations Total

Net income (loss) $ 29,595 $ (131) $ (2,301) $ (8,928) $ 4,293 $ 22,528

Depreciation and amortization expense 8,669 1,364 1,902 17 — 11,952

Interest expense, net — — — 2,264 — 2,264

Income tax benefit — — — (203) — (203)

Content amortization (non-cash) 105 — 1,206 — — 1,311

Restructuring and other charges (b)

1,075 — — 41 — 1,116

Adjusted EBITDA (non-GAAP) $ 39,444 $ 1,233 $ 807 $ (6,809) $ 4,293 $ 38,968

Adjusted EBITDA - by Segment 26 weeks ended October 29, 2022

Dollars in thousands Retail Wholesale DSS Corporate Services (a)

Eliminations Total

Net (loss) income $ (3,993) $ 1,637 $ (4,240) $ (22,346) $ (1,621) $ (30,563)

6 unchanged sentences

Adjusted EBITDA (non-GAAP) $ 14,431 $ 4,356 $ 1,069 $ (12,289) $ (1,621) $ 5,946

Adjusted EBITDA - by Segment 13 weeks ended July 31, 2021

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

Dollars in thousands Retail Wholesale DSS Corporate Services (a)

14 unchanged sentences

Free Cash Flow (non-GAAP)

13 weeks ended

Dollars in thousands July 30, 2022 July 31, 2021

Net cash flows used in operating activities $ (28,998) $ (17,304)

13 weeks ended 26 weeks ended

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

Net cash flows provided by operating activities $ 38,374 $ 41,580 $ 9,376 $ 24,276

Capital expenditures (a)

10,847 9,894 20,573 21,264

Cash interest 4,368 1,980 7,301 3,662

4 unchanged sentences

The following table provides the components of total purchases of property and equipment:

Capital Expenditures 13 weeks ended

Dollars in thousands July 30, 2022 July 31, 2021

Capital Expenditures 13 weeks ended 26 weeks ended

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

Physical store capital expenditures $ 6,052 $ 3,587 $ 10,548 $ 7,480

5 unchanged sentences

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 July 30, 2022, we had $260.3 million and $203.7 million outstanding borrowings under the Credit Agreement and Term Loan Agreement, respectively.

As of October 29, 2022, we had $222.0 million and $30.0 million outstanding borrowings under the Credit Agreement and Term Loan Agreement, respectively.

See Financing Arrangements discussion below.

1 unchanged sentence

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

To the extent that available funds are

insufficient to fund our future activities, we may need to raise additional funds through public or private financing of debt or equity.

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

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

10 unchanged sentences

26 weeks ended

Dollars in thousands July 30, 2022 July 31, 2021

Dollars in thousands October 29, 2022 October 30, 2021

Cash, cash equivalents, and restricted cash at beginning of period $ 21,934 $ 16,814

Net cash flows used in operating activities (28,998) (17,304)

Net cash flows provided by operating activities 9,376 24,276

Net cash flows used in investing activities (20,318) (20,938)

1 unchanged sentence

Cash, cash equivalents, and restricted cash at end of period $ 34,719 $ 23,530

As of July 30, 2022 and July 31, 2021, we had restricted cash of $7.5 million and $5.6 million, respectively, comprised of $6.6 million and $4.7 million, 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 for both periods 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 October 29, 2022 and October 30, 2021, we had restricted cash of $15.6 million and $12.5 million, respectively, comprised of $14.7 million and $11.6 million, 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 for both periods 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

1 unchanged sentence

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.

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.

As a higher percentage of our sales shift to First Day inclusive access offerings, we are focused on efforts to better align the timing of our cash outflows to course material vendors with cash inflows collected from schools.

When a school adopts our First Day inclusive and equitable 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.

As a higher percentage of our sales shift to First Day inclusive and equitable access offerings, we are focused on efforts to better align the timing of our cash outflows to course material vendors with cash inflows collected from schools.

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.

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

Cash flows used in operating activities during the 13 weeks ended July 30, 2022 were $(29.0) million compared to $(17.3) million during the 13 weeks ended July 31, 2021.

This increase in cash used in operating activities of $11.7 million was primarily due to changes in working capital, including higher inventory purchases as we prepare for the upcoming Fall term, partially offset by lower receivables and lower earnings in the current year period compared to the prior year period.

Cash flows provided by operating activities during the 26 weeks ended October 29, 2022 were $9.4 million compared to $24.3 million during the 26 weeks ended October 30, 2021.

This decrease in cash flows provided by operating activities of $14.9 million was primarily due to changes in working capital, including higher inventory purchases, partially offset by lower receivables and lower earnings in the current year period compared to the prior year period.

Cash Flow from Investing Activities

Cash flows used in investing activities during the 13 weeks ended July 30, 2022 were $(9.7) million compared to $(11.2) million during the 13 weeks ended July 31, 2021.

Cash flows used in investing activities during the 26 weeks ended October 29, 2022 were $(20.3) million compared to $(20.9) million during the 26 weeks ended October 30, 2021.

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

Capital expenditures totaled $9.7 million and $11.4 million during the 13 weeks ended July 30, 2022 and July 31, 2021, respectively.

Capital expenditures totaled $20.6 million and $21.3 million during the 26 weeks ended October 29, 2022 and October 30, 2021, respectively.

Cash Flow from Financing Activities

Cash flows provided by financing activities during the 13 weeks ended July 30, 2022 were $33.4 million compared to $24.9 million during the 13 weeks ended July 31, 2021.

Cash flows provided by financing activities during the 26 weeks ended October 29, 2022 were $23.7 million compared to $3.4 million during the 26 weeks ended October 30, 2021.

This net change of $20.3 million is primarily due to higher net borrowings.

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Credit Facility

We have a credit agreement (the “Credit Agreement”), amended March 31, 2021 and March 1, 2019, under which the lenders committed to provide us with a 5-year asset-backed revolving credit facility in an aggregate committed principal amount of $400 million (the “Credit Facility”).

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

Proceeds from the Credit Facility are used for general corporate purposes, including seasonal working capital needs.

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

As of July 30, 2022, we were in compliance with all debt covenants under the Credit Agreement.

The agreement includes an

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

As of October 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 draw scheduled for April 2022 under the FILO Facility, 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 13 weeks ended July 30, 2022, we borrowed $117.2 million and repaid $112.6 million under the Credit Agreement, with $230.3 million of outstanding borrowings as of July 30, 2022, comprised of $190.3 million and $40.0 million of borrowings under the Credit Facility and FILO Facility, respectively.

During the 13 weeks ended July 31, 2021, we borrowed $71.7 million and repaid $45.6 million under the Credit Agreement, with $203.7 million of outstanding borrowings as of July 31, 2021, comprised of $153.7 million and $50.0 million of borrowings under the Credit Facility and FILO Facility, respectively.

As of both July 30, 2022 and July 31, 2021, we have issued $4.8 million in letters of credit under the Credit Facility.

During the 26 weeks ended October 29, 2022, we borrowed $318.2 million and repaid $321.9 million under the Credit Agreement, with $222.0 million of outstanding borrowings as of October 29, 2022, comprised entirely of borrowings under the Credit 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.

As of both October 29, 2022 and October 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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The proceeds of the Term Loans are being used to finance working capital, and to pay fees and expenses related to the Term Loan Facility.

During the 13 weeks ended July 30, 2022, we borrowed $30.0 million and repaid $0 under the Term Loan Credit Agreement, with $30.0 million of outstanding borrowings as of July 30, 2022.

During the 13 weeks ended July 30, 2022, we incurred debt issuance costs totaling $1.9 million related to the Term Loan Credit Agreement.

During the 26 weeks ended October 29, 2022, we borrowed $30.0 million and repaid $0 under the Term Loan Credit Agreement, with $30.0 million of outstanding borrowings as of October 29, 2022.

We incurred debt issuance costs totaling $2.0 million related to the Term Loan Credit Agreement.

The debt issuance costs have been deferred and are presented as prepaid and other current assets and other noncurrent assets in the consolidated balance sheets, and subsequently amortized ratably over the term of the Term Loan Facility.

The Term Loans accrue interest at a rate equal to 11.25% and mature on June 7, 2024.

The Term Loans accrue interest at a rate equal to 11.25%, payable quarterly, and mature on June 7, 2024.

We have the right, through December 31, 2022, to pay all or a portion of the interest on the Term Loans in kind.

To date, all interest on the term loan has been paid in cash.

The Term Loans do not amortize prior to maturity.

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As a result of the tax year-end change, there is no longer a long-term tax payable associated with the LIFO reserve in other long-term liabilities.

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 have filed our federal income tax returns for the tax year ended January 2021, which included claims for $33.6 million in refunds for cash taxes paid in prior years.

We received refunds of $7.8 million in Fiscal 2022 and $15.8 million on August 29, 2022 (Fiscal 2023).

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Share Repurchases

During the 13 weeks ended July 30, 2022, we did not repurchase any of our Common Stock under the stock repurchase program.

As of July 30, 2022, approximately $26.7 million remains available under the stock repurchase program.

During the 13 weeks ended July 30, 2022, we repurchased 238,210 shares of our Common Stock outside of the stock repurchase program in connection with employee tax withholding obligations for vested stock awards.

During the 26 weeks ended October 29, 2022, we did not repurchase any of our Common Stock under the stock repurchase program.

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

During the 26 weeks ended October 29, 2022, we repurchased 344,587 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 July 30, 2022, we have no off-balance sheet arrangements as defined in Item 303 of Regulation S-K.

As of October 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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• risk that digital sales growth does not exceed the rate of investment spend;

• the performance of our online, digital and other initiatives, integration of and deployment of, additional products and services including new digital channels, and enhancements to higher education digital products, and the inability to achieve the expected cost savings;

• the inability to achieve the expected cost savings during the anticipated time frame, and the inability to implement our cost saving initiatives in a timely and efficient manner;

• the risk of price reduction or change in format of course materials by publishers, which could negatively impact revenues and margin;

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis