Morning and welcome to the Barnes and Noble Education Earnings Call. I would now like to turn the call over to Andy Milliboy, Vice President, Corporate Finance and Investor Relations. Please go ahead.
Good morning, and welcome to our fiscal 2022 1st quarter earnings call. Joining us today are Mike Huseby, CEO and Chairman Tom Donahue, CFO Jonathan Schar, Executive Vice President, D and ED Retail David Henderson, President of MBS And David Nienke, President of DSS. Before we begin the call, I'd like to remind you that the statements we make on Today's call are covered by the Safe Harbor disclaimer contained in our press release and public documents. The contents of this call are the property of presentation and are not for rebroadcast or use by any other party without prior written consent of Barnes and Noble Education. During this call, we will make forward looking statements with predictions, projections and other statements about future events.
These statements are based upon current expectations and assumptions that are subject to risks and uncertainties, including those contained in our press release and public filings with the Securities and Exchange Commission. The company disclaims any obligation to update any forward looking statements that may be made or discussed during this call. And now, I'll turn the call over to Mike Huseby.
Thanks, Andy, and thank you all for joining us this morning. As many of you know, the Q1, consisting primarily of summer courses, is typically a low revenue quarter for the company As Tom will discuss in further detail during the financial review, We were encouraged by the sales rebound during the Q1, especially within our general merchandise business. And while the COVID pandemic continues to evolve, we believe this performance is a positive harbinger for the upcoming fall semester As in person classes are expected to prevail and other on campus social activities and sporting events begin to resume at greater volumes. While the COVID-nineteen pandemic has had a profound and unprecedented impact on higher education and our business, As we navigated through the pandemic, we've been successful in accelerating the execution of our strategic initiatives, Improving our offerings for our campus partners and managing our liquidity position so that we entered fiscal 'twenty two in a position of strength. Our Inclusive Access courseware offerings, FirstDay and FirstDay Complete, are becoming widely recognized With an increasing velocity of adoption as programs that provide improved student outcomes through equitable access, Enhance convenience and improved course material affordability.
Our partnership with Fanatics and Liz combines Our innovative academic offerings with an unparalleled merchandise assortment and best in class omnichannel customer experience. We expect this greatly enhanced experience and expanded offering to increase sales of our higher margin logo and emblematic products As we continue to roll it out over our store footprint in the coming months. Our direct to student digital bartleby offering visit the schools and students we serve, collectively, we believe we provide an unmatched offering and compelling value proposition It simply can't be replicated in the marketplace. As we prepare to welcome students back on campus for the 2021 to 'twenty two academic year, We're very excited to provide advanced course material delivery solutions across student choice and inclusive access models, All designed to support improved student outcomes through access, convenience and affordability. VNC FirstDay and FirstDay Complete are innovative models of course material delivery that address equitable access across an entire institution by ensuring that all students are prepared for learning by the 1st day of class, while also substantially improving affordability through Through BNC FirstDay, digital course materials like eText or publisher courseware are adopted by a faculty member for a single course and students receive their materials through the school's learning management system.
BNC First Day Complete is an innovative model of course material delivery that addresses equitable access across an entire institution By ensuring that all students are prepared for learning by the 1st day of class. For campuses utilizing the 1st day complete model, The cost of course materials are bundled into tuition and or fees, and the campus bookstore oversees the distribution of physical and digital course When students have access to their learning materials at the start of class, they can engage with the course content from day 1, Ensuring that there are no gaps in learning. In a survey we conducted with more than 400 students utilizing FirstDay Complete, We found that 74% of students said the program helped them to be better prepared academically. 70% of students said it had a positive impact on their classroom success, while 62% of students responded that 1st day complete Help them to achieve better grades. Amongst the additional top benefits of FirstDay Complete cited by students were convenience Of those surveyed, 84% said they liked the convenience of having their course materials bundled And delivered to them through this program.
In addition, 85% stated that the program saves them time. A representative response from students who surveyed was, I like that I don't have to think about doing everything to get my course materials. Everything was already ready meeting. In addition to student benefits, 1st Day Complete is very attractive to our campus partners as it enables them to address student outcomes From small private colleges to large public universities and multi campus community college systems. This value proposition resonates with all schools, including our virtual school partners with whom we are actively discussing FirstDay Complete and beginning to test It's application in the virtual market.
As we learn more, we'll keep you posted on this incremental opportunity. Additionally, as schools compete with one another for enrollment, it also becomes an attractive competitive advantage, Which we believe will lead to additional demand for this offering. For the current fall term, FirstDayComplete will be offered at institutions with undergraduate Enrollment of over 300,000 students, up from 43,000 students last fall, representing a year over year growth multiple of approximately 7 times. Looking forward, based on the accelerating demand for this solution, we expect Continued strong growth for both FirstDay and FirstDay Complete. As students and visitors return to campus and begin to attend campus events like sporting events, Prospective student tours and alumni weekends, we're excited to debut our new general merchandise offerings resulting from our strategic partnership with Fanatics and Lids.
We expect this partnership, which will provide an enhanced product assortment and significantly improved omni channel experience to not only grow sales in campus stores, But to also increase our customer relationships with the total addressable market by growing sales to alumni We're already realizing this benefit and we're thrilled to announce in June our newly formed partnership to serve the University of Notre Dame. Beginning next year, Barnes and Noble College will manage all course materials, retail and online operations for the university's campus retail stores, While drawing heavily on our partnership with Fanatics and Lids, given the large emblematic merchandise sales of Notre Dame. This partnership combines the power of Barnes and Noble College's academic solutions and our established retail expertise with Fanatics and Lids new and innovative in store and e commerce retail solutions that we are already actively collaborating on with Notre Dame's leadership. Importantly, we are now partnering with 2 best in class industry leaders that have significantly greater scale in this segment, Providing best in class retail experiences for our existing campus partners and new client top tier universities It's precisely why we entered into our partnership with Fanatics and Lids. Our selection by Notre Dame sends a strong message And for e commerce.
Turning to our DSS business, our bartleby suite of solutions continue to exhibit its rapid growth. DSS revenue for the quarter was $8,300,000 growing 41% over last year, representing the highest dollar revenue growth recorded for the DSS segment since its formation. Bartleby generated over 66,000 news gross subscribers this quarter, Representing more than 100% growth over the same period last year, with revenue increasing 86%. As students and institutions are excited to return to an on campus learning experience this fall, we believe that the significantly increased use of Online learning and supplemental tutoring tools over the past year has forever changed the landscape of higher education and the need for flexibility in the We expect bartleby to continue to grow and become even more relevant with this heightened need for support outside of the classroom. We expect significantly better performance of in store sales of bartleby this year given the substantial return to on campus learning.
In response to these trends, we continue to invest in and strengthen our Paracold DSS offerings. During the Q1, we launched Math Solver, a new bartleby product feature that is powered by our session, our partnership with Wolfram Alpha and allows students to do on demand real time access to learn how to solve all types of math problems in algebra, pre calc, Introducing this new feature ensures that bartleby continues to grow with the students it serves, adding functionality that can meet the urgent and growing demand to even better support students in this subject area. We are seeing positive growth and momentum in the Student Brands Writing Health business, which is also contributing to the overall DSS revenue growth. The Student Brands business, which attracts a global audience of over 25,000,000 students per month across 4 languages While our success lies in driving growth and margin contributions from our growth initiatives, We also continually to carefully manage our costs and liquidity by leveraging both our partnership relationships And the more flexible cost structure we engineered over the last approximately 18 months. During those 18 months, We were presented with significant challenges that we had to adapt to and overcome.
While challenges remain, certain of them, such as Supply chain and fulfillment logistics are improving weekly and we believe they will continue to improve to allow us to meet the increased pent up demand That we are seeing as fall rush starts. I'm extremely proud of our organization and the significant progress they have made On our strategic initiatives and their complete dedication to serving our customers and each other. As we begin the critical current fall rush period and look for the rest of this fiscal year 'twenty two and beyond, we're excited to welcome students back to campus and to once again serve our campus COVID will continue to evolve and require our attention. And while this trajectory is difficult to predict, I'm confident in our company's ability to adapt, adjust and serve our campus partners providing unparalleled service With that, I'll turn it over to Tom for the financial review.
Thanks, Mike. Please note that the Q1 of fiscal 2022, consisting of 13 weeks, ended on July 31, 2021. All comparisons will be to the Q1 of fiscal 2021 unless otherwise noted. As Mike highlighted, The first quarter is a low revenue quarter for the company, consisting primarily of summer courses. We were encouraged by our Q1 results as sales session Rebounded, especially within our general merchandise business, as the majority of our campus stores were open as compared to the prior year Our students were primarily learning remotely and the majority of our stores were closed in response to COVID.
Total sales for the quarter were $240,800,000 compared with $204,000,000 in the prior year. This increase of $36,800,000 or 18 percent was comprised of a $51,700,000 increase in the retail segment, A $35,800,000 decrease from the wholesale segment and a $2,400,000 increase from the DSS segment. Retail comparable store sales increased 49.8% during the quarter, comprised of 21.9% increase in textbook sales and 118.4% increase in our general merchandise business, Which benefited significantly from the reopening of most of our campus stores. These results were further bolstered by BNC's rapidly growing 1st day offerings, where a student is charged for course materials by the institution through a fee or included in tuition, With sales nearly tripling to $27,000,000 during the quarter. As a reminder, per our agreement with Fanatics and Lids, Logo and Emblematic product sales are now accounted for under the agency accounting method, in which The NED receives a percent of sales for the logo and Emblematic sales online and in store.
Each sales channel in store and online selling price or tender received for the products sold under the agency model rather than solely the commission received, whereas GAAP sales on our presentation, we will conduct the commission received. Currently, we have entered our fall rush period and are cautiously optimistic by the results we've experience over the 1st few weeks. Net sales for the wholesale segment decreased $35,800,000 or 44.6 percent to $44,500,000 primarily due to the shift of course material sales from wholesale CSS model As a reminder, when campus stores were closed a year ago, we pivoted to providing students With the course materials through wholesale CSS model. Additionally, in the quarter, there was a decline in both supply and customer demand, Partially offset by lower returns and allowances. DSS sales grew $2,400,000 or 41.4 percent This was primarily due to the favorable sales mix of higher general merchandise products, coupled with lower inventory reserves And lower markdowns, partially offset by higher contract costs as a percent of sales.
Our selling and administrative expenses increased by 16,200,000 or 23.1 percent compared with the prior year as we reopened most stores and brought employees back to serve students As compared to the prior year period when we furloughed many employees in response to our COVID related temporary store At the end of the quarter, our cash balance was $7,600,000 with outstanding borrowings of $203,700,000 as compared to borrowings of 2 Despite last year's challenging climate, CapEx for the quarter was $11,400,000 compared with $7,100,000 in the prior year, with The increase coming primarily from products, systems and development costs. Currently, our retail segment operates 1429 college, University and K-twelve school bookstores comprised of 784 physical bookstores and their e commerce sites, As well as 645 virtual bookstores. With that, we will open the call for questions. Operator,
Your first question comes from the line of Ryan MacDonald with Needham.
Good morning. Congrats on a great I wanted to ask about what you're seeing thus far in terms of 1st day complete take rates From the students that are starting to return to campus, presumably you're starting to see those orders come in For the upcoming fall semester and I know you talked about expectations of about an 80% take rate at the Investor Day, But it was much higher last fall. So just would be curious to hear any commentary around those opt in rates thus far.
Yes. Ryan, this is Mike. I'll let John Shar handle that one.
Yes. Thanks, Ryan. It's Jonathan. Yes. 1st day complete and our execution to date has been really strong.
We're seeing across the Strong student adoption and really strong fulfillment and execution from our stores, Both across the physical materials that they're picking up as well as digital, we have a lot of institutions that have now says percent on adoption across the board and then certain institutions that included as a course charge Where students can opt out. So we don't have all the data as of yet, but it looks really strong and Really excited by the execution, the feedback we're getting from students as well as the campuses that we serve session And really proud of the execution of our teams to get the materials in the hands of students on or before the 1st day of class, which is ultimately Allowing them to enhance student outcomes and really improve the overall student experience.
Ryan, this is Mike. I think the only thing I would add to that, and as John said, it's early in rush to get have valid data to disclose, but we have situations with large community college state systems Where they've decided to go ahead and completely fund the cost of courseware through their CARES Act funding, Which means 100% of the students will be getting their books for free with no opt out. And in some cases, they're doing this for 2 years. It's an interesting thing that we're analyzing on a very specific basis to make sure we help those schools that need help To spend that money that they've received from the government, there's a lot of money that's flowed into certain schools and they have to spend it within a certain timeframe. And Courseware is one of the allowed expenditures for them.
So that's working out really well for many of the schools That have received the government funding is to use that funding to go ahead and pay for the cost of coursework for all their students. And in those situations, there's no opt out. So I can't say enough about FirstDay Complete and the team, John and his In that same community college system, I was just citing, 76% of the adoptions are digital, which is great in terms of the convenience for the students And also for us because it reduces the fulfillment effort that goes into our satisfying the demand. So it's really served as a competitive advantage for many schools and that's accelerating the demand because other schools are seeing that And they're actually seeing growth in enrollment in some of the schools that are pitching books are free and those types of programs. So they're using it as a competitive response so that they can put themselves on an equal footing with those students that are those schools rather that are using it as a competitive advantage.
That's really helpful color. I think an interesting dynamic for sure on the state Funding aspect, I'd be curious as you're looking to the spring semester, I know you've been working on additional universities to start Our launch with FirstDay Complete in January, could you just provide an update on sort of how that's trending in terms of additional schools Coming on to 1st day complete.
Yeah. John, you want to address that?
Yeah. Yes, absolutely. Yes, we actually already have schools that are committed to launch FirstDay Complete within this academic year for the Spring term, and so that's really exciting. And having, I would say, conversations across Our footprint and with prospective clients on launching 1st Day Complete next academic year Already. So let's say the impact of what we're seeing and the number of case studies and relevant Institutions across 4 year private, 4 year public, 2 year community college systems And it's leading to a lot of discussion.
So yes, we will grow within this fiscal year the number of campus stores Running Thursday complete, I'm really excited about the prospects for the future just based on the number of conversations we're having and the demand
listen for this offering. Excellent.
And then just maybe perhaps one more for me. Great to see the strength in DSS both across Student Brands Ann Bartleby, you talked about the new math solver tool launching this summer. Just curious as you're thinking about the fall semester in terms of marketing and packaging that solution, are you offering the MassAlvarez bundled in To core Bartleby and does pricing change on
that solution at all? Thanks.
Yes, David Menke, who is our President of DSS, will address that.
Yes. MetSol is included in the subscriptions. So we launched it, as you mentioned, in June. We had a sort of controlled rollout as it went through beta. It's now available to all customers.
And adoption and usage is coming around the levels that we expected, but it is included.
Excellent. Thank you very much.
Your next question comes from the line of Alex Berman.
Great. Thanks very much for taking my question. Nice to see things finally looking like they're opening up here. Wanted to ask a couple of things. First of all, I'll start with the Fanatics and Lids partnership.
And can you talk a little bit about now that the fall semester is getting into the rush period here, what is different about the In store merchandising experience today than it would have been a few years ago before this partnership, is it more about the quality and breadth of the assortment? Can you help us understand that a little bit better? And similarly, if you can address the e commerce experience, how is it different today than it would have been a few years ago? And I know it's really early, obviously, In the rush here, but are you starting to see a response to the new assortment?
Yes. I'll just make some general comments, this is Mike, On your questions, Alex, and I'll turn it over to Jonathan to get more specific. But With respect to your first question on the FLC partnership and the merchandising and the appearance in the stores, your question is versus a few years ago, well, I think It came a long way even prior to the partnership with Fanatics and Lids in terms of our focus on really retailing on a very specific kind of local basis within each school store. So The incremental benefit of Fanatics and Lids merchandising comes obviously with The segment of that merchandising, emblematic and logo apparel that they specialize in, it's the quality. It's more the breadth of the assessment, the assortment and especially in COVID, their ability to access Directly through manufacturers and in some cases in their own brands.
We've used the inventory We probably wouldn't have been able to access as readily or at least not in the quantities as we can with them as a partner. So When you walk into the stores, you're going to see a different assortment, a wider assortment, and I think trending towards in Some of the larger schools more of a high end assortment, a larger percentage of apparel that's higher end in nature than what we've had And different brands, a much wider assortment of brands, newer brands, more exciting brands from a demographic perspective for students. So that's one thing. And in terms of the details behind that, I'll let John talk about it. But it's really been a huge Exciting benefit for us thus far.
Yeah. The I I just want to echo what, what Mike said that it's really about the Quality and breadth, Alex, of the product assortment in the stores that we're really excited Retail experience standpoint for our customers and then on the e commerce side and the integration of the Fanatics sessions seamlessly into our bookstore websites, we're incredibly excited about that, very optimistic And on the impact that it's going to have and the early results are really encouraging For the 14 sites where we've integrated that experience already having an impact and Post rush, we'll be transitioning within this calendar year the balance of our sites to that experience. And it's, I would say the build out of what we're calling our spirit shops for logo and emblematic Incredible sort of user experience that we just can't wait to get to rolled out to all of our schools and have an impact on
We're still early in the recovery and there's a lot of unknowns ahead. But you talk about being EBITDA profitable this year, obviously Q1 of this year certainly reflected pandemic Conditions that as we enter the fall semester, can you give us a sense of how close here are your campus partners to being What you would fully consider to be back up and running? And what does that mean for your profitability this year or at least the run rate
Yes. I'll talk about that in general terms and then maybe Tom and Jonathan can jump in But it's a great question. It's what we think about every day. It's what we've been thinking about for the last few months, getting ready for the rush. And as you might expect, it's different in different situations.
But in general, we are seeing widespread, Almost ubiquitous, not quite, but return to in person learning with students on campus. I think the big keys are going to be if you look at what's going to happen in the fall, it's first off, Is everyone coming back on campus? Under what conditions? And really important for us as it relates to general merchandise sales, which as you know, Alex, session really heard us last year is having fans attend the sporting events because we sell a lot of general merchandise On game day or in anticipation of game day and the days leading up to those games. So having the fans in the seats And on campus, having the alumni come back to campus to attend the games, that's going to be important.
So that's so far Our information is that it's moving forward at or near full capacity. Obviously, we're concerned about the impacts of the Delta variant and whether that's going to gate any of that thus far. I think as you can see that No, it hasn't had a huge impact, but we're obviously keeping an eye on it. And we think about it, we don't have blinders on. And And then I think the other thing I would say, we just talked about the impact of the Fanatics Lids partnership.
So making sure that the supply chain disruptions, We continue to work on that closely with them and they are representative, making sure We've seen tremendous demand, snap back in demand in our stores and also online that We have as much inventory as we can get to meet that demand. So Those things are going to be key as we enter fall. But I think in general, what we see across The nation and our group of schools that we serve is a return to, in particular, U. S. Students, international students coming back are lagging, but the The gaps in the international students, for example, for many of the elite schools are being filled by U.
S. Students in many cases. And in some cases, international students actually stayed in the U. S. And Are getting back to school.
So the mix of the U. S. And international students is something we're watching. But Our biggest concern right now actually is keeping up with the demand for general merchandise in our stores and online given some of the Not just supply chain issues, but also the transportation issues in that supply chain. And thus far, we feel okay with that.
We'd like to be further along than we are, session Particularly in some of our, I'd say, less Power 5 schools, but we're getting there. And I think that's what's really exciting about the impact of the partnership This is going to have a big impact, I think, on us in the near term. But as COVID wanes and these supply chain issues get figured out, I I think it's going to be very, very clear. As John said, the results are encouraging and e commerce are very encouraging for those 14 schools. And also in stores, I think we're going to see the impact even more so than most of us think.
So they're coming back to school. This is our largest week for Rush this week in terms of the number of stores this week and last week. And we're seeing large demand. We just want to make sure we can satisfy that demand. So we're doing everything we can working with our partners If you get everything in store and that's one of the beauties of FirstDay's complete and digital courseware is that it's really helping So I don't know John and Tom probably want to answer that question with different insights.
Hey, it's Jonathan. Noah, just building on what Mike is saying, we're really encouraged With the sort of return to campus and the vast majority, as Mike said, of our Schools welcoming students back, having residential life, in person Classes and visitors and traffic on campuses so far, and the key will really be and it's To be determined, we're optimistic, the sporting events, football weekends at many of our campuses and We're ready to satisfy that demand and that traffic when people return to campus for events throughout the fall.
Yes, one thing I would add is that, Nothing really slowed down much. In fact, a lot of things accelerated in the last 12 months in anticipation of the ongoing You know, need and demand for students to want to be on campus. I mean, a perfect example of that is, you know, Harvard's opening up a beautiful new bookstore This coming week. And we have co invested alongside Harvard and Harvard Coop. And that's just an example of the fact that nobody is really pulling back to the contrary, We're making the investments very wisely, but everybody's doing everything they can to attract students on a very responsible basis, keeping safety is the first priority, obviously, as we all have to do that to make sure that students are coming back on campus and feel welcome And that they we really have almost 2 freshman classes this year because the freshman class from last year really didn't get to have experienced this, so that's creating a higher level of demand than perhaps we've seen in a while.
Great. That's good to hear. Thanks very much everyone.
And there are no further questions at this time. I will now turn the call back over to Andy Milavoy for closing remarks.
Great. Thank you. And thank
you all for joining us on today's call and your continued interest in BNED. Please note, our next scheduled financial release will be our fiscal 2022 Q2 earnings release in early December. We hope everyone has
a great day. Thank you.
This concludes today's conference call. You may now disconnect.