Overview of the Company’s Financial Performance

First Day Complete and First Day are two key strategic initiatives for the company that provide students with affordable access to course materials. These programs have helped the company reverse historical declines in course materials revenue by driving higher unit sales volumes compared to traditional sales models.

In the 13 weeks ended January 25, 2025, the company’s total sales increased by 2.1% to $466.3 million, primarily driven by growth in the BNC First Day® programs which offset declines from closed stores. Gross Comparable Store Sales increased by 6.6% during the quarter. Income from Continuing Operations increased significantly to $17.8 million, compared to a loss of $9.7 million in the prior year period. Adjusted EBITDA from Continuing Operations also improved by 29.8% to $27.4 million.

For the 39 weeks ended January 25, 2025, total revenue was flat at $1,331.9 million, but Gross Comparable Store Sales increased by 4.8%, again driven by the growth in BNC First Day® programs. Loss from Continuing Operations was $30.7 million, which included a $55.2 million loss on extinguishment of debt. Adjusted EBITDA from Continuing Operations improved by $26.4 million to $72.7 million.

The company’s business is highly seasonal, with the majority of sales and profits realized in the second and third fiscal quarters when students purchase and rent textbooks. The growth of the BNC First Day® programs has impacted the timing of cash collections, with schools generally paying after drop/add dates rather than at the point-of-sale.

Revenue and Profit Trends

The company’s total sales are primarily derived from product sales, including new, used, rental and digital textbooks, as well as general merchandise like apparel, school supplies, and technology products sold in its campus bookstores. Rental income is another significant revenue source.

In the 13 weeks ended January 25, 2025, product sales and other increased by 1.9% to $423.2 million, driven by a 3.3% increase in course material product sales, which was partially offset by a 1.2% decline in general merchandise product sales. Rental income increased by 4.5% to $43.2 million.

For the 39 weeks ended January 25, 2025, product sales and other decreased slightly by 0.3% to $1,233.8 million, as a 1.4% increase in course material product sales was offset by a 5.0% decline in general merchandise product sales. Rental income increased by 4.9% to $98.1 million.

The growth in the BNC First Day® programs was a key driver of the improved product sales performance, with First Day Complete sales increasing by 29.5% in Q3 and 26.2% year-to-date, and First Day sales increasing by 7.9% in Q3 and 13.1% year-to-date. This helped offset declines from closed stores.

Gross margin decreased to 20.7% in Q3 and 21.1% year-to-date, primarily due to lower product margin rates, partially offset by lower contract costs related to the shift to digital and First Day models. Selling and administrative expenses decreased by 10.3% in Q3 and 13.0% year-to-date, driven by cost savings initiatives and lower payroll costs.

Strengths and Weaknesses

Strengths:

• Successful implementation of the BNC First Day® affordable access course material programs, which are driving higher unit sales volumes and reversing historical declines in course materials revenue
• Improved profitability through cost savings initiatives and the closure of underperforming stores
• Strengthened financial position and flexibility following the June 2024 financing transactions, including a $325 million credit facility and $85.5 million in net equity proceeds

Weaknesses:

• Ongoing declines in general merchandise sales, particularly for logo products, graduation items, and cafe/convenience offerings
• Seasonality of the business, with the majority of sales and profits concentrated in the second and third fiscal quarters
• Shift in cash collection timing for the BNC First Day® programs, which occurs later in the working capital cycle compared to direct-to-student sales
• Impairment charges and restructuring costs related to store closures and other initiatives

Outlook and Future Prospects

The company is focused on accelerating the adoption of its BNC First Day Complete program, having added 31 new campus stores and 152,000 estimated enrollments in Spring 2025 compared to the prior year. This strategic initiative is expected to continue driving higher unit sales volumes and improved profitability.

However, the company faces ongoing challenges in its general merchandise business, with declines in categories like logo products, graduation items, and cafe/convenience offerings. Broader macroeconomic factors like supply chain issues and labor market disruptions could also impact the company’s ability to source and sell certain products.

The company’s strengthened financial position following the June 2024 financing transactions provides more flexibility to invest in innovation and growth initiatives. But the company will need to carefully manage its working capital as the BNC First Day® programs continue to scale and shift the timing of cash collections.

Overall, the company appears to be making progress in its strategic shift towards the BNC First Day® affordable access programs, which are helping to offset declines in traditional course materials sales. However, the company will need to find ways to stabilize and grow its general merchandise business to fully capitalize on its improved financial footing.