Q1 2021 Barnes & Noble Education Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Barnes and Noble Education fiscal 2021 first quarter earnings Conference call.
At this time all participants are in a listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During this session you'll need to press star one on your telephone if you acquire any further assistance. Please press star zero I would like to hand, the conference over to Mr., Andy notably Please go ahead.
Good morning, welcome to our fiscal 2021 first quarter earnings call.
Joining us today or might you be CEO and chairman countdown to you CFO.
Jonathan Sharp executive Vice President and he the retail declined solution.
Lisa Mallet President of Barnes <unk> Noble College, Kanuj Malhotra, President of digital student solution and David Henderson President of MBS.
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 in public documents.
The contents of this call or the property of Barnes and noble education 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, which 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 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 Huckabee.
Thanks, Andy Thank you all for joining us this morning.
I'd like to begin by providing a brief update on the conclusion of our strategic review process and then I'll provide our business review.
On August 24th our board of Directors announced that it had concluded this review of strategic opportunities.
After extensive evaluation and deliberation.
And in consultation with its financial and legal advisors. The board unanimously determined that the continued execution of being Media's current business plan is the best path forward for the company edits shareholders.
Shortly after the strategic review commenced the coated 19 pandemic emerged with gave rise to significant challenges the company's business at the same time. The company also made significant progress toward implementing and executing its digital transformation strategy, which further enhance the company's importance and relevant to its customers.
Particularly after.
Propose cobot Nike ship to remote learning.
As I'll discuss in further detail the any do you have successfully growing as high margin DSS business.
Improved the chair of course materials options to be as he first day VNC first basically and other new digital models.
We've added revenue from new business wins leveraged our NDS remote fulfillment and virtual capabilities and strengthened and improved our general merchandise business with the recent release of our new E Commerce platform.
As we move forward, we're confident we have the right strategy in place to deliver enhanced value for our shareholders.
Importantly, we continue to believe that we have sufficient sources of liquidity to manage through the continued impact of cold and 90.
We're very focused on preserving liquidity during a challenging time are carefully balancing capital allocation and liquidity preservation, while we continue to build our momentum and execute our strategic plan to drive long term sustainable shareholder value creation.
Additionally.
Towards the end of July we were pleased to have entered into a cooperation agreement with our largest shareholder Outerbridge capital.
As part of that agreement low Robinson has joined our board of directors and the company agreed to nominate Zachary loving it as a candidate for our 2020 annual meeting.
Which is now expected to be held on October 20 seconds.
Outerbridge capital agreed to by by certain customary stansell provision and to vote in favor of the person's nominated by the board.
And now, let's turn to our first quarter performance.
Schools continue to face unprecedented challenges as they navigate the ongoing cobot 19 environment.
After having shutdown many of their campuses and setting students home for remote learning in the spring they've had to rethink how to provide an effective education, while protecting the health of students faculty and staff.
Additionally, they are being impacted by the effect of lower enrollments to the students taking GAAP years and fewer international students plus the cancellation for postponement of Intercollegiate fall sports that had many institutions are important source of revenue.
Well the challenges faced by colleges are complex the strength of our partnerships and our unique set of assets has allowed us to deliver flexible solutions to help our partners fulfill their missions.
The strategic investments, we've made in our digital offerings.
E Commerce solutions warehouse operations and half of stores have never been more crucial than they are today.
These investments that have focused on improving access affordability achievement for students enable us to provide customizable solutions to support schools, whether they choose to based in fact the campus.
Implement remote learning for incorporate a hybrid model.
Became very evident during the first quarter.
As many of you know the first quarter is typically a low revenue quarter for the company consisting primarily of summer courses.
It was further exacerbated by the ongoing impact of the covert 19 pandemic.
Having said that our first quarter results were in line with our expectation.
As Tom will discuss in further detail during the financial review, we met both our top and bottom line expectations, which coupled with our cost reduction efforts enable us to maintain our solid liquidity level.
Additionally.
We are encouraged by the early fall rough results we've expressed today.
We believe some of this maybe due to timing as a number of schools returns to campus earlier this year with plans to end the semester earlier as well all in response to the current called at 19 environment.
During the first quarter, we pivoted quickly to support our campus partners as they focused on the health and safety of their communities and transition their students and faculty to remote learning.
And our recent research study cobot impact on learning, 53% of students struggled with a sudden shift and learning environments.
Our first day and DSS offerings are perfectly suited for this type of environment and benefited as a result.
Our first thing exclusive access program, which provides students significant savings on digital courseware and de textbooks and is charged by the institution as a course the for the entire enrollment or class.
Experienced significant increase in demand with sales growing 156% during the quarter.
DSS also experienced increases in revenue usage and subscribers, which I will discuss further.
The sudden shift online learning presented a challenge for course material delivery that our unique set of capabilities was able to solve.
Leveraging MBS is advanced warehouse distribution capabilities, we quickly transitioned over 300, Barnes and noble College stores to MBS is custom storage solutions or CFS model.
Good CSS, we're able to seamlessly fulfill orders that were placed on individual school web sites through MBS is warehouse.
Shipping them directly to students wherever they were.
At a high level, our BNC business model has become increasingly relevant colleges universities as they look for our shared revenue sources offset losses due to the pandemic.
We continue to see a strong pipeline for new business, citing an estimated $70 million of new business in the quarter.
Importantly, as colleges and universities struggle with the economic realities of this challenging year.
We are ready and well positioned to deliver custom solutions for education, and new revenue streams to help institutions and students through these challenging times and beyond.
As we looked at the second quarter in the fall semester. Many of our campus partners have adapted they're learning models to continue to protect their students and campus communities in the wake of the ongoing pandemic.
While some colleges and universities are returning their students to campus for in person learning.
Typically on shortened schedules, others have chosen fully online or hybrid learning models.
Regardless of the models our partners have put in place.
The India is fully equipped to support their needs. Thanks to the robust set of solutions offered across our different businesses.
When we launched our Barbie suite of solutions two years ago, we knew that we're doing something critical and important for students, adding critical on demand tools to our DSS offering that already included our student brands on demand writing helped tools.
You could not have predicted then.
Just how relevant probably would come to be in todays learning environment.
Barbie subscribers for the quarter tripled as compared to the prior year with revenue increasing 100%.
Peak spring traffic increase over 10 times year over year, almost three times versus peak Paul traffic.
Clearly students were actively seeking our support these past few months.
As many students beginning of virtual or hybris investor. This fall, we expect that the need for digital learning resources and support tools will continue to grow.
Reduced access to tutoring services, writing centers and even office hours.
Let's get into more limited resources to supplement their learning.
Pardon me learn which continues to expand into human life today library and borrow the right both devices with 24 seven on demand digital sport available whenever and wherever they need it.
That accessibility is incredibly important right now.
While reduced traffic in our campus stores will negatively impact our pls, Florida, we sales.
We are seeing increased web sales on our sourcing new distribution channels for Barbie outside of our store footprint.
Earlier this month, we announced an expanded partnership as vital source to further increase the distribution of our Barbie suite of services.
Side to be any do store footprint.
We are now offering customers a vital source direct student channel access a unique bundle of our bar will be learn and right products.
The bar will be study bundle is available to students with the purchase of a qualifying vital source you book for only 1999.
An 80 dollar value of purchase separately.
We're very excited to grow our long term strategic partnership is vital source combining borrow these highly relevant ecosystem all digital solutions, we vital sources distribution network and industry, leading E books platform.
Additionally, we recently entered into a partnership with Blackboard, a leading Ed Tech company to support students any unique and differentiated way that leverages.
The market, leading strength and reach of both companies.
The partnership will center around supporting education for millions of students nationwide.
Further details will be released in the fall.
We will continue to explore unique ways to expand distribution for part will be suite of solutions as we know these products deliver immense value and support the students, particularly in light of the current environment.
And to make it easier for students to access our content, we recently rolled out the bottle the mobile app, making our homework help textbook solutions and experts una content available on students mobile devices.
The vast majority of our on campus stores have reopened and are welcoming customers back the campus.
With a focus on the health and safety of our people and communities, we implemented a complete safe reopening plan.
Detailing mandatory safety measures.
Following local and CDC guidelines, including contact with payment to protect the wellbeing of our employees and customers.
We quickly implemented new digital strategies such as.
Mobile curbside pickup and an option for customers and stores to schedule event and it advanced.
Personal shopping services.
We are proud of the ways with their store managers and field teams.
And those in our central offices supporting them have pivoted to ensure a continuous high level of service and support for our schools on a truly customized basis.
We continue to see strength in our ecommerce channel, which reference 70 represented 73% of our total Q1 sales as compared to 31% a year ago.
We're continuing to rollout of our new ecommerce platform, which officially launched in the first quarter fiscal 2021.
The investment we've made in our ecommerce platform provides a hyper personal hyperlocal experience for our customers, where depending on a seamless online shopping experience now more than ever.
We expect the improved user interface and shopping experience to stimulate online growth of our high margin general merchandise business.
Our new site have received extremely positive feedback Apis partners and shoppers alike.
And we're excited to see this platform rolling out across our entire footprint.
The next few months.
Importantly, we recognize that each campus, we serve as different needs and our value slide in our ability to adapt for each individual campus partner.
The combined strength of BMC and MBS as people.
And asset allow us to do just that.
Our store teams have done a phenomenal job customizing our programs to fit unique needs at each Kansas face or for the physical or virtual and they together with DFS is on demand offerings are now busy equipping students and faculty with all the tools they need for a successful semester.
We're still very early in the fall rush season, but we're excited to welcome our campus communities back into our physical and online stores.
As we've noted previously we expect coded to continue to significantly impact our business this fiscal year.
We remain highly focused on prudently managing costs and we'll continue to take actions to reduce costs and operate more efficiently in this environment.
Our financial and operating teams have substantially adapted our cost structure to reflect the current and expected environment, which is again, providing us with ample liquidity to continue the momentum of our key growth initiatives. So critical for our long term purpose and success.
We remain grateful to every member of the be any he team for their continued hard work during this time.
With all our stores.
Campus partners and students a successful fall from ahead with that I will turn it over to Tom for the financial review.
Thanks, Mike.
Please note that the first quarter of fiscal 2021, consisting of 13 weeks ended on August 1st 2020.
All comparisons will be to the first quarter fiscal 2020, unless otherwise noted.
The first quarter is historically, a low revenue period and our results were significantly impacted by curve with 19 related campus closures.
That being said our sales came in line with our expectations.
As Mike highlighted our flexible offerings, which included a shift to our CFS model virtual bookstores and digital offerings, including first day in DSS.
Enabled us to partially mitigate the bookstore sales decline.
Most importantly, we're able to provide uninterrupted service to our campus partners and what is a very fluid and continuously evolving situation.
Total sales for the quarter were 204 million compared with 319.7 million in the prior year.
This decrease of 115 26 million or 36.2%.
Is comprised of 115.9 million decrease from the retail segment.
And 8 million dollar increase from the wholesale segment and a half a million dollar increase from the DSS SEC.
The majority of our stores were closed during the first quarter as schools adopted a remote learning model, leading to a 42.8% retail comparable sales decline.
Our comparable course materials sales fared better than our overall performance declining 10.1%.
While our general merchandise business, which includes clothing and food was far more impacted by store closures in the absence of students declining 68.3%.
This was somewhat mitigated by our E commerce sales.
We expect further improvement of online sales as we roll out our next generation ecommerce platform.
BNC his first day offering which is adopted by faculty and incorporates lower cost digital course materials into the tuition fee grew 156% to 9.1 billion during the quarter.
Net sales for the wholesale segment increased 8 million or 11% to 80.3 million benefiting from the shift to the CSS model and lower returns and allowances due to the sales mix.
DSS.
Sales grew 0.5 million or 9.3% to 5.9 million benefiting from growth in part will be subscriptions somewhat offset by a decline in the student brands business.
Part will be subscriptions revenue doubled to 1.4 million, while student brands revenue declined 3.9% to 4.5 million.
We have now entered our fall rush period, and I've been encouraged by the results we've experienced over the first few weeks as Mike stated our sales benefited from many schools and students returning to campus earlier than normal.
We do expect some headwinds later in the quarter as some of this benefit may be due to timing coupled with canceled sporting events and diminished store traffic that will impact our general merchandise business.
Turning back to Q1, the consolidated gross margin rate for the quarter was 15.1%.
Down from 22.4% in the prior year period.
This was primarily due to the shift to lower margin digital courseware and lower sales of our higher margin general merchandise products as well as higher markdowns.
This was partially offset by our efforts to renegotiate lower contract costs.
To further offset the sales decline and preserve liquidity, we took immediate cost for production actions, including the furlough the majority of our retail workforce and the elimination of non essential spend.
These actions coupled with cost reduction actions taken in fiscal 20 enabled us to reduce selling and administrative expenses by 27.7 million or 28.3% compared with the prior year period.
At the ended the quarter, our cash balance was 7.5 million this compared to 8.2 million in the prior year period.
There were 234.6 million and outstanding borrowings, which was essentially our peak borrowing level.
Compared with 174.1 million in the prior year period.
In conjunction with our expense reduction efforts our entire organization continues to be very disciplined on they use and preservation of cash.
These efforts coupled with the current rush period have reduced our total borrowings to approximately 55 million as of August 31st.
Our current.
And projected liquidity remains strong despite the challenging climate.
Capex for the quarter was 7.1 million compared with 8.3 million in the prior year.
Due to all the uncertainty that coated presents in the near and intermediate term, we're not providing fiscal 21 guidance.
We do expect that code will continue to have a significant impact on our business during fiscal 21.
Currently our retail segment operates 1442 College University and K through 12 school bookstores comprised of 772, physical bookstores and their ecommerce sites as well as 670 virtual bookstores.
As of today, we have contracts to open an additional 11 stores in fiscal 2021 with 12 additional known closings primarily of smaller unprofitable stores.
This will bring our total physical and virtual store count to 1441 locations net of the close stores.
With that we will open the call for questions. Operator, please provide instructions for those interested in asking a question.
If you like to ask a question at this time. Please press Star then the number one on your telephone keypad, if you'd like to withdraw your question you press the pound key.
First question comes from Ryan Macdonald with Needham.
Yes. Good morning, everyone. Thanks for taking my question I guess more start returning some of the comments you just talked about me about sort of reaching peak borrowing in sort of surpassing that can you talk about sort of the confidence you have as you move toward through the fall here and what your.
Some of the assumptions, you're making around sort of expectations for foot traffic versus the typical fall and how you're thinking about staffing to meet those needs and managing inventory optimization banks.
Yes, Thanks, Ryan sure. So you know.
I mentioned in his remarks were really laser focused on liquidity.
At the end of August approximately 55 million borrowings down from that what was essentially the peak for the summer of 234 million.
Approximately.
60 million higher than we had at the end of fiscal it last fiscal year end.
Continue to continue to adapt our armetale models, specifically as it relates to costs then.
You know as you know furloughed about 11000 folks back in early April when we bought a lot of them back as the storage of opening we needed needed the staffed and to to get through the summer and certainly through the beginning in fall rush, but there's still about a third of those folks that are remain on furlough at this point in time, So we continue to adapt.
The store model to reduce the expenses.
The other thing and you will notice as you look in the balance sheet and certainly a chance to read the Q later today when it's filed.
Inventories are down dramatically year over year, approximately $150 million. So it's really disciplined the specifically the retail team along with our book folks are really not getting ahead of themselves in terms of the.
Expenses, but also spend.
With the sales are down as much as they were specifically, especially with general merchandise, we really continue to see.
You know not spend the money to build the inventories for you know the depressed sales that we've seen through this cobot environment. So liquidity mix remains very strong we continue to pay down that.
And you will see we're where we get our next peak would probably be sometime in December on remains to be seems it's higher than lower but we wouldnt anticipate being much different than than the peak that we have now.
But.
We are encouraged by the beginning of the rush.
In terms of sales and we've been able to payback and pay down that that continue to do so.
Hey, Ryan I ask this is Mike as soon as lease analysis to comment on the store.
Happy because what we're seeing is when we look real thing a lot of the stores when we get the students and other customers and they are thereby but I wanted the we sort of comment on on that and some of the creative things that we're doing to try to drive store traffic.
Yeah, no absolutely might I mean, there while the schools are still being very flexible we read everyday acres on how they're delivering learning there are still plenty of campuses across the country that are fully opened with in person crafted then and residential light in those stores and the most schools with are seeing.
But traffic in our story and we have reached that aren't physical space to be able to maximize sales while the students are within our footprint.
We are offering as Mike said mobile pick up from a safety perspective, but also looking for ways to safely executing them and shopping experience experiences for the students to personal shopping services. We have also been successful on working very closely on a deeper level with our school in getting more access.
Just student.
So we can communicate more frequently and more successfully with what the bookstore offerings are.
Thanks.
That's extremely helpful.
I guess the next question's around some of the digital trends you're seeing.
As you started the Folsom as you here can you talk about what you're seeing in terms of usage of Bard Ob.
And how that compares to say you know earlier this spring one students when remotes are you seeing sort of.
Increase in usage given that they might not have the same.
All right guys of resources on campus.
Brian. This is can you maybe off I'll take that I think we definitely saw a massive acceleration.
Post coated.
Our traffic was about.
18% of Tregs, we were up.
50% in traffic between March and April So we definitely saw that you should spike we think there's both increase Tam and increased market share that weren't community.
Relative to the competitive set in as it relates to fall, it's very hard to.
Shaves, yet it's very early in the semester typically that use cases, you know as you're trying them start to come onboard a lot of the schools are still people are just buying their course materials show homework assignments studied and all that use cases still actually starting to actually accelerate right now, but the other measure of usage as measure.
By questions in queue in a in other usage has been we've been very strong as you know.
Okay, and then just last one from me great to see sort of the continued adoption trends that are healthy with with first day first day complete can you talk about how the conversations are evolving with your University partners are for that solution and then what sort of additional steps you need to take to sort of increased student awareness.
Of the offering as well as you move through the falling into next year.
Yes, yes.
Yes, great. Thank you Hey, Ryan it's John It then yeah. We're we're really excited about per se.
Drives down the cost of course materials for students and secures a higher sell through rate for the company in the first quarter year over year revenue increases as both Mike and Tom stated both grew 56%.
Benefiting from the accelerated moved to ditch courseware, which is driving the growth I think strategically an overall the value proposition of access affordability and achievement, which is supported by first day is more relevant than ever in today's environment, Andy adoption and comp.
Our stations in the acceleration of the implementation of that across campuses.
He is very active and and our expectations that we'll continue to see significant growth with our first day program.
This is this is Mike just a couple of follow up comments.
Brian with you have any other questions first off on on Bartel. The you know as we said we've just entered into partnerships with vital sources. We just this was the first time, we've talked about the blackboard partnership, which more detailed becoming out and bottom line.
I think those are validations that.
Substantial companies that are working directly with students and other other institutions.
Looked at the quality of the product and saw the quality of the product is is it good.
Yes, it's competitive and it's also price disruptive and the way it can be packaged.
Access those students that day.
Have contact with no is very compelling so I think thats a significant thing that's coming out of today's call.
As it relates to Bartoli as we've ever do face challenges with the point of sale versus prior year and that type of thing given the.
The store openings.
The second thing I would say he is on.
Per se.
They complete.
We're we're pushing on first a complete MSS externally and getting the.
The message out, but we're doing a lot of things internally to make sure that we can scale that first a complete product and as a substantial pipeline of schools that are interested in it.
From Hall of 21, where we expect to have.
A multiple of what we have in.
Listen this fall we had four test schools last last fall. We have 12, we expect we expected to be higher multiples of that relationship going forward next year. So to make sure we can do that.
Probably are key success metric together with borrow the growth in general merchandise coming back any business.
We're doing a lot of things internally to make sure we're ready for that both in terms of systems and people.
Very focused on on the details operationally.
And I think as a result of the business model, we have where we share the revenue.
Keeping keeping the adoption so called into contract.
Important schools now who are looking for the.
These financial resources, and they can get to help them.
So we share our revenues with them from first they of course they complete.
Except we can drive our our penetrations up from 30, 35% close to 100% they benefit from that also so.
So the publishers will really really focused on it.
Thanks on thanks for any additional color.
Okay.
Next question comes from Alex Fuhrman with Craig Hallum capital.
Great. Thanks, very much for taking my question and congratulations I I hard to think of a retailer that been more impacted by everything going on this year. It and you guys are quite an accomplishment that your stores are backed up and running and it seems like you guys haven't haven't missed a beat year one thing.
I wanted to ask about that it seems like a big opportunity just given everything going on here in 2020 is the first day complete package can you tell me, what's a little bit about what the sales cycle is for that I imagine if these decisions were made on on.
On a moment's notice you probably could have had even even more schools. This year, just with school looking to limit on traffic and a lot of school going virtual.
You talked about I know you said, it's your eat your hope to get more schools by spring and get can you talk about that that opportunity.
That's something that could potentially be many schools or or would it really more fall next year when when the bulk of these pools are going to be making those decisions. It just it just seems like an offering net debt tailor made for everything right now would love to get a sense of how quickly you think that could be scaled up in the spring and next fall.
This is Mike I'll, just make one comment and turn it over to John who is leading that effort.
Product and.
Sales perspective, together at least settings is also doing up.
Distribution sales increased direct conversations with our clients, but yes or one of your questions that was embedded in that.
That long the longer question.
In terms of the attitude of schools to discuss it it's cut both ways initially when coal that yet.
The mindshare with all dedicated to what is this how do we protect our students and faculty do we really have time to deal with everything else.
So there were there were a couple of schools I'll say a couple of are probably more than that where we had where we plan to implement.
First a complete and this fall, we said, let's wait till spraying or less or possibly wait till next year, because we just can't deal with.
Having these times this many conversations at the same time, even though they still want to do it the less benefit on the other hand or schools have flipped around it that we need view this as fast as we can.
And we just added one recently within the last month.
So with that.
I'll, let let John talk about the pacing in the scaling.
Yes. Thank you.
Hey, Alex its Jonathan.
Yes, so last as Mike stated last fiscal year, we had warmer schools in first stakes in complete this fall we have 12 and there are a few more we're looking to transition within this fiscal year, but starting with the spring term as Mike said that may have had to defer or there is renewed interest.
In that so we've been working with those institutions for a while a big opportunity, though based on the amount of conversations that we're having is fall where we're expecting a significant multiple over this fiscal year early from a lead time perspective, the Chris.
Nickel timing in why there's some lead time in the sales cycle is when fees and or tuition is published because it's a model where the course materials are either embedded into tuition.
And or a course material fee. So when that is published along with the offerings of course catalog or an upcoming term that's really the point when the program gets implemented for an institution in the approval cycle and prior to that and that's why the focus.
For us is conversations today, leading up to the fall 21 implementations odd that that we're expecting so on site, but real significant momentum.
Value proposition.
You know convenient sports students affordability and impact for the institution on is is really something that is quite active when making significant investments internally to ensure that weekend operationalize and create a seamless experiences that are expected from our can add by our campus partners.
And so we're prepared for that growth.
For for next fall Rush.
Okay that makes a lot of plan. Thank you very much for that.
And then just from a from a big picture.
A lot of your schools are either virtual or hybrid with a lot of your student not on campus. What are the things that you guys are doing this year to stay relevant with those students. So next year sophomores, who might not have had the opportunity to shop at the bookstore. This year no to go there and visit for for the rest of.
Your college career, when when you're back up next year.
Well that Lisa handle that question.
Sure sure it though I.
I think that what are the most important things we've done this year that I mentioned before is really yet increased partnership and collaboration with its pools to be able to get the message in our offering out just didn't even know they're not on campus. We are able to filed is in Germany. We identify what are your new student starts.
More or graduating Inc.
Actimize, our messages and campaigns across brands in that way. So we're able to that had a bad and he slow and connected to the students following their Jeff.
And you will see by the growth.
Commerce.
Especially in the key and world that we're getting traction there.
Thanks can you throw SAP authentic direct program, allowing us to offer a much larger increased assortment higher retail is really driving relevancy Vasily with 16 years and alumni at London Paris.
So where we're able to.
The second action and relevancy with students by working closely with the school and being able to pivot if pricing.
Thanks, I think also really rolling out the new ecommerce system that we talked about as much more personalized it's a much better user experience and it allows students to buy both general merchandise and their courseware in a fairly seamless way and.
No Thats. This one of the reason we've always talked in the past about general merchandise business, which is so important to us as you can see in the first quarter.
And.
I see that ongoing ongoing effect, although we're trying to cover count or actually were mitigated through ecommerce activity.
That.
55%.
Of our GM sales were online compared to 9%.
First quarter last year, we've always thought that we need into the ecommerce system, we need new processes and everything's been invested to have that accomplished on started rollout of new ecommerce system.
In July and now and it will roll off the rest of our schools over there over the rest of this year.
But getting that percentage.
This is partially in answer to your question in terms of creating awareness the bookstores not just the physical books or.
It's the online book store as well on the two of anti together.
No messaging that we can get to students through that new E commerce system about that.
The events and everything else, we do in the fiscal bookstores are going be important so.
The timing of that we would have liked of obviously had that in place earlier, but it gets.
It's it's working well now and the positive feedback we're getting schools, where we rolled it out is is confirming that this will make a difference for us a significant difference.
Great Thats terrific. Thank you very much.
Next question comes from Murray Wallace with Outerbridge capital.
Thanks for taking my question and appreciate you, providing all the breakouts and more granularity around the different segments.
In particular, the first they break out already registering a pretty healthy percentage of course were sales is good to see so I was wondering liking John is it safe to assume that.
When you're talking about a multiple of new business that you're looking to sign in the fall 21.
Is it fair to infer that based on your comments you're looking to win.
Some multiple say three active buyback.
The number of versus schools next fall.
As compared to this fall I just wanted to make sure that was clear on that.
Yeah, I'll clarify what I said as what I said was that we did three X.
This fall versus last fall, we expect the multiple will be higher.
In terms of number of schools next fall versus this fall, but getting into the numbers I think right. Another important point. There is we're not so focused on the number of schools, but making sure we have the contribution in our margin the substantial increase in revenue and margin.
Some some schools that go on first a complete.
Can double the revenue and increase the margin. So it's really a function of getting the right schools on first a complete not just the number of schools, but.
Even with that in the number schools, we expect should be a multiple that's higher than the three access what I was trying to infer bucket in specific in terms of what that number of school is.
Okay that makes sense and then as far as the new business that youre winning.
It's obviously a decent scale to oppose that type of number of but we've we've heard that you're starting to getting a more high profile institutions in certain cases, and I guess.
When do you think you might be able to disclose some more of the names of the first day accounts that youve either one or.
That are in the pipeline because I think there's there's certainly a good halo effect once you start to bring in.
Some brand name institutions that everyone's familiar with.
Well I think you start to see some publicity and some of the as natural last year, where we've got the pilot accounts on some of the accounts.
This year that we brought in and that will grow in terms of the.
As you know in this in this business.
At certain schools once they are attracted into this type of a model there's others that will follow and so we are focused on.
Some of the higher profile as you call them some schools.
I think that to the public publishing their names and that type of thing.
It's probably something that'll occur more through media.
And attention given the enthusiasm at the school systems are going to have to the program.
Thats something we can talk about I don't know John.
Any comments on that.
No I think will start to see that throughout this throughout this fiscal year and unreal by the positive feedback will get from Phil Gramm and do schools being excited to talk about this as part of their offerings.
For for their students.
Great and then on Mds, It's obviously, providing a lot of strategic value. During this time, how do you think your competitors or are bearing in this environment. It seems like you must be taken some market share on a combined basis in the courseware segment.
Given that it didn't really decline.
Particularly much honestly in light of the.
In light of the overall environment that you're operating it so.
Do you think you are taking market share and I guess, you think or more importantly, this might set you up to win a lot of your business given that I think you said 70 million you'd you'd warning the quarter, which seems like a pretty good number with everything being physically closed and I guess, you could parlay that into a pretty good year overall for new business.
Yes, I think theres two separate questions. There one is on new business.
Rich.
Instead of estimated 70 million.
Only with coated the $70 million related contract value that we talked about with the school and.
When we come back on.
On the wind so to speak.
That that's at the level of revenue that we should be able to to get to hopefully improve if we change. These models overtime. The general merchandise superstate quickly I don't know what they senators and respond to the wholesale question, which is really a separate question. Although the mix of assets that we have in Mds is capability fulfill.
So on a virtual basis as they've done they've been running three warehouses nonstop since march to fulfill directly to students homes set to be competitive advantage.
And when we do a new business proposals and just dealing with our our hybrid clients. So our custom storage solutions relative talk more about the wholesale competitive environment.
Thanks, Mike.
And to that point, where we had been running our three shifts without interruption since the shelter in place orders went back in March as we were designated up.
An essential business, serving higher Ed and students.
Learning online.
The the obvious facility the distribution.
Automation gives us a very unique competitive advantage over our over the market out there.
As was referred to in the script back in the summer term starts when the hard shutdown occur.
MBS was able to onboard over 300, Barcelona College stores that were not able to open and services for course materials for the summer term starts and managing terms.
This is a very unique.
Advantage, we have what we're able to do what this but this model has is rather than the course materials being in the store. They are required by the MBS team and warehouse CMBS facility. However, the students shopping experience is on the Barnes and Noble College ecommerce site, which is branded of course to the institution so they're on a.
Sites at the very familiar with and more importantly on a campus by campus basis, they're able to use a proprietary tenders that are unique to that campus to acquire the course materials.
Those orders are seamlessly communicated to MBS and we do that pick pack ship and deliver either to the students residents.
Or going forward, if they so desire as stores open we can deliver to the store for store pickup whichever the student decide as more convenient for them.
Theres really no one else.
In the market that can do that.
Additionally, we have our pure virtual business, where there is no physical books for whatsoever, but this model allows us to support the marketable college footprint about their.
Offering campuses.
Very wide range of opportunities and how they want to serve their students.
In the scolded environment are going forward with the most efficient means to dip of course with bills.
Part of the class start.
I hope that answers your question right.
Yes. Thank you did that some and congrats and pulling off that combination.
I love the assets so it sounds like it's definitely a better ways to run that that business with them I.
Just with the Barbie business I think you'd mentioned to the and I might have missed hurt but did you say you also.
Fusion might booked a blackboard partnership in addition to vital.
Yes, Ryan. This is can you should we we entered into a strategic partnership for for Bartel be students. In this current environment spend an enormous amount of time as you'd expect Emmy LMS centering around all the activity so both educators and students and Wifi.
It's just it's a really unique channel for us to go after and help students exactly where they are when they are in the interest you win win for of learning. They can access. These tools, we can't really say much more I think for competitive reasons, but we're super excited.
About the partnership and the potential to really impact student outcomes when the right there. Unlike our distribution channel, it's not necessarily in the stores et cetera earlier, when you purchase your course materials, but both through things like blackboard and increasingly vital source will be more into two in the moment. So we're super excited about it.
Yes, I think generally speaking one of our challenges with Bartleby. It's just the is.
Such a new product is getting the brand awareness out there, where we're trying to manage our spend and keep you really have such as sponsor laser focused on liquidity and that that tradeoff that exists between.
Making sure we're using our our brand awareness marketing and other dollars as efficiently as you can with borrow eight if the name out there and to get the.
At the adoptions and utilization up and extending and leveraging these partnerships with the vital source, which has been a tremendous partner.
And now Blackboard, which we're very excited about it consists is really important.
To help us, especially during these periods of time.
One so there's not quite as much store traffic is reduced to and rely on or.
Our our store.
Our store booksellers, but now become store bartel be sellers and so it's so.
It's a really really important development for us.
Yes, the only other thing I would add Rory is like coupled flick. The bookstores, obviously, we're adapting to the code is environment and Pos as Mike alluded to it's been in traditionally a big portion of our acquisition, but in the background I don't think excess residents that you could see it when you see.
We're up about three action subscribers in the quarter really underlying all that is the efficacy of the FCO strategy and the fact that googles, our biggest customer and ghouls likeliness a ton more students are finding its the traffic is increasing so it's getting out and everything you reinforces the each other so vital and blackboard.
Yes, you know strategy, obviously, we serve 6 million was a 20 million students and higher head. So we're trying to make it firing on all cylinders on its really starting to come together the notion of being as Disruptively priced as we are in providing value to students also is clearly resonating. It's just as Mike said, creating the awareness to.
Both the brand on the solution to it.
Got it again I really appreciate that answer Canadian Mike and then just the last one for Tom.
You mentioned borrowings are down 55 million through the end of August and I imagine you continue to generate cash for awhile and then.
You mentioned your rebuild inventory again going into December for spring Rush I guess, how are you approaching that working capital build.
First of all you know how.
How are you tracking I guess versus your prior liquidity plan.
It sounds like there will be on those early reopenings, which is helpful. But.
I guess, there's a lot of moving parts I mean, we could have.
We could have a much better potentially spring term, but I imagine you don't really want to get out ahead of that by building too much inventory. So how do you think you'll approach sort of walking that wind between preparing for business potentially being improved at spring Bruce is making sure that you're not overextending.
Yeah, and that's a great point Maria it really comes down to that inventory management.
The mantra that we've adopted really is don't get out ahead of it if you don't expect or anticipate the sale Theres No reason to start replenishing things are trying new things. So it's really known managing to what we think it is but it's probably than a degree or you know.
Thats better send manning below that and the team is you anticipate had anticipated intercollegiate sports being disrupted in fall on that Thats goes into the planning as well. So is it really comes down to managing inventory on very conservatively and and and I will not get.
Looking ahead at it and Thats really.
They don't seem to sales not going to anything.
And that will continue for us and bigger.
And at the same time had the ability to adapt and I think thats. The key where there is the ability to adapt if things change when things improve and we'll we'll make sure that we have the inventory to meet the sales team.
All right great well, thank you for taking my questions and good luck.
Okay. Thanks Roy [noise].
And at this time I will turn the call over to Mr. currently.
Great. Thank you. Thank you all for joining us on today's call in for your continued interest in being Ed.
Please note that our next scheduled financial release will be our fiscal 2021 second quarter earnings on or about December Threerd 2020.
I have a great day everyone.
This concludes today's conference call you may now disconnect.
Yes.
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