Going Back To School With Barnes & Noble Education

The Guidance Is Why We Like Barnes & Noble Education

The education industry, and Barnes & Noble Education (NYSE: BNED), have not had an easy time of it over the last year. The COVID-19 pandemic shut down not only the school systems but also extracurricular activities such as sports which provide a large portion of revenue for this company. While the recovery is still in its early phase, the outlook for education and Barnes & Noble Education is bright. Not only are schools expected to resume a mostly normalized schedule over the coming year but Barnes & Noble Education has been transforming itself to meet post-pandemic needs and building out both its client base and subscriber base. What this means for us is a lever for revenue and earnings that should propel company results beyond pre-pandemic levels very quickly.

Barnes & Noble Education, Results Improved But Miss Expectations

Barnes & Noble Education had a mixed fiscal fourth quarter to be sure but there is a mitigating factor. the company experienced last season only expected down take in business that drove Revenue to $222.78 million. This is down 13.3% from last year and missed a consensus by 330 basis points but there was an extra week in last year's Q4. The silver lining is that the 13.3% decline in YoY earnings Is less than the -18% reported in the previous quarter and the fourth quarter of sequential improvement in year-over-year growth. In the two-year comparison, revenue was down -33% but expected to bounce back to near pre-COVID levels in the current fiscal year.

On a segment basis the retail segment, which is the largest segment, saw its revenue decline 13% while the wholesale segment declined by 48%. The DSS segment saw its revenue grow by 25% on strength in socially distanced learning solutions but only represents 3.7% of net revenue.

Moving down the report, the company experienced margin pressures that helped to widen the loss from last year and drive EPS below consensus. The consolidated fourth-quarter GAAP net loss of $44 million compares to a loss of $40.3 million dollars last year and drove GAAP EPS of -$0.86 or $0.29 worse than expected.

Buy Barnes & Noble Education For The Guidance

The company declined to give formal guidance for the coming year but did give a very positive message. The company is expecting to generate positive adjusted EBITDA in fiscal 2022 compared to the consensus estimate for negative earnings. The consensus for revenue is running near $1.70 billion and we feel this is light. The combination of increased customer base, increased subscriber base, and the resumption of normalized educational and extracurricular activities should drive revenue to near the pre-COVID level of $1.85 billion if not higher.

The Technical Outlook: Barnes & Noble Education Preps For A Rally

Shares of Barnes & Noble Education have been under pressure the last couple of weeks and may continue to fall in the near term. While the outlook is rosy, it will be a couple of months at least before we start to see the results improve, the summer quarter is not typically a strong one.  Share prices may wallow in that time. If the stock cannot find support near the $8.50 level we see it falling back to the $8 level. If $8.00 doesn't hold then a pullback to $7 looks fairly certain. Longer-term, we see this rally continuing and driving the share prices back up to the pre-COVID highs near $14.