On a spring afternoon, Barnes & Noble Education, Inc. (BNED)’s four-story bookstore buzzes with activity. Joggers pause to flip through mysteries and romance novels near the entrance while teens with backpacks explore the lively young adult section upstairs.

As the largest book chain remaining in the United States, BNED’s 600 stores operate like independent bookshops, each carefully curated to serve its local community. They offer a unique experience not found on Amazon, which dominates half of the U.S. print book market.

BNED shares have been in a downward spiral, plunging 85.1% over the past month and 95.5% year-to-date. It closed the last trading session at $6.72.

Nonetheless, Barnes & Noble remains a nostalgic staple for many readers, adapting to stay relevant in an evolving market. Looking forward, BNED’s trajectory hinges on the following fundamentals:

BNED’s Financial Revamp Efforts

The company has been making strategic moves to improve its financial health and stock performance to stay competitive. Last week, it completed a 1-for-100 reverse stock split, a significant step aimed at consolidating shares and boosting stock value.

On June 11, BNED announced that it had successfully completed a series of transactions designed to ‘significantly strengthen’ its balance sheet with more than $100 million of new equity. The company has revamped its financial structure by securing an asset-based credit facility of up to $325 million, maturing in 2028, while also implementing stringent covenants to safeguard its financial health.

Additionally, the company converted $34 million of debt into equity, injected $95 million in new equity capital, and completed a reverse stock split, all of which aim to reshape its capital structure for long-term growth and market stability.

A day later, on June 12, BNED announced a significant leadership change with the appointment of Jonathan Shar as its new CEO, succeeding Michael P. Huseby.

Mr. Shar, who previously served as president of Barnes & Noble College and executive vice president of BNED Retail, brings a wealth of experience from his roles overseeing physical campus bookstores and e-commerce sites nationwide. His expertise could be pivotal in guiding BNED toward a more prosperous future.

“With a significantly improved balance sheet, we are well-positioned to advance our industry leadership while continuing to strategically invest in innovation and improve the experiences and value we bring to our customers and partner institutions,” Shar said.

Preliminary Fiscal Year 2024 Financial Snapshot

In late May, BNED released its preliminary financial results for the fiscal year 2024, which ended on April 27, 2024. While the company’s adjusted EBITDA surpassed forecasts, it reported revenue of approximately $1.57 billion (up 1.9% year-over-year), slightly below analysts’ expectations of $1.58 billion.

However, the net loss from continuing operations narrowed by 30% to approximately $63 million, down from $90 million in the previous year, indicating improvement. Additionally, BNED’s non-GAAP adjusted EBITDA from continuing operations was approximately $45 million, surpassing the company’s guidance of $40 million and marking a substantial turnaround from a loss of $8.1 million the previous year.

Mixed Analyst Estimates

Analysts expect BNED’s revenue to increase 1.6% year-over-year to $268.32 million for the fiscal 2025 first quarter (ending July 2024). However, the company is anticipated to post an earnings per share estimate of negative $81 in the current quarter. Nonetheless, the company has topped consensus revenue estimates in three of the trailing four quarters, which is impressive.

For the fiscal year ending April 2025, Street expects BNED’s revenue to increase 2.3% from the prior year to $1.62 billion, with a loss per share of $37.

Mixed Profitability

BNED’s 1.26% trailing-12-month EBITDA margin is 88.7% lower than the industry average of 11.18%. In addition, its trailing-12-month net income margin and ROCE of negative 5.22% and negative 56.21% compare to the industry averages of 4.77% and 11.50 %, respectively.

On the contrary, the stock’s 1.29x trailing-12-month asset turnover ratio is 29.6% higher than the industry average of 1x.

Mixed Valuation

In terms of forward EV/EBITDA, BNED is trading at 17.92x, 84.7% higher than the industry average of 9.70x. However, the stock’s 0.47x forward EV/Sales ratio is 60.8% lower than the industry average of 1.19x, and its forward Price/Sales multiple of 0.13 is 84.6% below its industry average of 0.87.

POWR Ratings Reflect Uncertainty

BNED’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall C rating, equating to Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. BNED has a C grade for Value and Quality, consistent with mixed valuation and profitability. Also, BNED is trading below its 50-day moving average of $35.87 and 200-day moving average of $85.50, justifying its D grade for Momentum.

Within the Specialty Retailers industry, BNED is ranked #29 out of 42 stocks.

Beyond what I have stated above, we have also given BNED grades for Growth, Stability, and Sentiment. Get all BNED’s POWR Ratings here.

Bottom Line

While the company navigates through significant financial restructuring and leadership changes, its core business model faces profound challenges. The traditional college bookstore concept, once a cornerstone of campus life, is struggling against modern trends where students increasingly seek alternative sources for textbooks and course materials.

This shift, coupled with declining enrollment trends, has eroded BNED’s profitability, necessitating innovative approaches to sustain relevance. Despite efforts such as the First Day Complete program, which aims to streamline textbook purchases and benefit all stakeholders, including students, schools, and publishers, BNED’s financial outlook remains bleak.

The program’s revenue generation hasn’t sufficiently bolstered the company’s bottom line, highlighting ongoing difficulties in adapting to the evolving educational landscape. While nostalgia may evoke memories of college bookstores’ past, BNED must prove its capacity to innovate and adapt in a digital age where consumer preferences and economic realities are rapidly evolving.

Moreover, considering its mixed financials in the latest preliminary report, decelerating profitability, and mixed valuation, it seems prudent to wait for a better entry point in this stock.

How Does Barnes & Noble Education, Inc. (BNED) Stack Up Against Its Peers?

Given its near-term uncertain prospects, the odds of BNED outperforming in the weeks and months ahead are compromised. However, there are many industry peers with much more impressive POWR Ratings. So, consider these three A-rated (Strong Buy) and B-rated (Buy) stocks from the Specialty Retailers industry instead: Betterware de México, S.A.P.I. de C.V. (BWMX), NEXT plc (NXGPY), and Torrid Holdings Inc. (CURV). To explore more A and B-rated tech stocks, click here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

BNED shares were trading at $6.72 per share on Wednesday afternoon, down $1.36 (-16.83%). Year-to-date, BNED has declined -95.49%, versus a 15.75% rise in the benchmark S&P 500 index during the same period.

About the Author: Shweta Kumari

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...

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