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The updated, unaudited results indicate that the bookseller will swing to a profit in the first six months of the current fiscal year, driven by increased sales, along with an improved balance sheet.

The accounting errors were the result of incorrect manual journal entries that improperly reduced cost of sales for fiscal years ended April 2024 and May 2025. Any preliminary impact of cost of sales and related items is reflected in the preliminary results.

For FY25, Barnes & Noble (BNED) expects sales to increase by 2.6% to $1.6B, and comparable store sales to increase by 7.5% from a year earlier. Revenue from the company’s Full Day program is expected to increase by 25.3% on strong institutional adoption.

Net loss is expected to narrow to a range between $62M to $68M from a loss of $72M to $78M a year earlier, including a $55.2M non-cash loss related to the extinguishment of debt. Adjusted EBITDA is expected to be between $55M and $63M, up from $34M to $40M in the previous fiscal year.

For the first six months of fiscal year 2026, Barnes & Noble (BNED), revenue is expected to increase 7.8% to $933.0M while net income is expected to be between $3.0M to $8.0M, a sizable improvement versus a loss of $59M to $65M during the first six months of the prior fiscal year thanks to comparable store sales growth and continued cost management.

Adjusted EBITDA for the first six months of FY26 is expected to be in the range of $32M to $42M, up from $30M to $36M in the first six months of FY25.

The company is also cutting its debt expectations for both FY26 and the first six months of FY26 by 47% and 33%, respectively.

For FY26, the company sees adjusted EBITDA between $65M and $75M with 15% to 20% growth anticipated in FY27.

The upbeat outlook catapulted shares through resistance at the 100-day moving average for the first time since July.

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• Source: Press Release

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Shares of Barnes & Noble Education (NYSE:BNED) cratered in late trading Friday after the company disclosed that the annual report for the fiscal year ended May 3, 2025, will be delayed due to an ongoing investigation regarding how the cost of digital sales were recorded.

The matter was brought to the attention of management in July, at which time the audit committee of the Board of Directors initiated an internal investigation.

Early findings indicate the company may have overstated accounts receivable by up to $23M, which will impact operations for the period ended May 3, 2025. Total sales are not expected to have been impacted.

While it is unlikely the error will result in the restatement of previously issued financial statements, the company is looking into internal controls over financial reporting and expects to report at least one material weakness tied to manual journal entries.

This “material weakness” will likely lead to the conclusion that Barnes & Noble’s (NYSE:BNED) internal control over financial reporting was not effective, and disclosure controls and procedures were not effective during the fiscal years ended May 3 and April 27, 2024.

Shares fell as much as 15% in after-hours trading.

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Barnes & Noble Education (NYSE:BNED) is expanding its presence on U.S. college campuses through an agreement to operate campus stores across a diverse mix of colleges and universities in 17 states for the 2025-2026 academic year.

The company will also open

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• Barnes & Noble Education reported decent Q2/FY2025 results, driven by strong growth in First Day program contributions and ongoing cost savings initiatives.
• While revenues were down slightly due to additional store closures, Adjusted EBITDA of $66 million increased by more than 30% on a year-over-year basis.
• However, persistent shareholder dilution in combination with a lack of investor communication and recent key executive resignations is keeping my from getting more constructive on the shares.
• Considering the renewed overhang from this week’s $40 million shelf registration, I am reiterating my “Hold” rating on the shares.

Note:

I have covered Barnes & Noble Education, Inc. or “BNED” (NYSE:BNED) previously, so investors should view this as an update to my earlier articles on the company.

Earlier this week, Barnes & Noble Education reported Q2/FY2025 results in line with the preliminary numbers released on November 7:

While total sales were down slightly on a year-over-year basis, mostly as a result of additional store closures, comparable store sales were up 3.8% during the quarter.

More importantly, First Day program contributions continued to increase:

Revenues from BNC First Day^® programs increased by $36.2 million, or ∼18%, as First Day^® Complete continues to see rapid growth in institutional adoption, with a total of 183 campus stores utilizing First Day Complete in the fall 2024 term with a total enrollment of approximately 925,000* undergraduate and graduate students, up from 800,000 in the prior year.

The company’s cost savings and productivity initiatives resulted in Adjusted EBITDA increasing by more than 30% to $66.0 million.

On the flip side, free cash flow of $41.5 million was down by more than 30% due to higher receivable levels resulting from the growth of the company’s First Day programs and timing of vendor payments.

In the press release, management celebrated the improved results and reiterated its targets for the current fiscal year:

Our second-quarter performance during the pivotal fall back-to-school season underscores the exciting progress we’re making in our business transformation. Strong adoption of our First Day affordable access programs, exceptional retail execution supporting our client institutions, and a disciplined focus on operational efficiency are reflected in our outstanding results. We are confident in our improving momentum and the opportunities ahead.

The Company’s budget goals continue to target a material improvement in fiscal year 2025 GAAP operating results and Adjusted EBITDA versus last year. Based on current estimates of capital expenditures and significantly reduced interest costs from last fiscal year, BNED believes it can drive meaningful operating free cash flow, which will be used to further de-lever its balance sheet.

While BNED’s operating performance appears to be on track for substantial year-over-year improvement, recent corporate developments and actions continue to raise eyebrows among market participants.

On September 19, the company surprisingly disclosed a $40 million open market sales agreement with BTIG which was completed last month.

In aggregate, BNED sold close to 4 million shares at an average price of approximately $10 into the open market thus increasing outstanding shares by approximately 15%.

With the recent recapitalization having improved the company’s balance sheet and liquidity considerably, there was no urgent need to dilute common shareholders even further.

However, management apparently decided to take advantage of the renewed investor interest:

The proceeds of this capital raise will reduce go-forward annual interest expense by nearly $4 million per year, reduce risk, accelerate our ability to win new customers, and enhance our strategic and balance sheet optionality. In the medium-term, management is seeking to reduce annual interest expenses to around $10 million or less.

With the last sentence already hinting to further equity sales, I wasn’t exactly surprised to see the company filing a new $40 million shelf registration on Tuesday. However, market participants appear to have been caught flat-footed as evidenced by Thursday’s trading action:

Please note that BNED has not yet disclosed a new open market sales agreement.

While persistent dilution for no real fundamental reasons certainly isn’t great news, I was far more surprised by the concurrent resignations of the company’s Chief Financial Officer and Chief Accounting Officer last week:

On December 2, 2024, Kevin Watson notified the Company of his resignation as Executive Vice President and Chief Financial Officer, effective January 4, 2025.

In connection with Mr. Watson’s resignation, the Company has entered into a Transition and Separation Agreement with Mr. Watson which provides for a lump sum cash severance payment of $270,000, subject to appropriate withholdings, and COBRA continued health care coverage at the premium level in effect prior to the resignation for Mr. Watson and his dependents for two months, in exchange for a release of claims against the Company.

On December 2, 2024, Seema Paul notified the Company of her resignation as Chief Accounting Officer, effective December 27, 2024.

However, both executives have signed this week’s quarterly report on form 10-Q, so I wouldn’t attribute the resignations to disagreements over accounting issues.

Remember, that the recapitalization transaction in June resulted in Immersion Corporation or “Immersion” (IMMR) becoming the company’s controlling shareholder. Subsequently, BNED’s long-standing CEO Michael Huseby was replaced with Jonathan Star, the President of the company’s College division.

Given this issue, the year-end resignations might just be a continuation of the company’s management reshuffling efforts.

On a final note, the outcome of the U.S. elections appears to have lifted the overhang resulting from the current administration’s plan to end automatic textbook fees, which is a major positive for the company.

Bottom Line

While Barnes & Noble Education reported decent Q2/FY2025 results driven by increased First Day program sales and ongoing cost savings initiatives, the decision to dilute shareholders even further without any real fundamental needs is perplexing.

In addition, similar to its new controlling shareholder Immersion Corporation, the company has stopped holding quarterly conference calls, thus largely limiting investor communications to press releases and regulatory filings.

While improved results and the removal of the overhang from a potential end to automatic textbook fees could justify a higher valuation, I continue to struggle with persistent dilution and lack of investor communications.

Investors looking for the bull case on Barnes & Noble Education should consider reading fellow contributor’s “The Minotaur” most recent discussion of the company which has been published earlier this month.

Considering the renewed overhang from this week’s $40 million shelf registration, I am reiterating my “Hold” rating on the shares.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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