College-textbooks vendor Barnes & Noble Education (NYSE:BNED) reported fourth-quarter results for the 2018 fiscal year on Wednesday evening and smashed Wall Street's earnings and sales estimates. Investors welcomed the good news with open arms, sending share prices as much as 23% higher in Thursday's trading. At the end of the day, Barnes & Noble Education investors took home a 13.3% one-day gain.

B&N Education's quarter by the numbers

Metric

Q4 2018

Q4 2017

Year-Over-Year Change

Revenue

$358 million

$343 million

4.3%

GAAP net Income

$17.1 million

$0.2 million

NM

Adjusted earnings per diluted share

$0.36

$0.10

260%

Data source: Barnes & Noble Education. NM = not meaningful due to minimal net income in year-ago period.

Your average analyst had expected a net loss of $0.02 per share on top-line revenues near $341 million. Barnes & Noble Education crushed these targets with room to spare.

Direct product sales rose 7.6% year over year, to $287 million, but rental revenues fell 7.2%, to land at $71 million. That's a modified version of Barnes & Noble Education's longer-term trends. For the full year, product sales increased by 21%, but rental income dropped 6% lower.

Digital study materials FTW (for the win)

The recently launched digital student solutions, or DSS, operation is profitable in the early running despite high start-up costs. Barnes & Noble Education needs to build up a respectable library of teaching materials and other student-facing content in a digital format. The company is building partnerships with major universities around the world, integrating the effort with its established portfolio of content producers and data management tools, and already breaking out DSS business results as a separate reporting segment.

In the fourth quarter, for example, DSS contributed $5.7 million to the company's top-line sales. Sporting the highest gross profit margins among Barnes & Noble Education's three reportable segments, DSS produced $2.5 million of division-level earnings before interest, taxes, depreciation, and amortization (EBITDA) profits. That's a 45% EBITDA margin for DSS, which compares favorably to the larger college bookstore segment's 24% and the MBS Textbook Exchange department's negative EBITDA contribution.

Three college kids with backpacks gather to discuss a textbook in the park.

Image source: Getty Images.

Here's what's good about Barnes & Noble Education

Both DSS and MBS are built around recent acquisitions. This company is not afraid to try out some new business ideas, which is a good attitude in today's rapidly changing business environment.

Since the separation from Barnes & Noble (NYSE:BKS) in 2015, the education segment, which was spun off, has proven its worth as a stand-alone business. Thanks to a captive audience of textbook-craving college students, the company has delivered steady revenue growth and improving profitability year by year. The old mothership can't make the same claims.

Both stocks have been plunging continuously, but I can see an end to that pain for one of these booksellers. I'm not saying that Barnes & Noble Education is primed for a massive surge from here, but a bounce is not out of the question somewhere down the road if the digital solutions and general openness to change continue to pay dividends.

I'll keep an eye on this interesting little stock.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.