Sales, Earnings Slip at Harlequin; Spinoff Possible?

Revenues at Harlequin fell 7.1%, to C$138.1 million ($90 million), in the second quarter ended June 30, 2001, parent company Torstar said. Operating profit in the period dipped 3.8%, to C$25.2 million ($16.4 million).

Company executives attributed the revenue decline to the absence of bestsellers in the quarter compared to two New York Times bestsellers in last year's second quarter. The company noted that Harlequin had two bestsellers in the first quarter and as a result operating profit for the first six months of the year was up 11.1%, to C$56.2 million, although revenues were down 1.5%, to C$280.8 million. Earnings for the full year are expected to be higher than those for 2000, executives said.

In the second quarter, North American operating profits were off C$4 million, due to a decline in direct market earnings and a slight drop in retail sales. Harlequin said the decline in direct marketing results was attributed to higher postage costs as well as a shift in business to its online book club, eHarlequin. EHarlequin had 808,000 members at the end of the second quarter and "is moving toward profitability," said v-p of finance Bob Steacy.

Overseas results were up C$1 million because of improved results in the U.K. market; sales in Japan were flat.

In response to an analyst's question, company chairman David Galloway said that while Torstar has considered spinning off Harlequin, no action is expected soon. The book publisher continues to deliver strong cash flow, Galloway noted.

The company also said that the sale of the Delta Education unit to the Wicks Group is expected to close this month. Tom Snyder Productions remains the lone unit in Torstar's Children's Supplementary Education Publishing division, and no mention was made of when the company may be sold.