Random Posts Loss in 'Stub Period' on Sales of $965 Million

Random House Worldwide lost 15 million euros ($13.3 million) on revenues of 1.08 billion euros ($965.6 million) in the July through December period, according to figures in the recently released annual report of parent company Bertelsmann. Bertelsmann said Random's business was hurt by "slowing consumer book purchases in the U.S., which fell even more sharply after the terrorist attacks of September 11," as well as poor economic conditions in Argentina, which dampened demand for Spanish-language books.

Because Bertelsmann switched its business year from a fiscal year ending June 30 to one ending December 31, comparisons for the previous July through December period (known as a stub period) are not available. For the full year ended June 31, 2001, Random's total revenues were 2.08 billion euros, with a net income of 176 million euros. According to Random spokesperson Stuart Applebaum, the stub period was the first time in the four years that Bertelsmann has owned the publisher that Random posted a loss.

Sales at Random House's North American operations were 705 million euros ($627.5 million) in the six-month period. Sales in Germany were 101 million euros, while sales to the rest of Europe were 171 million euros. Sales to the rest of the world were 103 million euros. Bertelsmann said Random had onetime charges of 25 million euros in the period due to restructuring in its North American operations—during December and January, many of Random's American divisions cut staff to meet profit targets—and its withdrawal from the consumer how-to/reference market in Germany. Random's Internet losses were 4 million euros.

The first five months in 2002 have produced "an excellent turnaround from the stub period," Applebaum said, led by several million-copy sellers including The Shelters of Stone and The Summons. Pointing to the events of September 11, Applebaum said, "2001 was an aberrational year and we view our results as an aberration."

Revenues in Bertelsmann's DirectGroup, which includes its music and book clubs as well as e-commerce activities, were 1.5 billion euros, while the division had a net loss of 40 million euros; for all of fiscal 2001, the group had revenues of 3.1 billion euros and a loss of 19 million euros. Bertelsmann said that earnings were up in its core book club markets in Germany, France and the U.S. despite a slight decline in revenues. Internet losses were down, but overall earnings for the group were hurt by write-downs in its American operations. Bertelsmann said its club businesses continued to upgrade operations, which included implementing "cost-intensive" state-of-the-art software systems designed to improve operating efficiencies.

In the company's professional group, BertelsmannSpringer, total revenues were 370 million euros, with the U.S. generating sales of 65 million euros. Profits were 30 million euros, compared to full-year earnings of 69 million euros for fiscal 2001.

Bertelsmann said that the Bertelsmann Excellence Initiative "is now having its desired effect." The aim of the initiative is to bring the company's average return on investment (EBITA) to 10% within the next few years, when the company is widely expected to launch an IPO.