Scholastic Gives Continuities Last Chance

While Harry Potter and the Deathly Hallows will provide a boost to Scholastic's sales and earnings in fiscal 2008, another important ingredient in improving the company's earnings is turning around the performance in its continuities business, which posted another large loss in the fiscal year ended May 31. Continuties, which had sales of $217.5 million last year, has long been a drag on Scholastic's earnings and the company has set a goal of cutting losses in the group by $20 million this year, a reduction that will move the segment close to break-even. If that goal is not met, company chairman Dick Robinson said Scholastic is prepared to “exit the business.”

Robinson assured analysts in a conference call discussing year-end results that “there is life after Harry Potter.” In the trade segment, Scholastic will look to build franchises around Ann Martin and Meg Cabot, both of whom have new books out this year. Robinson believes there is a strong export opportunity in open markets for the new Potter title and thinks the entire series will backlist well. The closing of two small book clubs resulted in a big gain in profitability in that unit last year, while the book fair unit increased sales per fair by closing smaller fairs. Robinson also expects sales via the Internet, which rose 24% last year to $370 million, to increase again in fiscal 2008.

Robinson sees lots of opportunity for Scholastic to increase revenue of educational technology, which currently is focused on its READ 180 program. READ 180 had sales of $160 million last year, and Scholastic has divided its education group into two groups, Educational Technology, to be headed by Margery Mayer, and the Classroom and Library Publishing Group, to be led by Greg Worrell. Each unit will have its own sales force.

Robinson said Scholastic, which had an operating margin of 5.6% in fiscal 2007, is committed to achieving margins of at least 9% by fiscal 2010.