With Continuities Behind It, Scholastic Plans for Better Days

by Jim Milliot -- Publishers Weekly, 7/24/2008 7:21:00 AM

Scholastic’s decision to exit the continuities business resulted in a net loss of $22.4 million for the fiscal year ended May 31, but the company said the move to get out of the money-losing segment would mean a more profitable company in the years ahead. Total sales in the year, excluding continuities, rose to $2.20 billion from $1.92 billion in fiscal 2007 when the publisher had earnings of $60.9 million. Scholastic took a $102 million writedown to account for getting out of the continuities field, and recorded a total loss from discontinued operations of $133 million. In addition to selling its direct-to-home business, which Scholastic hopes to complete this quarter, the company announced that it closed its school-based continuities division May 31. The home division lost $24.1 million last year, while the school unit lost $6.1 million.

Results in its continuing operations were led by the children’s book publishing and distribution group where trade sales jumped from $183.4 million to $422.3 million due to $270 million in sales from Harry Potter and the Deathly Hallows plus other Potter titles. Book fair revenue was up 3% in the year, to $405.7 million due to higher revenue per fair. The elimination of less profitable mailings contributed to a 7% drop in book club sales, to $336.7 million.

In its other segments, educational publishing sales inched up to $414.1 million from $412.8 million with sales of supplementary materials off modestly in a soft market. International sales, aided by favorable foreign currency exchange, rose 15% to $470.6 million with strong performances in Australia, the U.K. and Asia. Media/licensing/advertising revenue fell 6.2%, to $156.2 million.

Without any new Potters, Scholastic faces difficult comparisons in fiscal 2009, and said that it expects sales to be in the $2.0 billion to $2.1 billion range, (an increase of 3% to 5% factoring out Potter sales). Revenue in the children’s book group will be down, but Scholastic said that, excluding Potter, the group should have modest growth. It expects a new online selling platform to boost sales in book clubs while book fair sales will benefit from higher sales per fair. Good performances in the year are expected from The 39 Clues and Goosebumps HorrorLand series plus The Hunger Games and Inkdeath.

Company chairman Dick Robinson said the company continues to work toward its goal of 9% to 10% operating margins in fiscal 2010. To get there, Scholastic is looking to cut $25 to $35 million in costs in the year through layoffs and other measures.

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