In his conference call discussing first quarter results in July, Scholastic chairman Dick Robinson promised investors that if the company did not see a quick turnaround in its direct-to-home continuities unit it would exit the business. This morning, Robinson said in his second-quarter call that after further analysis Scholastic determined that the unit will not meet its fiscal 2008 goals and that the publisher has hired Greenhill & Co. to try and sell the business. In the second quarter, the entire continuities division had sales of $45.3 million with the direct-to-home portion contributing sales of $33.2 million with a pro forma operating loss of $6.1 million.
Scholastic acquired the continuities business as part of its purchase of Grolier in 2000. Robinson said that while the d-t-h unit “generated significant earnings and cash” since its acquisition “in the last three years it has lost profitability.” Scholastic will retain the school continuities business. The company said it may take a “significant” non-cash write down of assets associated with the sale of the unit when it reports full year results. It was unclear who the likely candidates to acquire the business are.
For the entire company, Scholastic posted modest gains in sales and earnings in the quarter with revenue up 1.5%, to $746.2 million and net income inching up to $75.6 million from $75.1 million. In its children’s book publishing and distribution segment, sales fell 3%, to $431.3 million. Within the group, trade sales rose 11.5%, to $58.2 million, driven by strong sales of the Harry Potter boxed set, The Star Wars Pop-Up Guide to the Galaxy and The Invention of Hugo Cabret. Book fair revenue rose to $172.5 million from $170.0 million, while school book club revenue fell 6%, to $155.3 million. Continuities sales were off 17%.
In its other segments, educational publishing sales rose 2%, as did sales in the media/licensing/advertising segment which was led by sales of interactive products. Sales in the international group jumped 13%, due to a combination of better performances in the U.K. and Australia and the positive impact of exchange rates.
For the first six months of fiscal 2008, net income soared 158%, to $72.8 million, and revenue rose 24.5%, to $1.33 billion. The company had a strong first quarter led by Harry Potter and the Deathly Hallows. Scholastic continues to forecast that sales for the full year will range between $2.3 billion and $2.5 billion.