Despite a slight decrease in revenues forecasted for the fiscal year ended May 31, 2002, Scholastic expects net income to increase between 5% and 12% in the year; operating margins to improve to 9.5% to 10% from 8.8% in the last fiscal year; and earnings per share to be in the $2.35—$2.50 range, compared to $2.24 in fiscal 2001. Earlier this month, Scholastic reported sales of $1.96 billion and net income, excluding extraordinary charges, of $83.7 million.
The company expects to achieve improved profitability by cutting $45 million in costs during the year. Beth Ford, Scholastic's v-p of global operations, said the publisher is looking at cost savings of $8 million from its manufacturing processes, $10 million from international services, $14 million from operations, $6 million in improved inventory management and $7 million from a number of other projects.
In a conference call with analysts, Scholastic executives outlined their plans to compensate for the $200 million in revenues generated by Harry Potter materials last year and $60 million from Literary Place, which the company is discontinuing. Kevin McEnery, Scholastic's chief financial officer, said the company anticipates that Potter revenues will fall by $150 million in the current year, with $75 million of that drop expected in the first fiscal quarter. Literary Place revenues are projected to fall by $30 million, with $20 million coming in the current quarter.
Barbara Marcus, Scholastic executive v-p for the children's book publishing and distribution business, said she expects book fair revenues to increase at double-digit rates this year, helped by the recent purchase of Troll's book fairs. The Troll acquisition adds 8,000 new fairs to Scholastic, and Marcus said she also expects revenues per fair to increase. Book-club revenues are projected to increase 8% this year, aided by the introduction of online ordering that is set to begin in September as well as the addition of six new continuity clubs in Scholastic's direct-to-home program. In all, book club and book fair revenues are expected to increase by $60 million this year.
Fiscal 2002 will also see the rollout of an online teachers' store in the fall and the launch of a parent store in early 2002. The new stores, plus the online club ordering, are part of Scholastic's strategy to focus its efforts on the e-commerce opportunities of Scholastic.com. "I think we have enough content" on the site, chairman Dick Robinson commented, adding that the company is now looking to "monetize" the asset. Scholastic spent $20 million on Scholastic.com last year and will spend a similar amount this year.
The decision to not update Literary Place will free resources that Scholastic will devote to strengthening its reading improvement and supplementary and library publishing programs. In addition, the publisher is developing a new catalogue that will feature all of its Spanish-language and ESL materials. Robinson noted that the company had about $20 million in sales from Spanish product last year, including $10 million to $12 million through its Lectorum subsidiary. He said Scholastic's Spanish-language business could grow to $100 million over the next decade.
In the international market, Scholastic will focus on upgrading its U.K. and Australian units, increasing penetration in the Far East and developing new business in other areas, said Hugh Roome, head of the company's international division. He noted that Scholastic Canada has had two years of solid growth and that Scholastic will use those operations as the model for growing its U.K. and Australian divisions.