Scholastic took a dramatic step last week toward propping up its falling earnings by announcing that it has eliminated 400 positions, or about 4% of its worldwide staff. The cuts are effective immediately, and all employees affected will be leaving the company over the next few weeks.
A company spokesperson said the cuts are "across the board" and include jobs in the book group, education, library publishing, Internet operations as well as corporate staff. The cuts are focused mainly on management and administrative positions, although no major restructuring is taking place. The company will take an after-tax charge of $7 million in the fourth quarter to cover severance and other related costs.
In a statement, company chairman Dick Robinson said, "In today's difficult environment, we need to continue to reduce our cost structure to achieve greater operating efficiency and profitability. The ongoing savings will benefit our financial results starting in fiscal 2004."
Scholastic has been steadily tightening its financial belt since the beginning of the calendar year, following a terrible January when sales were particularly weak in the company's trade and school book club divisions. In March, it announced for the second time in two months that sales and earnings in fiscal 2003 would not meet expectations. Scholastic has been hurt by the sluggish general economy and state budget pressures that have cut back school and library funding.
For the first nine months of the year, sales were up 1.7%, to $1.4 billion, but net income fell 28%, to $29.9 million; results were dragged down by a poor third quarter in which sales rose 1% and the company had a small net loss compared to earnings of $11.9 million in the third quarter of fiscal 2002. By making the job cuts before the end of its fiscal year ending May 31, and taking the $7 million write-off, further reducing earnings, Scholastic is hoping to show dramatically better results in fiscal 2004, which will include sales from Harry Potter and the Order of the Phoenix.