The status of Books Are Fun was the main topic for Reader's Digest executives during a conference call with analysts discussing results for the fiscal year ended June 30. Investments and write-offs related to RD's efforts to turn around the struggling display marketing division obscured progress made in some other RD divisions. With sales down and more losses at BAF, total revenue at RD in fiscal '06 was even, at about $2.39 billion, and the net loss increased to $117.4 million from $90.9 million.
In explaining its turnaround efforts for BAF, executive v-p Thomas Gardner noted that RD is "in the midst of a major downsizing and cost-reduction program" that will lower overhead by about $8 million in fiscal 2007. To account for the restructuring, RD took a $10-million charge in last year's fourth quarter and a $7 million noncash charge related to writing down the value of some of BAF's inventory.
While the downsizing will result in the elimination of a number of jobs, the company did hire a new president for the unit. David Kirshock, formerly president of Scholastic Book Fairs, took over the helm last week. He is based in Chicago, where RD has relocated BAF's headquarters. The company is also rebuilding its corporate sales force, after losing about 25% of its reps to the competition since late last year. In terms of improving the BAF business model, the company has introduced a Web-based support system to better track inventory and is likely to introduce a product lineup that includes more RD items. RD's efforts are expected to result in flat sales at BAF in fiscal 2007, but improved profits.
In other parts of the company, sales at Reader's Digest North America rose 2%, to $939.4 million, and international sales rose 4%, to $1.03 billion. Consumer Business Services, which includes BAF, had an 8% sales decline, to $445.6 million.
Helped in part by the expected turnaround at BAF, RD projected that total revenue in 2007 will grow by mid-single digits and profits will increase by low double-digits.