With its trade segment posting a strong first half of the year and its education group turning in a solid second half, Scholastic reported a 4% increase in revenue in the fiscal year ended May 31, over fiscal 2016.
Operating income, excluding one-time items, rose 17%. Revenue in the year was $1.74 billion, while operating income rose to $109.1 million, up from $93.4 million in fiscal 2016. Net income increased 29.1% to $52.3 million.
Scholastic’s children’s book publishing and distribution group had a 5% increase in sales over fiscal 2016, with revenue hitting $1.0 billion. The increase was led by the trade division, where sales jumped 45% thanks to strong performances by J.K. Rowling’s Harry Potter and the Cursed Child and Fantastic Beasts and Where to Find Them. Other titles that sold well in the year included books in the Dog Man and Captain Underpants series. The Captain Underpants series did particularly well in the fourth quarter, ahead of the June release of the movie based on the series.
The strong gains in trade offset sales declines in both books clubs (down 12%) and book fairs (down 2%).
In the education group revenue increased 4%, to $312.7 million, led by higher sales of literacy programs and classroom magazines.
Sales in the international group rose 1% over fiscal 2016, to $376.8 million. While Scholastic saw gains from sales of new Harry Potter content in Canada and strong results from business in Australia, Canada, the U.K. and Asia, the company took a hit after discontinuing its software distribution business in Australia. It also had a soft overall performance in the Philippines and Thailand.
Scholastic devoted a substantial part of its earnings release and conference call to a look at the future, detailing plans for a program it is calling Scholastic 2020. The goal of the initiative is to significantly raise operating income beginning in 2019. The company plans to spark growth by using new technology to reduce costs, simplify business practices and improve the use of data analytics. These efforts will allow for more efficient marketing and sales efforts. As explained by Scholastic chairman Dick Robinson, much of the upgrade will center around the company's book fairs and book clubs which, he said, are “labor and freight intensive.”
As the Scholastic 2020 program ramps up in the current fiscal year, the company projected that revenue will be between $1.65 billion and $1.70 billion in fiscal 2018, and that operating income will also decline. The lack of new Potter titles will hurt overall sales, while higher costs associated with the aforementioned strategic technology upgrade will contribute to the lower earnings. Combating the forecast of the more immediate dip, Robinson promised that operating income will begin a three-year run of double digit increases in operating income starting in 2019.