Sales at the Quarto Group fell less than 1% in 2017 compared to 2016, dropping to $152.5 million, and profit fell more substantially, declining 57.6%, to $7.2 million.
In the middle of 2017, Quarto issued a warning statement that sales in the first half of the year were running behind expectations and while it had forecasted an improved second half, executives said sales and earnings were likely to be down compared to a year ago.
CEO Marcus Leaver called 2017 a transitional year, one in which Quarto shed its non-book assets to become a "pure play intellectual property business." During the year, the company was also confronted with volatile trading conditions that included book sales continuing to move from physical retail outlets to online. "People buy books today much differently than they did in the past," Leaver said.
The company attributed the steep decline in its profits to high levels of returns, rising cost of goods, and royalty expenses as trade sales become a larger part of its mix—plus higher development costs due to the integration of Becker&Mayer.
The Becker&Mayer acquisition gave a boost to Quarto's children's divisio,n where sales rose a total of 19%—7%, excluding the becker&mayer purchase. Children's products now account for one-third of Quarto's total revenue, while adult—where sales fell 9%—account for the rest.
Leaver said that in 2018, the company will continue to address the changes in the nonfiction illustrated market by developing a more flexible approach. For one thing, he would like to see the company increase the speed to market of its illustrated titles, while also finding different ways to deliver its content
Sales in the U.S. fell 2% in the year, to $81.8 million, which Quarto said was due to a softer retail environment and higher than usual returns. The unit was also faced with tough comparisons with the first half of 2016 when adult coloring books were still strong sellers.
Despite the challenging year, Leaver remained convinced that focusing Quarto to be strictly a publishing business was the right course of action. He noted that business did pick up in the second half of 2017 when sales were up 5.8% over the comparable period in 2016. Business in the first few months has been good, Leaver said. "We remain a robust mid-size publisher," he declared.