Another good quarter at Scholastic's children’s book publishing and distribution division helped increase total revenue at the publisher by 4% in the third quarter ended February 28, 2019, over the comparable period in fiscal 2018. Revenue in the most recent quarter was $360.1 million, up from $344.7 million a year ago. The publisher also cut its net loss to $12.6 million, from $49.2 million, in the comparable period in fiscal 2018. Still, it wasn’t all good news for the company.
During the quarter, Scholastic said it implemented sales tax collection for book clubs in February, in response to the Supreme Court’s South Dakota v. Wayfair decision. The cost of collecting the tax—as well as higher labor costs in fulfillment, cost increases in paper and printing, and the effect of the stronger U.S. dollar in its international operations—caused Scholastic to project that its earnings for the full fiscal year ended in May will be at the low end of its guidance range of $1.60 to $1.70 per share.
In the publishing and distribution group, Scholastic reported that third quarter revenue increased 8%, to $218.0 million, over last year’s comparable quarter. The gain was led by a 25% increase in trade sales, which reached $65.6 million. The trade unit had continued strength across all categories, Scholastic said: frontlist bestsellers, backlist, and new Harry Potter–related publishing, in conjunction with the 20th anniversary of the first Harry Potter novel in the U.S. The unit also benefited from its Clifford programming library, which, Scholastic said, "recorded significant sales in the quarter through licensed Amazon prime video, while anticipation continues to grow for the launch of the new Clifford TV series this fall on Amazon and PBS Kids, accompanied by new book publishing and licensing programs."
Elsewhere within the group, Book fair revenue rose 6%, based on the timing of fairs at the end of the quarter and the higher redemption of "Scholastic Dollars," which schools use to optimize their post-fair rewards program. Book club sales dropped 5% in the period.
In the education group, third quarter revenues increased 1%, to $60.3 million. But the big news in the division in the past quarter, according to chairman Dick Robinson, was that its sales force began presenting the new Scholastic Literacy program to customers. The integrated system teaches basic reading skills for students in grades K-6, and Robinson said reaction has been positive.
In its international group, sales fell 2% below the prior year period, with higher trade publishing sales in Scholastic's major markets in the U.K. and Australia/New Zealand, as well as in the Asian export market, more than offset by the adverse impact of $4.6 million in foreign exchange in the current quarter. Without this currency impact, local currency revenues were up 3% year-over-year, Scholastic reported.
For the first nine months of fiscal 2019, revenue was up 5%, to $1.18 billion, and the company's net loss was $2.3 million, down from $55.8 million a year ago. Scholastic said it still expects sales for fiscal 2019 to be between $1.65 billion and $1.70 billion.