Scholastic reported a mixed fiscal 2019 ended May 31, with sales rising 2%, to $1.65 billion, but operating income dropping 55%, to $25 million. A host of factors led to the large profit decline, including a disappointing fourth quarter, the application of new revenue recognition guidelines for its book clubs, higher than expected book fair expenses, and the negative impact of foreign currency exchange, which reduced earnings by $1.1 million and revenue by $15.4 million.
“Outstanding trade book sales globally were overshadowed by sales tax collection issues, which affected our book clubs, and increased services and incentives in book fairs, responding to expanded competition, as well as higher costs in printing, paper, and labor,” Richard Robinson, Scholastic chairman, president, and CEO, said in a statement. In June, Scholastic announced that sales and earnings would be below previous expectations due to the factors cited above.
In its largest segment, children’s book publishing and distribution, revenue rose 2% over fiscal 2018, to $990.3 million. The gain was due entirely to a 20% increase in sales in Scholastic’s trade segment, including higher media and entertainment revenues from the company’s programming library of children's shows. Top selling books in the year included Dav Pilkey’s Dog Man: Lord of the Fleas and Dog Man: Brawl of the Wild, new Harry Potter publishing including Fantastic Beasts: The Crimes of Grindelwald, and the surprise hit, The Wonky Donkey. Trade segment sales finished the year at $278.3 million.
Offsetting the trade gains were a 5% decline in book club revenue, to $212.4 million, and a 3% drop in book fair revenue, to $499.6 million. Excluding the impact of the new revenue recognition guidelines, book fair sales were on par with the prior year, Scholastic reported. The company also increased its book fair incentive spending in the year to fight competition from Follett’s entry into the market.
In its education division, sales rose 3% in the year, to $297.4 million. Revenue was driven by higher sales of instructional programs, including Guided Reading, Leveled Bookroom, and LitCamp, a summer reading program.
Revenue in the international group in the fiscal year fell 1%, to $366.2 million, due entirely to the $15.4 million negative impact of foreign exchange; excluding currency translations, international sales were up 3%. Scholastic said the international group had “exceptional” trade publishing results in all of its major markets and in Asia, along with higher education sales in U.K., Australia, and Asia.
Scholastic was optimistic about prospects for fiscal 2020, predicting that revenue will increase to between $1.67 billion and $1.69 billion and EBITDA (earnings before interest, taxes, depreciation and amortization) will jump to between $140 million to $160 million, up from $121.3 million in fiscal 2019. The company said the improved results will be due to revenue growth in all three of its operating divisions as well as cost cuts and selective price increases.