The continued spread of the new coronavirus will have a significant impact on Scholastic’s performance in the fourth quarter of fiscal 2020, ends on May 31, company executives said in remarks accompanying the release of the publisher’s third quarter results. “What a difference 20 days made,” Dick Robinson, Scholastic chairman, president, and CEO said in remarks discussing the company’s results.
After Scholastic completed the first nine months of the fiscal year ahead of its financial targets, Robinson said the virus will mean "far-reaching" disruptions to its book fairs, book clubs, and educational offerings as schools across the country close. While it is too early to assess the full magnitude of what the effect of the virus will be, Robinson said it is clear revenue will be down. As a result, Scholastic can no longer affirm its previous guidance for the fiscal year, Robinson said. Scholastic had been calling for revenues in the range of $1.67 to $1.70 billion, up from $1.65 billion in fiscal 2019, and adjusted EBITDA of $140 to $160 million, up from $121.3 million in fiscal 2019.
The company listed a number of actions it is taking to lessen the impact of the coronavirus on its results: a freeze on all spending not directly tied to short-term revenue; reduced inventory purchasing; a reduction in labor costs; and temporary closures of warehousing and distribution centers in highly impacted regions.
In the third quarter, total sales rose 4% over the comparable period last year, to $373.3 million. Operating loss in the period was $60 million, compared to an operating loss of $21.4 million a year ago, which Scholastic said was largely attributable to a one-time $40 million non-cash write down of inventory. Excluding one-time items, the operating loss was $16.8 million, compared to a loss of $18.7 million a year ago.
In the company’s children’s book publishing and distribution group, Scholastic reported that third quarter revenue rose 1%, to $220.2 million, over last year, driven by a 17% increase in the trade division thanks to strong sales of Dav Pilkey's Dog Man titles and the first three Hunger Games novels by Suzanne Collins leading up to the series' new release later this spring. Book fair sales increased 3% in the quarter, but book club revenue fell 21%.
In Scholastic’s international group, sales fell 4%, to $78.8 million. The decline was mainly due to softness in the company's direct-to-consumer selling operations throughout Asia and its education business in China, which, Scholastic noted, were impacted by local actions taken to curtail the spread of the coronavirus late in the quarter. Robinson said that the company has begun to see sales activity in China and Asia again after virtually no sales from late January until now.