The Covid-29 pandemic dropped revenue by $187 million, or almost 40%, in the fourth quarter of fiscal 2020 at Scholastic, leading to a 10% decline in sales for the year ended May 31, 2020, compared to fiscal 2019. Revenue ended fiscal 2020 at $1.49 billion.
The fourth quarter slump also resulted in an operating loss of $46.2 million in the most recent quarter, compared to a profit of $32 million in the final period of fiscal 2019. The fourth quarter, Scholastic noted, is when the company typically records the majority of its earnings and cash flow, but with the decline in results, the publisher had an operating loss of $88.5 million for the full year, compared to earnings of $25 million a year ago.
The largest fourth quarter decline came in the company’s children’s book publishing and distribution group, where sales tumbled 49% from a year ago, to $132 million. Within the group, book fair revenue plunged 79%, to $32.1 million, and book club sales dropped 59%, to $19.5 million. Scholastic said those large declines were due to significantly fewer fairs and clubs being held during the quarter. Some of that decline was offset by a 45% jump in sales in the trade division, where revenue hit $80.4 million. Trade sales were led by The Ballad of Songbirds and Snakes, while the company's Klutz line of book and activity kits also performed well in the quarter, as parents searched for activities to help their children practice STEAM skills, Scholastic said.
In prepared remarks, Scholastic chairman, CEO, and president Dick Robinson said the company acted quickly in the fourth quarter to preserve cash by reducing inventory purchases, cutting capital spending, and suspending its stock buy-back program. Scholastic also cut costs by more than $50 million in the quarter by “closing distribution centers in highly impacted regions, scaling our operations to meet near-term business needs, and reducing labor costs,” Robinson said. To reduce those costs, in March Scholastic reduced work weeks, initiated job furloughs, and implemented job eliminations.
Given the highly uncertain outlook for school reopenings this fall, Scholastic limited its financial guidance for fiscal 2021 to saying it expects revenues in the year to be slightly below sales in fiscal 2020. The publisher added that it expects some of that decline to be offset on the bottom line by its $100 million cost reduction plan, which is currently being implemented and focused largely on savings on labor costs and an improvement to its processes.
Scholastic did provide a road map of sorts about how it sees the year unfolding. It is planning for a slower than normal start to the 2020-21 school year, saying it expects most schools to be open, “but with a variety of in-person, distance learning, and hybrid options.” As schools re-open, Scholastic continued, its expects “strong demand for children's books delivered through book clubs and book fairs to schools and direct-to-home. We expect to have strong sales for our digital education programs, including classroom magazines, as schools look for digital learning tools to bridge the gap between home and school.”
Scholastic is also expecting another big year for its trade business, which finished fiscal 2020 with revenue of $334.8 million, a 20% increase over fiscal 2019. Among the big titles coming out in the current fiscal year, Scholastic pointed to releases by Dog Man: Grime and Punishment by, as Scholastic pointed out, PW's 2019 Person of the Year, Dav Pilkey, as well as a new Pilkey series, Cat Kid Comic Club, launching in the fall. The Ickabog, the first new children's book by J.K. Rowling in 13 years, will launch in November, and new titles from other bestselling authors such as Tui T. Sutherland, Alan Gratz, Kelly Yang, and Varian Johnson will appear throughout the year, Scholastic said.
The pandemic struck at a time when Scholastic was preparing to mark its 100th anniversary, as the company published its first magazine in October 1920. “For all those years teachers and schools and parents have looked to Scholastic to help them engage children in reading and learning,” Robinson, whose father started Scholastic, said, “facing the difficulties of this year's return to school, Scholastic's help has never been more necessary than it is right now.”