In a week filled with bad book business news, Scholastic delivered a generally upbeat financial report for the fiscal year ended May 31, 2023, injecting a bit of much-needed positivity into a sagging children's book market. Revenue rose 4% over fiscal 2022, to $1.70 billion, and operating income increased 9%, to $106.3 million. The company had a particularly good fourth quarter: operating income jumped 40% on a 3% increase in sales.
The improved financial performance for the year was driven entirely by the company’s children’s book publishing and distribution group, where sales rose 10%, to $1.04 billion, and operating income increased 24%, to $143.4 million. The star of the division was Scholastic’s book fair business, which posted a 29% jump in revenue, to $553.1 million. The company attributed the increase to the number of fairs it operated in its 2023 fiscal year—which reached 85% of pre-pandemic levels, compared to 72% in fiscal 2022—and the exceptionally high revenue per fair. Fairs were also the main driver in boosting profits in the group, which Scholastic CEO Peter Warwick attributed to “operational excellence and operational leverage.”
The strong book fair showing offset declines in the group’s trade and book club operations. Trade sales fell 6%, to $367.1 million, and the company pointed to what it believes is generally short-term softness in the children's retail market as the reason for the decline. "We believe some of the year-over-year declines in the retail market largely reflect a return to pre-pandemic purchasing patterns," Warwick told analysts in a conference call. Book club sales dropped 7%, to $117.8 million, due to lower revenue per order and lower sponsor participation, Scholastic said.
In April, Scholastic announced that it would combine its fair and club businesses into one integrated school reading event group. The integration went into effect at the start of the company's 2024 fiscal year, which began this June 1, and the publisher said that it expects the combination to improve both sales and profits.
Sales in Scholastic’s educational solutions group dipped 2% from fiscal 2022, to $386.6 million. The company ascribed the decline to lower ordering from schools, which had increased orders in the prior year to refill materials as they saw increased enrollment numbers after pandemic-related school closures ended. In addition, Scholastic said that its customized products line cannibalized sales from some of its standard instructional materials products.
In its international group, sales dropped 8%, to $279.4 million. Scholastic said that the negative impact of foreign exchange, plus the sale of an unprofitable direct sales business in Asia, precipitated the decline.
Scholastic expects revenue to increase 3% to 5% in fiscal 2024, and anticipates its number of book fairs increasing to approximately 90% of pre-pandemic levels. Trade sales are expected to be solid, but book club revenue is projected to decline as Scholastic "shrink(s) the business to a profitable core."
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During the call with analysts, Warwick touched on two issues that have generated lots of discussion in industry circles and beyond. Warwick said Scholastic has made progress in improving its freight and shipping costs, but, without naming UPS, said that any "disruption to service by our national shipping partners, one of which is in the process of renegotiating long-term labor contracts this summer, could materially impact our shipping costs and revenues overall."
And in concluding his formal remarks, Warwick gave a nod to AI, saying that, like most companies, "we're excited about the potential to better more efficiently serve our customers with generative AI, for example, by integrating it into customer service and marketing processes. With the recent advances in generative AI, more remains to be seen in this area."