A combination of lower trade book sales and costs associated with the creation of its new School Reading Events business resulted in an operating loss of $99.1 million at Scholastic in the quarter ended August 31, 2023, compared to a loss of $58.1 million a year ago. Total sales were down 13%, to $228.5 million.
The integration of the book fairs and book clubs business took effect June 1, though Scholastic did breakout results for both operations (results will be broken out for the remainder of the fiscal year). Book fair revenue fell 4%, to $27.3 million, and clubs declined 59%, to $2.6 million in what is a typical slow quarter for those businesses. In the financial announcement, CEO Peter Warwick said Scholastic has a plan to transition the book club business “to a smaller, more profitable core supporting future growth in School Reading Events.”
In response to a follow up question about the fate of the clubs, Scholastic the company has already sent flyers teachers and families this season. According to Scholastic for the school year, the club model "has been right-sized and refocused, with fewer flyers but a more robust, kid-centric assortment with a modernized experience" that reflects its successful fairs business. "We have also optimized the model to make the program easier to execute, recognizing the demands on teachers and parents," Scholastic added.
To get there, Scholastic made a number of cuts in the book club business in the quarter. Although the company had no comment on those cuts, its financial release did acknowledge “severance” payments in the quarter and reported $6.3 million in restructuring and cost savings charges.
Scholastic’s trade publishing division had a down quarter with sales falling 19% to $72.9 million. Scholastic said a good frontlist performance was offset by continued softness in the retail market, reflected in part, Warwick said, by “reductions in backlist inventory by retailers.“
In a conference call with analysts, Warwick said Scholastic believes retailers have sorted through their excess inventory and said trade sales were improving in the last weeks of August and early September. He also acknowledged Scholastic’s new books in the just completed quarter were not as strong as in some other periods, which also impacted sales. He said the company’s fall and spring lists are stronger, including new titles in Dav Pilkey's Dog Man and Cat Kid Comic Club series, plus a new Heartstopper title.
Warwick also said he was encouraged by overall spending for children’s books, explaining that spending on book fairs continues to be “very strong.” The company expects its book fair count to be at 90% of pre-pandemic levels in fiscal 2024.
In Scholastic’s other operating divisions, education solutions revenues decreased 10%, to $66.0 million, reflecting lower, timing-related state-sponsored program revenues and a continued shift in the overall seasonality of segment sales, the company said.
International revenues decreased 12%, reflecting the $1.4 million year-over-year impact of unfavorable foreign currency exchange and $1.6 million in lower revenues due to the disposition of the direct sales business in Asia in the prior year. Excluding these factors, international revenues declined 8%, as sales in major markets were impacted by continued softness in the overall retail market.
Despite some first quarter headwinds (which had been expected, Scholastic executives noted) the company reaffirmed its fiscal 2024 guidance for revenue growth of 3% to 5% and adjusted EBITDA of $190 million to $200 million, excluding the impact of onetime charges of $7 million to $10 million related to restructuring and cost savings activities.
This story has been update with more information on the book club business.