For the second year in a row, HarperCollins has had a poor start to its new fiscal year. Last year, sales fell 6% and earnings dropped 21% in the first quarter, and in the period ended September 30 this year sales fell 11.5%, to $330 million, and operating income plunged 52.8%, to $36 million. “It was a lousy quarter,” acknowledged CEO Jane Friedman. “We knew things were going to be down, but we didn’t think they’d be down this much.”

She attributed the declines to a “terrible” quarter in the U.K. and a significant drop in sales in the children’s segment in the U.S., which had strong sales of Lemony Snicket last year and was still taking returns from Narnia-related books. Sales in the U.S. adult group were about flat and Zondervan continued to show improvement. Sales in the distribution business were up, thanks to Harry Potter and the Deathly Hallows, which HC fulfills in the U.S. “Thank God for Harry or things would have been worse,” Friedman said.

Despite the bad start, Friedman said she has no intention of altering HC’s publishing plans for fiscal 2008. “We’ll continue to be the cost-conscious company we’ve always been, but other than that it’s full steam ahead,” she said. Sales in October were up and November is off to a good start, Friedman said. In the U.S, Friedman expects the adult group and Zondervan to be the best performers, while the children’s group struggles to overcome more tough comparisons.

Friedman said she was not giving up fiscal 2008. “It was one bad quarter. I’m optimistic about the rest of the year,” Friedman said, adding that HC will try to meet last year’s numbers when the company posted revenue of $1.34 billion and earnings of $159 million.