A slimmed-down Scholastic reported gains in both sales and earnings from continuing operations for the fiscal year ended May 31, 2016. Revenue rose 2.3% over fiscal 2015, to $1.67 billion; excluding the negative impact of foreign exchange, revenue was up 5%. Earnings from continuing operations jumped 183.9%, to $44 million. In May 2015, Scholastic sold its educational technology division, which had annual revenue of $249 million, to Houghton Mifflin Harcourt, and it reported a one-time gain in fiscal 2015 of $279.1 million that lifted net income to $294.6 million; net income in the past fiscal year was $40.5 million.
At the time of the sale, Scholastic chairman, CEO, and president Dick Robinson said the divestiture of the technology group would make the company more nimble and better able to focus on its core strengths of children’s publishing and distribution, education, and the international market. In a conference call with analysts last week, Robinson said the results in fiscal 2016 “demonstrate the success of that strategy.”
Revenue in the children’s book publishing and distribution group was up 4.6% in the year and topped $1 billion. The increase was led by a 13.8% gain in the trade unit, which was driven by sales of Harry Potter titles and a “solid performance from our core frontlist and backlist titles,” Robinson said. He is expecting more double-digit growth in the trade division in fiscal 2017. Scholastic has a 4.5 million first printing planned for Harry Potter and the Cursed Child, which comes out July 31, and has high expectations for the Fantastic Beasts and Where to Find Them screenplay book by Potter creator J.K. Rowling. The company’s new Horizon multiplatform series will release its first book in the current year, and Dav Pilkey’s new series, Dog Man, will debut. In addition, Robinson said Scholastic is expanding its list in niches such as early childhood, global licenses, and series publishing. Another growth opportunity, he noted, is Scholastic’s newly signed deal with American Girl, which gives Scholastic the rights to publish books based on American Girl characters starting in January 2017.
Elsewhere within the children’s book and distribution group, sales through books clubs fell 1.8% in fiscal 2016, to $270.4 million, while book fair revenue rose 4.6%, to $520.4 million. Robinson said Scholastic expects revenues in those areas to be flat in the year, but he anticipates that profits will improve due to better “execution,” which will include better gauging what size book fairs and clubs particular schools can accommodate.
In the education group, sales rose 8.4% in fiscal 2016, to $298.1 million, compared to $275.9 million the previous year. Sales of classroom books and magazines were both up.
Revenue in the international group was negatively impacted by exchange rates, which shaved $43.2 million from reported sales. Revenue in the group fell to $372.2 million, compared to $401.2 million in the prior year.
In Scholastic’s forecast for fiscal 2017, CFO Maureen O’Connell said the company expects revenue in the $1.7 billion–$1.8 billion range, with earnings per share to be about even with fiscal 2016. The flat earnings prediction is due in part to pay raises for workers in Scholastic’s U.S. distribution centers, which will increase wage costs by $10 million to $15 million. Capital expenditure costs are expected to roughly double, primarily due to Scholastic constructing retail space on the first two floors of its Broadway headquarters and remodelling the rest of its offices.