Reader's Digest can't catch a break. Just as its North American Books and Home Entertainment group is showing signs of a financial turnaround, the company's international group posted results that "were far worse than we expected... and well below expectations," company chairman Thomas O. Ryder told analysts in a conference call discussing the publisher's performance for the second quarter that ended December 31.
Operating profit at the BHE group in the quarter rose 37.4%, to $28.3 million, despite a 13.6% decline in revenue, to $199.3 million. The revenue decline largely reflected RD's planned reduction in sweepstakes marketing, which was partially offset by a 10% increase at Books Are Fun. The strong results at Books Are Fun, as well as a 50% decline in operating losses at the U.S. BHE division, drove the profit improvement at North America BHE. During the quarter, Stopping Diabetes in Its Tracks, the latest in RD's books on health, was the group's top-selling title, while the use of telemarketing and non-sweepstakes direct mail helped lift sales at the Young Families division.
In its international group, operating profits fell to $23 million from $37 million, on an 8% sales decline, to $291 million. Ryder said that with the exception of Russia, results were down throughout the world, with particularly disappointing performances in Great Britain, France, Germany and Poland.
Ryder said he expects trends in the second half of the fiscal year to mirror those of the first six months—a recovery in the U.S., while international markets continue to be weak. Ryder was especially excited about the results of ChangeOne, a weight-loss book developed by Reader's Digest. The book was launched in late December with one of the most extensive promotional campaigns ever for a RD book, according to spokesperson Bill Adler. The title was featured on the cover of Reader's Digest magazine, has been promoted through direct mail and the Web site, and the authors have made the rounds of the talks shows, all of which helped put more than 200,000 copies of the title into the retail market. Adler said RD is considering doing spinoffs using the ChangeOne brand.