Coming off a year in which the company's operating margin fell despite a 9.8% increase in sales, Scholastic chairman Dick Robinson said the publisher remains committed to raising its margins and that the key to achieving the company's goal of a 9%—10% margin is cost reduction. Scholastic "will work diligently to lower our cost base" in fiscal 2007, Robinson told analysts during a conference call to discuss results for the fiscal year ended May 31.

Higher book club costs as well as expenses associated with turning around Scholastic's U.K. operation plus investment in its technology support for its educational products all took their toll on the bottom line last year. In March, Scholastic presented a plan aimed at reducing overhead costs by $40 million by fiscal 2008 (PW, Mar. 27); the company is on target to achieve that, said CFO Mary Winston. As part of the effort, Scholastic is closing its Trumpet and Troll book clubs. Scholastic has also realigned the editorial operations in its library publishing division, a move that included the elimination of 36 jobs late last month. The realignment, said library publishing president Greg Worrell, reflects two realities—the growing importance of digital products in the reference market and the need for the library division to leverage its content across other Scholastic units. Worrell said the library unit remains committed to producing print reference materials (The New Book of Knowledge, Encyclopedia Americana), although it will do less frequent updates of many reference works and put more focus on its Grolier Online offering. To reflect the switch, Scholastic took a $3.2-million charge in the year related to the writedown of "certain print reference set[s]."

Scholastic is looking for margin improvement in 2007 though sales are unlikely to top fiscal 2006. Robinson was bullish about prospects for the trade division, citing an extremely strong frontlist. The absence of a new Potter, however, will mean a decline in overall trade revenue this year, although non-Potter trade sales will be up. Potter contributed $195 million to sales last year. Revenue is also expected to be off in book clubs, although profits are projected to increase for the clubs, as well as in fairs and in the continuity program, where sales rose in the second half of fiscal '06.

Scholastic Results, 2005—2006
($ in millions)

2005 2006 % CHANGE
Revenue $2,079.9 $2,283.8 9.8%
Operating income 134.9 139.3 3.3
Operating margin 6.5 6.1
Segment Results
Pub/Dist. $1,152.5 $1,304.0 13.2%
Trade 181.0 352.0 94.5
Book clubs 397.0 374.0 -5.8
Book fairs 362.0 381.0 5.3
Continuities 212.0 193.0 -8.9
Education 404.6 416.1 3.0
International 389.7 412.1 5.9
Media/Lic/Ad 133.1 151.6 13.9