HC Sales Streak Ends

HarperCollins's string of annual revenue increases came to an end this year as total revenue fell 1%, to $1.31 billion. For the fiscal year ended June 30, the publisher was able to increase operating income by just under 2%, to $167 million, giving HC an operating margin of 12.7%, a new high.

HC CEO Jane Friedman said the company's U.S. trade operations had a solid year, with children's sales up 10% and revenue in the adult group rising 1%. Nonfiction was up 23%, headed by such titles as Marley & Me, You: The Owner's Manual and Freakonomics, leading the gains in the adult group. But Zondervan, which had been a major engine driving HC's growth behind the megahit The Purpose-Driven Life, had a difficult year, particularly the second half of fiscal 2006. Friedman acknowledged that the big numbers generated by PDL have been hard to replace, but also attributed some of Zondervan's problems to a soft religion marketplace. According to the AAP sales estimates, religion sales were down nearly 20% in the first half of 2006, but those figures only capture revenue from five publishers (see AAP sales report, this page).

Earnings growth for the full year was limited by a fourth quarter in which HC had a $6-million loss, compared to profits of $12 million in fiscal 2006. Higher returns, especially of Narnia titles, along with investment in HC's digital infrastructure contributed to the quarterly loss. Sales of Narnia titles during the holidays was a key driver of growth in the children's segment in the year.

Friedman said she doesn't expect to see a quick payback on HC's digital investments, emphasizing that the immediate goal is to establish HC "as the number-one Web marketer. We are achieving what we want to achieve." Friedman said despite the creation of a new feature that allows consumers to digitally browse selected titles on its Web site, HC has no plans to sell books directly from the site. "I don't see the necessity. We're not retailers," she said. The company, however, has already started to see audio downloads from the Digital Media Café it has created in partnership with iAmplify.

Friedman is looking for a strong fall from HC's trade operations, which has a host of books from big-name authors including Janet Evanovich, Michael Crichton, Tony Hillerman, U2 and Elizabeth George. Children's sales will be led by three Lemony Snicket titles. Friedman was not as optimistic about prospects for Zondervan, although she held out hope that a possible rebound in the religion market for Christmas could result "in a reasonably good six months."

HarperCollins Results, 2002—2006
($ in millions)