Scholastic Reports Fiscal 2024 Third Quarter Results

Consolidated Trade Sales Increased 7%

Announced Agreement to Invest in 9 Story Media Group, Expanding Opportunities to Build and Monetize Global Children’s IP

Over $60 Million Returned to Shareholders in Third Quarter

New York – March 21, 2024 – Scholastic Corporation (NASDAQ: SCHL), the global children’s publishing, education and media company, today reported financial results for the Company’s fiscal third quarter ended February 29, 2024.

Peter Warwick, President and Chief Executive Officer, said, “Last quarter Scholastic’s continued successes in children’s book publishing and entertainment demonstrated our leadership in building beloved children’s franchises and brands. In Trade Publishing, multiple new releases expanded Scholastic’s presence on bestseller lists, including Heroes: A Novel of Pearl Harbor by Alan Gratz and the latest titles in our popular graphic novel series Heartstopper™ by Alice Oseman, Wings of Fire™ by Tui Sutherland, Amulet by Kazi Kibuishi and The Baby-Sitters Club® by Ann Martin. Looking ahead, we are excited about the next title in Dav Pilkey’s Dog Man® series, as well as other frontlist titles publishing this year. Following the success of the live-action Goosebumps® TV debut last fall, based upon R.L. Stine’s worldwide bestselling Scholastic book series and co-produced by Scholastic Entertainment, Disney announced it has greenlit a second season of the hit series for Disney+®. 

“We are thrilled to significantly broaden the scope of our 360° content creation strategy, which taps the virtuous circle from page to screen back to page, with our recently announced agreement to invest in 9 Story Media Group, acquiring 100% of the economic interest in the company. This strategic investment in a leading creator, producer and distributor of premium animated and live-action children’s content significantly grows Scholastic’s footprint in children’s media as well as opportunities to build and monetize Scholastic’s trusted global brand, best-selling publishing and unique distribution channels, reaching kids where they are and creating more value for our shareholders."

“In line with our expectations, Scholastic experienced modest revenue declines and higher losses in our seasonally small third quarter, reflecting the continued impact of the currently complex environment in U.S. schools on our School Reading Events and Education divisions. During the quarter, Scholastic returned over $60 million to shareholders through repurchases and our regular dividend, demonstrating our confidence in the business. As we begin our largest and most profitable quarter of the year with strong expectations, we are affirming our revised fiscal 2024 guidance. Scholastic remains committed to executing on our long-term strategy, investing in content and capabilities to drive growth, maintaining a strong, efficient balance sheet, and returning capital to shareholders, as we build on our unique strengths as the world’s largest and most trusted publisher and distributor of children’s books and media.”

Revenues were approximately level in the quarter at $323.7 million, a decrease of $1.2 million from $324.9 million in the prior year. Lower U.S. Book Clubs revenues of approximately $14.4 million related to the strategic repositioning of the business, were offset by strong trade publishing revenues in the U.S., Canada and the UK, which benefited from the sales of popular book series titles. 

Operating loss increased 26.0% to $34.9 million in the quarter, including one-time items of $4.3 million, compared to $27.7 million a year ago, as anticipated. Excluding one-time items in the current period, operating loss increased 10%, reflecting higher spending on growth initiatives, partly offset by increased profitability from higher trade revenues, favorable freight costs in the U.S. markets and lower promotion costs in book clubs. Adjusted EBITDA (a non-GAAP measure of operations explained in the accompanying tables) decreased $1.8 million to a loss of $7.2 million.

Quarterly Results

Children’s Book Publishing and Distribution

In the fiscal third quarter, the Children’s Book Publishing and Distribution segment’s revenues decreased 5% to $193.6 million.

• Book Fairs revenues were $102.7 million, down slightly from the prior year period. The third fiscal quarter is a seasonally smaller quarter for the U.S. school channels.
• Book Clubs revenues were $13.3 million, a decline of 52% from the prior year period reflecting the impact of lower planned promotional spending on unprofitable offers.
• Consolidated Trade revenues were $77.6 million, up 7% from the prior year period primarily due to the continued positive impact from backlist sales from bestselling series like Hunger Games® and Five Nights at Freddy’sTM. New releases in popular graphic novel series as well as new titles from proven Scholastic authors drove improved frontlist sales. This was partially offset by lower revenues from the prior year delivery of the animated TV show "Eva the Owlet"TM based on the Owl DiariesTM book series.

Adjusted segment operating income was $2.7 million, excluding $3.5 million in one-time charges, compared to $1.9 million in the prior period, primarily related to lower freight costs and promotional spending. 

Education Solutions

Education Solutions revenues were $68.5 million, a slight decrease from the prior year period, reflecting lower sales of supplemental instructional materials partially offset by higher state-sponsored program revenues.

Segment operating loss was $0.8 million, compared to operating income of $0.7 million in the prior period. The decrease was primarily due the on-going impact of increased spending on growth initiatives, partially offset by lower promotional spending.

International

Excluding the impact of foreign currency exchange, which on a net basis was insignificant for the quarter, International revenues increased 16% or $8.2 million as trade channel revenues in Canada and the U.K. improved on the strong performance of series titles including Hunger Games, Heartstopper, Five Nights at Freddy’s and Dog Man. Canada’s Book Fairs channel experienced increased fair count and improved revenue per fair, and India continued to experience modest growth.

Segment operating loss was $5.9 million, compared to $9.0 million in the prior period. The improvement was primarily driven by higher sales.

Overhead

Adjusted overhead costs were $26.6 million, excluding $0.8 million in one-time charges, compared to $21.3 million in the prior period. This increase primarily reflects favorable litigation settlements and certain legacy sales tax items, both of which benefited the prior year, partially offset by higher rental income.

Net cash provided by operating activities increased $5.5 million compared to the prior period, primarily driven by lower inventory purchasing and working capital usage, partially offset by lower customer remittances. Lower inventory spend reflects lower freight and manufacturing costs in addition to lower purchased quantities. Free cash flow use (a non-GAAP measure of operations explained in the accompanying tables) was $7.1 million in fiscal 2024, compared to free cash flow use of $11.9 million in the prior period, reflecting the lower working capital usage.

The Company distributed $6.1 million in dividends and repurchased 1,404,716 shares of its common stock for $54.2 million in the third quarter. 

The Company’s Board of Directors has authorized an additional $54.6 million for repurchases of its common stock under the Company’s stock repurchase program, increasing the authorization to $100.0 million. The Company expects to continue purchasing shares, from time to time as conditions allow, on the open market or in negotiated private transactions for the foreseeable future.