Sales at the Penguin Group fell 7% in the first six months of 2011, dropping to 457 million pounds ($751 million), while operating profit fell from 44 million pounds to 42 million pounds ($69 million). Penguin Group chairman John Makinson noted that the 2011 results include the negative impact of foreign exchange as well as adjustments in the way results from Canada and Australia are now reported. Excluding those factors, revenue was flat with the first half of 2010 and profits were up 13%. The publisher’s operating margin improved slightly, rising to 9.2% from 8.9%, something that Makinson was particularly pleased about given the disruptions in the retail market in both the U.S. and Australia. “Worldwide, Penguin turned in a very competitive performance,” Makinson noted.
Penguin Group USA CEO David Shanks said the disintegration of Borders was a distraction in the first half of 2011, particularly in the second quarter when it became difficult to figure out how to supply the chain. E-book sales helped to offset some of the Borders sales loss, with e-book sales doubling in the U.S. and increasing 128% worldwide; e-books represented 14% of Penguin’s global revenue.
Both Makinson and Shanks touted the strength of Penguin’s children’s operations. “Penguin’s children’s publishing is firing on all cylinders around the world,” Makinson said. Shanks said that under Don Weisberg and his team, Penguin’s children’s groups is “seeing projects we’ve never seen before.” And while the children’s group did well in the U.S., the adult group also had a strong performance, especially compared to how well it did last year, Shanks said. In addition to strong results from hardcover imprints like the Penguin Press and Riverhead, Shanks said its mass market imprints continued to be an important business for the company, helping to develop and grow new authors.
Shanks and Makinson were both confident that Penguin is well positioned for the remainder of the year, predicting that Penguin will perform in line with overall trade market. How the industry will perform, however, is difficult to read due to the uncertainties in the retail market and continuing questions of how the digital transition will play out. Shanks expects the Borders going-out-of business sales to put a drag on sales growth for at least the remainder of the summer. In the long run, however, he believes most Borders customers will turn to other outlets to buy reading material. Penguin is actively urging mass merchandisers and warehouse clubs to expand their book sections. “This is a great opportunity for them to pick up more sales,” Shanks said about those channels. And in both the U.S. and other markets, Penguin will be expanding its direct-to-consumer efforts. Shanks is hopeful that Bookish will launch in the fall, giving consumers another online alternative to buy books, and a similar venture, aNobii, is being launched in the U.K. While Penguin will continue to add more digital products and processes, Shanks reiterated the importance of physical books. “Print books are a long way from being out,” he said, “the industry in 2011 is not going to survive by e-books alone.”
