News

Scholastic Sales Surge Continues
Jim Milliot -- 1/1/01
Company raises earnings forecast, sees higher operating margins



While many companies are lowering their sales and earnings estimates as the economy slows, Scholastic told analysts in mid-December that based on an unexpectedly strong first half of the year it was raising its earnings projections for the fiscal year ending May 31, 2001, to a range of $4.40-$4.45 per share from earlier estimates of $4.10-$4.25. The company also raised its expected operating margin level to between 8.5% and 9.0%, and, in a final show of financial strength, said it will implement a two-for-one stock split on January 16.

Total revenues in the second quarter ended November 30, 2000, climbed 31%, to $668.3 million, while net income rose 36%, to $56.3 million. All four of Scholastic's operating segments--children's book publishing and distribution, educational publishing, media, licensing and advertising, and international--had sales gains of at least 27% in the quarter, increases that were helped in part by the inclusion of the recently acquired Grolier Inc.

Although revenues in the children's book publishing segment rose a comparatively modest 27%, executives said they were extremely pleased with the performance, since last year's second quarter benefited from strong sales of Pokémon product. The sell-through of Harry Potter and the Goblet of Fire was higher than expected in the most recent quarter, and the group gained $65.8 million in revenue from Grolier's home book club business. Group executive v-p Barbara Marcus said that sales of Clifford books were up 50% in the period due to the launch of the new Clifford series on PBS in September. Marcus also noted that sales of the first two Potter hardcover titles continued to enjoy strong sales despite the release of paperback editions. Chief financial officer Kevin McEnery projected that trade sales will increase 25% in fiscal 2001, and that Potter titles will represent 10% of total company revenues compared to 6% last year.

In addition to revenue growth in fiscal 2001, Scholastic executives said cost savings initiatives will also contribute to margin improvement. McEnery said the company is on track to realize savings of $20 million over the next two years through the integration of Grolier. Approximately 300 Grolier positions have been eliminated (including 60 open slots that won't be filled), mostly in the telemarketing and corporate service areas. Scholastic chairman Dick Robinson said he d s not expect any more major reductions in Grolier staff. Scholastic also expects to save another $15 million by improving operating efficiency.

Looking to fiscal 2002, Scholastic said it is forecasting margins to improve to 9.0%- 9.5% even if there is no new Potter hardcover. Although revenue growth in fiscal '02 is projected to be modest, Scholastic believes it can cut another $25 million in costs that year through a variety of initiatives.

For the first half of the current year, net income jumped 158%, to $45.7 million, on a 49% revenue gain to $1.03 billion.

New Role for Roome
Effective March 1, 2001, Hugh Roome, Scholastic executive v-p who has directed the company's magazine division, will take over the publisher's international group. Roome, who will succeed the retiring David Walsh, will report to Robinson. In his new role, Roome will be responsible for all of Scholastic's operations outside of the U.S., including Grolier's international units. Roome will continue to oversee consumer magazines, while the professional publications are moved to the newly consolidated educational publishing division headed by Julie McGee.