With most of the numbers in for 2007 (and for fiscal 2008), it's obvious that the last year was a tough one for bookstores, a decent one for educational publishers and a mixed one for trade houses. Borders had the most difficult year among the retailer group, as a series of one-time charges resulted in a second consecutive year of steep losses. While the chain eked out operating income of $6.6 million, Borders had a loss from continuing operations of $18.5 million, plus losses from discounted operations (its U.K. bookstore group, which it sold in the year) of $13.2 million and a $125.7 million loss on the sale of the U.K. group. By comparison, Barnes & Noble's one percentage point drop doesn't look so bad. The margin decline was due in part to the implementation of B&N's new membership program in October 2006, which gave extra discounts to members and deep discounts on Harry Potter and the Deathly Hallows. In addition, higher legal costs added to slightly higher selling and administrative costs in the year. The decrease at Books-A-Million was primarily the result of higher occupancy and warehouse costs. Audible finished its last year as an independent company with a $3.7 million operating loss.

While all the trade publishers were profitable last year, margins fell at three companies and rose at five. Scholastic's margin reflects operating income before a $133 million charge for discontinued operations, which resulted in a net loss for the year of $22.4 million. Scholastic took the write-down to account for the sale of its direct-to-home continuities business and the closure of its schools continuities business. After a dramatic fall in 2006, Harlequin managed to improve its margins in 2007, due in part to a 2006 restructuring that lowered overhead costs in 2007. Still, Harlequin was well short of the 18.1% operating margin it posted in 2005. With Random House's EBIT (earnings before interest and taxes) declining less than its drop in revenue last year, its margin increased by one-tenth of a percentage point in 2007. The slight decline in HarperCollins's margin was due to increased distribution, royalty and printing costs. HC parent company News Corp. noted that last year's 3% sales increase was primarily due to distribution revenue from its part in fulfilling orders of Deathly Hallows as well as adding Hyperion to its distribution ranks.

Increased sales, particularly in the elhi segment, helped to lift margins at the educational publishers, and educational publishing remained the most profitable part of the industry. The newest player in the segment, Cengage, was formed last year through the acquisition of Thomson Learning. Figures are for only nine months ended March 31, and while the company had operating profit of $194 million, interest expenses of $415 million associated with the purchase resulted in a net loss of $217 million for the nine-month period.

Revenue Op. Income Margin Margin 2006
Retailers
Audible $108.2 ($3.7)
Barnes & Noble 5,410.8 208.1 3.8% 4.8%
Borders Group** 3,774.5 6.6 0.1
Books-A-Million 535.1 27.4 5.1 5.8
Trade Publishers
Courier Specialty Publishing*1 $72.9 $5.2 7.1 10.6
EDC 30.5 3.7 12.1 12.4
Harlequin* C$462.7 C$60.6 13.1 11.9
HarperCollins*2 1,388.0 160.0 11.5 11.9
Penguin Group* £846.0 £74.0 8.7 7.8
Random House* €1,847.0 €173.0 9.4 9.3
Scholastic**3 2,205.6 206.7 9.4 7.5
Simon & Schuster* 886.1 80.1 9.9 8.5
Educational Publishers
Cengage4 $1,413.9 $194.0 13.7 NA
Harcourt* £752.0 £121.0 16.1 14.5
McGraw-Hill Ed* 2,705.9 400.0 14.8 13.0
Pearson Education* 2,684.0 404.0 15.0 14.8
John Wiley5 1,673.7 223.0 13.3 13.1
1) For fiscal years ended Sept. 30, 2006, 2007. Includes Dover, Creative Homeowner, REA.
2) For fiscal years ended June 30, 2007, 2008.
3) For fiscal years ended May 31, 2007, 2008.
4) For nine months ended March 31.
5) For fiscal years ended April 30, 2007, 2008.
*Denotes companies where corporate expenses have not been deducted from operating income. **Results in 2006 have been restated.