Scholastic Turns A Profit

Having spent two years restructuring its operations, including eliminating 500 positions in fiscal 2009, Scholastic reported its first net income in three years in the fiscal year ended May 31, 2010, with net earnings of $56.1 million compared to a net loss of $14.3 million in fiscal 2009. Company sales rose 3%, to $1.91 billion, driven by strong gains in the educational publishing group and a modest increase in international sales. Sales in the children's book publishing and distribution group fell 3%, to $910.6 million. Within the group, book club sales fell because of weak winter and fall results, while trade sales declined because of strong sales of The Tales of Beedle the Bard in fiscal 2009, which added $25 million to revenue. Chairman Dick Robinson called fiscal 2009 "a strong year both financially and strategically."

Company executives, led by Robinson, stressed in a conference call discussing results that the goal in fiscal 2011 is to hold on to the $100 million increase in revenue generated by the education group in fiscal 2010 and to invest $20 million in new digital initiatives for the children's book publishing and distribution group. Although he was bullish on prospects for that group, Robinson said trade sales are expected to fall slightly in 2011 since there is only one new book in the bestselling series 39 Clues being released this year. Book club sales are expected to increase because of new marketing programs, while fair sales are projected to rise slightly.

Judy Newman, president of Scholastic Book Clubs and E-Commerce, spent the conference call providing a few details on Scholastic's plans to roll out an updated COOL (Club Ordering Online) program and a fledgling e-book platform. The new COOL will add the ability for parents, in addition to teachers, to order books directly from the publisher. The more ambitious initiative is the development of a proprietary e-reading platform that will sell children's e-books from Scholastic and other publishers. Newman said they expect to begin the pilot test for the program by the end of the calendar year. The service will feature proprietary e-reading software that initially will be able to be downloaded to PCs, followed by Macintosh, and "ultimately every device," Newman said. The program will begin with 2,000 "carefully curated" titles, and Scholastic will experiment with various prices, Newman said. Robinson said that while Scholastic intends to "provide value" in the new e-book service, the company wants to guard against "undercutting" its print offerings. Most titles will be straight e-book editions of print books, but there could be some enhanced e-books and at some point original e-books, Newman said.

While it undergoes testing, Scholastic does not expect the e-book program to generate meaningful revenue in the current fiscal year.

Scholastic Results