In order to meet its objective of achieving a 10% operating margin by fiscal 2002, Scholastic has announced a two-year cost-reduction program that it expects will reduce expenses by a total of $30 million. The company plans to improve its margins by lowering printing, telecommunications and shipping costs and improving productivity at its national distribution center. Scholastic has already closed an unprofitable U.K.- based Party Plan unit. In addition, Scholastic plans to reduce overhead costs as a percentage of revenues in its U.S. and international operations by increasing sales faster than expenses. "There are no plans for layoffs," Ray Marchuk, director of investor relations, said.
The cost-cutting announcement accompanied the release of Scholastic's first-quarter results; the quarter saw revenues rise 20% to $180 million, while the company's net loss increased to $23.6 million from $17.5 million. The gain in revenues was led by the children's book publishing and distribution segment, where sales rose 68% to $79.2 million. The children's segment benefited from strong sales of Harry Potter titles as well as higher sales from such series as Animorphs, Pokémon and Everworld. Educational publishing sales fell 12% to $55.8 million, due to the absence of reading revenues that were generated last year by the California reading adoption.
The company reported that the larger net loss reflected higher costs devoted to supporting its participation in the upcoming Texas reading adoption as well as higher promotion costs for its book club and book fair operations. In addition, Scholastic continued to invest in the revamping of its Internet site, which it expects to relaunch on November 1.
