Reader's Digest's re-engineering program continues to bear fruit. The company reported late last month that operating profits in its global books and home entertainment segment jumped 138% to $40.9 million for the first quarter of fiscal 2000 that ended September 30, 1999. Revenues in the segment fell 15% to $319.7 million.
RD said the book group's improved profitability was led by its companies in the U.S. and Europe, particularly in Germany and Russia. In the U.S., profits improved because of reductions in costs from fewer mailings and mail quantities as well as to higher responses to Selected Editions mailings. In Germany, improved operating profit reflected strong responses to mailings and a more profitable product mix, while results in Russia benefited from a cutback in operations.
RD chairman Thomas O. Ryder said that the company's restructuring program is ahead of schedule, and noted that the company expects to show "significant" operating profit growth in fiscal 2000. Ryder said that as a result of more modest revenue declines than expected, plus the acquisition of Books Are Fun (News, Sept. 6), RD now believes that revenues for the full year "will be more or less flat compared to last year."
RD closed on its purchase of Books Are Fun last month. According to documents filed with the Securities & Exchange Commission, Books Are Fun had sales of $178 million in 1998 and net income of $13.5 million. RD paid $380 million to acquire the display marketer, which is expected to post total revenues of more than $220 million this year.
As part of its strategy to growth through acquisitions, RD has paid $50 million to acquire an 18% stake in BrandDirect Marketing Inc. Headquartered in Shelton, Conn., BrandDirect is an affinity membership-based direct marketing company. Founded in 1996, BrandDirect has launched 10 membership clubs in which consumers pay an annual membership fee for a range of benefits, including topical information and opportunities to purchase various goods and services at discounted prices.
Tom St. Denis, chairman and CEO of BrandDirect, said his company and RD "have very complementary skills, which can be leveraged to develop large-scale subscription bases for Reader's Digest magazines, books, music and videos." According to RD, initial efforts will focus on creating of membership clubs in the U.S. and will be targeted to RD customers and other databases. The clubs will be marketed through direct mail, telemarketing and the Internet.
