Thomas O. Ryder expects a "very difficult" first half of fiscal 2002 for Reader's Digest. In a conference call with analysts, the RD chairman said that many of the same conditions that resulted in a weak second half of fiscal 2001 ended June 30, including a soft economy and low response rates, would continue into the first six months of the current year.
"Our number one problem is sweepstakes," Ryder said, noting that in developing new promotions that meet the sweepstakes guidelines established by various attorneys general (News, Mar. 19), response rates have fallen in all its core businesses, including its North American Books and Home Entertainment group (BHE). The changes to the sweepstakes promotions had more of a negative impact than expected, Ryder acknowledged. To help improve results, RD is testing new sweepstakes campaigns, while also developing new marketing efforts to lessen its dependence on sweepstakes. Among the new marketing initiatives is an expanded telemarketing program, which Ryder estimated could account for 15% of the BHE group's revenues in fiscal 2002.
In the last fiscal year, operating profit in the BHE group fell 21%, to $70.9 million, while revenues rose 2%, to $719 million. (Fiscal 2001 is the first time RD has separated North American book and home entertainment results from worldwide results.) Revenues were up for the BHE's Books Are Fun division, and also rose in the group's Young Families, reading and music series. Virtually all product categories posted gains in Canada. Sales were down in the video and general book segments as well as in Select Editions and single-sales music. On the profit side, Ryder said that the group's one-shot general books and video products had a "substantial loss" in the year. As a result, RD will do only four mailings for its general books this year, compared to seven in fiscal 2001. RD will do "more series, less one-shots," Ryder added.
The weak end to fiscal '01 has also accelerated RD's re-engineering plans, which Ryder hopes will save the company $25 million this year and a total of $150 million over the next three years. One result of the re-engineering program will be a smaller North American BHE group, Ryder said, although he provided no new details about the restructuring that was announced in July (News, July 30). BHE is now divided into six operating units, including trade publishing, which is led by Harold Clarke, and Young Families, which is run by Heather Burgett.
Ryder was particularly excited about the growth prospects for Young Families, Books Are Fun and Select Editions ("our most profitable" program). Books Are Fun has been successfully tested in Mexico, and tests are just beginning in France; tests are also planned for several other European countries, Ryder said. Young Families, which has doubled in size over the last two years, will be moved into a "stunning number of countries," Ryder told analysts. The company has found a large number of outside lists that could bring as many as 1.5 million new "starts" to Select Editions, Ryder said. Select Editions titles are now available in paperback, and new series in such areas as mystery, romance and history are being developed.
One casualty of RD's poor performance was George Scimone, who resigned last week as the company's chief financial officer. Scimone was replaced by Michael Geltzeiler, who had been senior v-p and CFO at ACNielsen.
