Higher-than-expected sales of Harry Potter titles plus approximately $20 million in savings from cost reduction programs resulted in Scholastic beating analysts' earnings expectations for the company for the second quarter ended November 30, 2001. Total revenues in the period fell 4.6%, to $637.2 million, but net income rose 18.1%, to $66.5 million. As a result of the strong showing, Scholastic raised its earnings-per-share estimate for the full year to $2.45 to $2.55 per share, compared to its original estimate of $2.35 to $2.50 per share.
Scholastic chairman Dick Robinson said a key to the second quarter was the strong performance of the children's book publishing and distribution group. Although sales fell 4%, to $426.8 million, and operating income was down to $103 million, from $113 million, the group finished the quarter above expectations. Harry Potter books generated sales of $40 million in the quarter, and sales of Captain Underpants and Clifford titles were up. Book club orders were up 4% and revenue per order was up 2%, while book fair revenue rose 13%, reflecting more fairs and higher revenues per fair as well as results from the Troll fairs acquired last year. During the quarter, Scholastic launched its Club Ordering Online (COOL) program to a limited number of teachers; the service generated 46,000 orders and $1.8 million, and Scholastic will offer the service to all its customers by the end of January. Robinson said Scholastic's boutiques at 750 Toys "R" Us stores have done very well and the company is doubling the number of SKUs available through the outlets.
Sales in the educational group slipped 2%, to $73.7 million, but the group had an operating profit of $11 million, compared to an operating loss of $4 million in the second quarter of fiscal 2001. The improved profitability was due to lower costs associated with Scholastic's decision to not update its basal reading program and to focus on reading improvement and intervention. During the conference call with analysts, Robinson announced that Margery Mayer, executive v-p for learning ventures, will assume the leadership role for all of Scholastic's educational programs, succeeding Julie McGee, who joined McGraw-Hill last month (News, Dec. 3).
In the international segment, sales fell to $89.5 million from $94 million, and operating income was $9 million compared to $11 million. Lower sales to Canada, which benefited from Harry Potter books in last year's second period, were somewhat offset by higher sales in Australia. Robinson said he sees lots of room for international expansion, citing as an example the growing demand for English-language materials in Asia.
Sales in the media, licensing and advertising group fell 10% in the quarter, to $47.2 million, and the division finished at breakeven.
For the first six months of the year, total revenues fell 8.5%, to $943.3 million, and net income dropped 35.4%, to $29.5 million. Robinson said that with the "challenging" first half comparisons behind the company, he is looking forward to "renewed sales growth as well as continued margin and profit improvement in the second half."
