A $118 million decline—to $82 million—in Harry Potter sales and lower sales in its Literary Place basal reading program, which the company is phasing out, resulted in a 2.3% decline in total revenues, to $1.92 billion, at Scholastic for the fiscal year ended May 31, 2002. But with $45 million in cost reductions, earnings at the company improved, with net income rising to $94.3 million from $36.3 million (excluding extraordinary items in both fiscal 2001 and 2002, net income increased 18.3%, to $98.1 million).
In the Scholastic unit most affected by Potter's absence, the children's book publishing and distribution group, revenues fell 4.3%, to $1.17 billion. The division was able to partially offset the loss in Potter sales through a 9% increase in book club sales and an 18% gain in book fair revenues. The fourth-quarter acquisition of Klutz added $5.6 million to revenues. Scholastic attributed the improved book club performance to more orders and higher revenue per order, while book fairs benefited from last year's purchase of the Troll fairs, more fairs (104,000) and higher orders per fair. Sales in the home book club unit fell 7%, although profit rose by 50%.
Revenues in the educational publishing group rose 2%, to $315.4 million, led by a 14% sales increase in supplementary reading programs and a better-than-expected sales performance by Literary Place. The January purchase of Tom Snyder Productions added $3 million to sales. The company said the education group recorded $40 million in technology-related products sales last year, a figure it anticipates will steadily grow over the next several years.
Revenues in the media and licensing group fell 2.4%, to $131.2 million, due to fewer new episodes of Clifford, although the unit's operating loss was cut to $15.6 million from $23.5 million because of a reduction in Internet spending. Revenues in the international group rose 1.8%, to $301.7 million, and operating income increased 5%, to $20.2 million. Gains in Canada, Australia and Southeast Asia offset declines in the U.K. and in exports.
Where's Harry?
Scholastic projected that sales growth for fiscal 2003 will range from 8% to 14%, with the variable being the release date of the fifth volume of Harry Potter. Both Scholastic chairman Dick Robinson and children's book group president Barbara Marcus said they expect the book to be published in the fourth quarter of fiscal 2003, which would put the release in March, April or May, although neither said that was a firm date. Robinson said it would take Scholastic about five or six months to release the title once it received the manuscript. Marcus estimated that sales in her group would increase between the high single digits and low teens, depending on when Potter V is published. Growth in book clubs is expected in the mid-single digits, while book fair growth is targeted in the low-double-digit range. A full year of sales from Klutz is expected to add $30 million to the children's book group revenues in fiscal 2003 and Marcus said the company plans to aggressively expand its sales through mass merchandisers and warehouse clubs, particularly next spring, when it steps up its licensed coloring and activity books publishing program.
In Scholastic's other groups, mid-single-digit growth is expected for the educational publishing division, while the international group is looking for high-single-digit growth. Modest growth is projected for the media and licensing division.
Fiscal 2003's bottom line will benefit from another $30 million in cost reductions planned for the year. The largest savings will come from purchasing, where Scholastic expects to save $13 million by dealing with fewer vendors. Another $3 million in savings is projected from the company's new forecasting system, which is expected to reduce inventory costs. Cost savings will be partially offset by higher postage and insurance costs.
