Scholastic reported that total revenues for the first quarter ended August 31 were $306.9 million, virtually flat with sales of $306.1 million in last year's first period. Excluding one-time charges, the company had a net loss of $43.4 million in the quarter, up from a loss of $31.8 million in fiscal 2002. Company president Dick Robinson said results in the quarter were in line with expectations and that Scholastic expects earning per share for the year to be in the $2.65 to $2.95 range.
Robinson said that the reason for the wide earnings forecast is that Scholastic is still not sure if it will publish the fifth Harry Potter book, Harry Potter and the Order of the Phoenix, before its fiscal year ends May 31, 2003. The company announced that it has signed a contract with J.K. Rowling to publish the next Potter title in the U.S. Although Scholastic has published the first four Potter books and was considered the de facto publisher for number five, it had no contract with Rowling for the book. Barbara Marcus, president of the children's book publishing and distribution group, told analysts, "As soon as we get delivery [of Order of the Phoenix], we'll let you know our publishing plans."
For the first quarter, revenues in Scholastic's book publishing and distribution segment slipped to $140.2 million from $141.1 million in the year-ago period. Klutz, acquired in the fourth quarter of fiscal 2002, added $11 million to sales, partially offsetting a $6.3 million decline in the direct-to-home continuities business. Revenues from Potter books were about $15 million, the same level as in the comparable period in fiscal 2002. Orders from book clubs and book fairs are on track, and Robinson noted that 15% of club orders came via the Internet in the quarter.
In its other segments, revenues fell to $88 million from $91.7 million in the educational publishing division. Sales of Read 180, Scholastic's reading intervention program, rose by $9 million in the quarter, offsetting a decline in revenues from Scholastic Literary Place. Sales in the media, licensing and advertising division fell to $17.1 million from $18.3 million, due mainly to lower magazine advertising. Robinson said that in the quarter, Scholastic reached an agreement to produce Clifford's Puppy Days for broadcast on PBS Kids in late 2003 or early 2004. In November, the first of 26 I Spy shows will begin airing on HBO Family.
International sales rose to $61.6 million from $55 million, reflecting a turnaround in the U.K. operation as well as growth in Australia and Canada.
Results for the company's first quarter include a $1.9-million charge related to a settlement in connection with a class action lawsuit filed in 1997. The suit, filed by a group of shareholders, charged that Scholastic had concealed a decline in Goosebumps sales and an increase in returns. In announcing the settlement, Charles Deull, v-p and general counsel, said, "Scholastic acted appropriately at all times in this matter: however, we believe it is prudent to settle this case and to put the matter behind us." The total settlement was for $7.5 million, but the company's insurers will pay 75% of the total cost.
New Spanish Chief
Asked about Scholastic's experience with Spanish-language books, Robinson said sales through its school clubs continue to increase and that the company has appointed Mauricio Sabene to the newly created position of v-p of Spanish publishing. Sabene, who has held executive positions for Avon Products in Mexico and Argentina, will be in charge of all Scholastic's Spanish-language publishing operations including its units in Mexico, Argentina and Puerto Rico as well as Lectorum. He will be based in New York and report to Hugh Roome, president of Scholastic's international group.
