A strong showing by Scholastic's educational publishing division helped to offset weaker performances in the company's other segments, resulting in a 9% increase in net income for the second quarter ended November 30, to $72.7 million. Sales fell 2%, to $683.3 million.
Sales in Scholastic's children's book publishing and distribution group fell 6% in the quarter, to $425 million, but operating income rose 2%, to $95.7 million. Without a new Harry Potter, sales in the group's trade division fell to $49 million from $53 million, but profits rose. Double-digit growth in non-Harry Potter sales, led by backlist sales and such frontlist titles as Dragonrider, Goodnight My Angel and Shark Tale, helped to limited the decline in trade book sales. (Potter sales were below $5 million in the quarter). A similar trend was seen in book clubs, where sales droped 3%, to $173 million, but profits increased. Sales also fell in the continuities segment, down by $21.2 million, but earnings improved because of improved bad debt and higher pay rates. Book fair sales rose 4%, to $147 million, but earnings declined.
In the education group, sales rose 8%, to $94.5 million, and operating earnings jumped 55%, to $20.6 million. The segment benefited from strong sales of educational technology, including its Read 180 program, as well as from election-year growth in classroom magazines and better results from its library publishing unit.
The international group had a soft quarter, with sales rising 1%, to $116.2 million, due entirely to $7 million in foreign exchange benefits. Profits fell 10%, to $19.2 million. Scholastic attributed the sluggish performance to lower exports, which last year included a major sale to Department of Defense schools. Profits were up in Australia, the U.K. and Asia.
In the media/licensing/advertising group, profits rose 7%, to $3.2 million, on a 3% sales gain, to $47.6 million.
For the first six months of the year, total company revenue was down 14%, to $1 billion, and net earnings dropped 47%, to $22.4 million. In a conference call with investors, Scholastic chairman Dick Robinson said the company had achieved its number one priority in the quarter—improved profitability. CFO Mary Winston said improved cost controls and lower bad debt should result in a lower loss in the third quarter compared to last year's third period, and a more profitable fourth quarter. She said the company is on track to generate revenue of $2.1 billion for the full year, compared to sales of $2.23 billion in fiscal '04, while margins will improve. Robinson added that he expects sales to begin growing again in fiscal 2006.
Regarding the release of a next Potter book, Scholastic's Barbara Marcus said that while J.K. Rowling "has been talking about it," no publishing date has been set.
