Pandemic losses hit Scholastic despite good trade sales

Pandemic losses hit Scholastic despite good trade sales

Scholastic has reported a 10% revenue drop for the fiscal year to end May 2020, to $1.49bn, with an overall loss of $88.5m, after Covid-19 battered its fourth quarter. 

Revenues plunged 40% year on year in the fourth quarter to $284m, as a result of school closures and the cancellation of book clubs and fairs due to the virus. 

Scholastic made an operating loss of $46.2m in the fourth quarter, which was "directly attributable" to the pandemic, it said. For the full-year, it recorded a loss of $88.5m after operating income fell $113.5m; the loss included a $40m non-cash write down of inventory in the third fiscal quarter, and one-time severance charges of $13.1m. Excluding those one-time items, Scholastic's operating loss for the year stood at $32.3m, compared to operating income of $41m in fiscal year 2019.

The publisher said the school closures in its fourth quarter had affected both the US business and its international revenues. However it said the lost revenues were partially offset by a 45% increase in trade sales, "anchored by a solid frontlist including the widely anticipated The Ballad of Songbirds and Snakes" by Suzanne Collins.

International revenues dropped 39% in the fourth quarter to $57.3m, with full-year revenues down 11% to $324m. International recorded a loss of $9.1m in the fourth quarter, "primarily reflecting the lower sales volumes based on the impact of Covid-19 in Asia, Canada, and the UK", with a loss for the fiscal year of $4.8m, compared to income of $15.3m for the previous year.

The company has now begun implementing a cost-savings programme, intending to cut £100m of expenses in the 2021 fiscal year, with a plan that "focuses mainly on labour-related costs, as well as process improvements," Scholastic said.

Chairman, president and c.e.o. Richard Robinson said: "In the fourth quarter, we took decisive action to mitigate the impact of Covid-19 on our operating income and cash flow, while continuing to support schools, teachers, parents and children as schools were closed in the US and globally.

"Responding to the revenue drop from school closings of $187m, primarily from book clubs and book fairs, we focused on four key areas. First, we successfully drove a 45% increase in trade sales in the quarter, as children who could not access our in-school clubs and fairs found our books in stores and on-line, including favourite series like The Hunger Games, Dog Man, The Baby-Sitters Club, The Bad Guys and Wings of Fire. Second, our new Scholastic Learn at Home hub, a free at-home digital learning tool for pre-K to Grade 6 and up, reached over 20 million families as they looked for support for home learning, paving the way for future revenue opportunities.

"Third, we successfully preserved cash through reducing inventory purchases, cutting capital spending, and suspending our stock buy-back programme. And fourth, we slashed costs by more than $50m in the quarter through closing distribution centres in highly impacted regions, scaling our operations to meet near-term business needs, and reducing labour costs. We ended the fiscal year with a strong balance sheet, with over $175m in net cash and stockholders' equity of approximately $1.2bn."

He continued: "Scholastic has faced many challenges in its 100-year history and we have always emerged better and stronger. More than 90% of U.S. schools use Scholastic's products, and at this time of concern on school openings, we are acquiring information from school districts about starting dates, and whether classes will be in-person, remote, or hybrid. Whatever the format, schools will be able to turn to Scholastic for reading and information to combat children's learning loss. Scholastic is offering digital classroom magazines for use in school and at home, improved online ordering for parents seeking quality inexpensive books through book clubs, and Safe & Easy book fairs, which simplify planning and setup, as well as expanded virtual fairs. In short, we are flexibly modifying our familiar services to meet the needs for books and digital learning, whether in physical or virtual classrooms this fall."