Scholastic Reports Fourth Quarter and Fiscal 2023 Results

Fourth Quarter Operating Income Up 40% Driven by Improved Results in All Segments

Fiscal 2023 Results Meet or Exceed Company’s Revised Guidance

Board Approves $100 Million Increase in Share Repurchase Authorization, After Company Returns Over $160 Million to Shareholders in Fiscal Year

New York – July 20, 2023 – Scholastic Corporation (NASDAQ: SCHL), the global children’s publishing, education and media company, today reported financial results for the Company’s fiscal fourth quarter and full year ended May 31, 2023. 

Peter Warwick, President and Chief Executive Officer, said, “Scholastic finished fiscal 2023 strongly, with fourth quarter operating income up significantly from last year’s record level and full year results meeting or exceeding revised guidance. Successful performance management in response to this year’s short-term headwinds, plus the continued benefit of operational efficiencies achieved since the pandemic, contributed to higher margins and profits across all business segments. Last quarter we also continued our investments in long-term drivers of Scholastic’s growth and earnings, while returning over $63 million to shareholders through our dividend and share repurchases. In total in fiscal 2023, the Company returned $161 million to shareholders.

“Our Children’s Books segment continued to perform well in Q4. Segment sales grew 5%, outperforming continuing softness in retail, and profitability rose substantially, driven by operational excellence and operating leverage in Book Fairs. Multiple Scholastic titles, including the latest Dog Man® title, also ranked at the top of children’s bestseller lists during the quarter. Education Solutions also delivered higher sales and substantially improved margins last quarter, demonstrating the growing size and contribution of our summer reading business, even as some schools and districts continued to delay purchases of other supplemental programs.

“Looking ahead, we are committed to protecting margins and sustaining growth in fiscal 2024, as we execute a multi-year plan for growth, impact and shareholder value creation. Having combined our Book Fairs and Clubs channels into an integrated School Reading Events business last month, we are now in the process of executing against multiple opportunities to grow Scholastic's reach, serve our customers better and improve efficiencies within Children’s Books. In Education Solutions we will continue to invest in new products and capabilities to grow our blended literacy solutions, as we maximize the value of our unique content offerings. We also remain focused on using our strong balance sheet and free cash flow outlook to enable growth and enhance shareholder returns.

“For more than 100 years Scholastic has been guided by a truth that is more relevant today than ever: all children need access to books, stories and the power of reading to understand the world around them and themselves. I am deeply proud of the work Scholastic and its employees are doing to serve kids – and the families, teachers and educators that tirelessly support them – while also creating long-term value for our shareholders and other stakeholders.”   

Outlook 

The Company expects fiscal 2024 revenue growth of 3% to 5% and is targeting Adjusted EBITDA (as defined in the accompanying tables) of $190 to $200 million, excluding the impact of one-time charges related to restructuring and cost-savings activities of approximately $7 to $10 million, including the integration of its School Reading Events division and reorganization of its Canada subsidiary, expected in the first and second quarters. In addition to focusing on protecting margins and sustaining growth in fiscal 2024, the Company is executing a longer-term strategy to drive growth, impact and shareholder value creation.

Fiscal 2023 Q4 Review

Revenues increased 3% to $528.3 million primarily driven by growth in the Children’s Book Publishing and Distribution segment, on higher fair count and revenue per fair in the Book Fairs channel. The Education Solutions segment outpaced a strong prior year period due, in part, to strong sales of summer reading programs and strength in state-sponsored programs. Lower International revenues reflected the negative impact of foreign currency exchange and the disposition of the unprofitable direct sales business earlier in the fiscal year, partially offset by higher international Book Fairs revenues and a modest recovery in Asia. 

Operating Income increased 40% to $92.0 million in the quarter, while Adjusted EBITDA (a non-GAAP measure of operations explained in the accompanying tables) increased 30% to $115.0 million. These results primarily reflect higher contribution from the Children’s Book Publishing and Distribution segment, driven primarily by higher revenue and operating leverage in Book Fairs, and in Education Solutions, where profits improved on higher revenues, favorable product mix and lower marketing spend. 

Quarterly Results

Children’s Book Publishing and Distribution

In the fiscal fourth quarter, the Children’s Book Publishing and Distribution segment’s revenues increased 5% to $291.0 million.

• Book Fairs revenues increased 12% to $180.5 million on increased fair count, which ended the year at approximately 85% of pre-pandemic levels compared to 72% in the prior fiscal year. Historically high revenue per fair also contributed to strong growth, driven by strong participation and successful customer-focused strategies.

• Book Clubs revenues decreased 4% to $26.2 million on lower revenue per order and lower sponsor participation. To address the continued decline, the Company has combined the U.S.-based Book Clubs and Book Fairs businesses into an integrated School Reading Events business effective June 1, 2023. The integration is expected to create synergies in customers and operations to result in additional opportunities and improved efficiencies.

• Trade revenues decreased 5% to $84.3 million in line with softness in the overall retail market. This was partially offset by revenues from the release of Eva the Owlet® on Apple TV+® and multiple frontlist bestsellers, including the latest in Dav Pilkey’s Dog Man® series.

Operating income increased 25% to $58.4 million, as the segment benefited from the improved and higher profitability of Book Fairs, partially offset by short-term retail market trends and cost pressures on the current Book Club model.

Education Solutions

Education Solutions segment revenues increased 4% to $163.4 million, driven by higher demand for the Company’s summer reading programs and state-sponsored programs, partially offsetting lower demand for supplemental instructional products. 

Operating income increased 20% to $55.0 million, as the segment benefited from higher revenues and the timing of marketing costs.  

International

International revenues declined 8%, reflecting the $4.7 million year-over-year impact of unfavorable foreign currency exchange and lower revenues of $4.4 million due to the disposition of the direct sales business in Asia. Excluding these factors, International revenues increased 3% or $2.6 million compared to the prior period. This increase was driven by higher revenues from book fairs in the UK and Canada, as they continued to rebook fairs canceled since the pandemic, and modest recovery of results in Asia. 

Operating income was $2.2 million compared to $1.3 million in the prior year period, which included $0.6 million in one-time items, as the segment benefited from the recovery in Asia as well as the exit from the direct sales business which generated losses in the prior period.

Overhead

Overhead costs decreased $4.8 million to $23.6 million primarily resulting from lower employee-related expenses and ongoing efforts related to the Company’s cost saving initiatives.

Fiscal Year-To-Date 2023 Review

Revenues increased 4% to $1,704.0 million, primarily driven by growth in the Children’s Book Publishing and Distribution segment, on higher fair count and revenue per fair in the Book Fairs channel. The Education Solutions segment revenues were down as schools’ purchasing levels were lower compared to the prior year period, when schools were refilling classrooms with in-person learning materials as pandemic restrictions were fully lifted. In addition, demand for certain of the Company's supplemental instructional products and programs was lower as customer purchasing shifted to the Company's more customized products and blended reading solutions. Lower International revenues reflected the negative impact of foreign currency exchange and the disposition of the unprofitable direct sales business earlier in the fiscal year, partially offset by higher international book fairs revenues as Major Markets continued to recover from the pandemic.

Operating Income increased 9% to $106.3 million, while Adjusted EBITDA (a non-GAAP measure of operations explained in the accompanying tables) increased 4% to $196.3 million. These results primarily reflect higher contribution from the Children’s Book Publishing and Distribution segment, driven by higher revenue and operating leverage in Book Fairs. In addition, the Company realized improved operating margin in Asia attributable to the exit from the direct sales business, which generated losses in the prior year.

Capital Position and Liquidity