Scholastic (NASDAQ:SCHL) Corporation reported its first-quarter fiscal 2025 earnings, revealing a significant miss on earnings per share (EPS) compared to analyst forecasts. The company posted an EPS of $1.82, falling short of the $2.93 forecast. Revenue also missed expectations, coming in at $544.6 million against a forecast of $587.06 million. Following the announcement, Scholastic's stock fell sharply in aftermarket trading, dropping 9.82% to $22.40.
Key Takeaways
- Scholastic's Q1 EPS and revenue fell short of analyst expectations.
- The stock dropped nearly 10% in after-hours trading.
- The company highlighted improved operating loss and EBITDA figures year-over-year.
Company Performance
Scholastic reported a 4% year-over-year increase in revenue, reaching $237.2 million for the first quarter. The company also saw improvements in its seasonal operating loss, which decreased to $85.6 million from $92.8 million last year. Despite these gains, the company faced challenges meeting market expectations, which impacted investor sentiment negatively.
Financial Highlights
- Revenue: $237.2 million, up 4% year-over-year.
- Net Loss: $60.3 million, translating to $2.13 per diluted share.
- Operating Loss: $85.6 million, improved from $92.8 million.
- Adjusted EBITDA Loss: $60.5 million, improved from $70.6 million.
Earnings vs. Forecast
Scholastic's EPS of $1.82 missed the forecast of $2.93 by approximately 38%. Revenue came in at $544.6 million, below the expected $587.06 million. This marks a notable deviation from prior quarters where the company met or exceeded expectations. This significant miss likely contributed to the negative market reaction.
Market Reaction
Following the earnings release, Scholastic's stock dropped 9.82% in aftermarket trading, closing at $22.40. This decline positions the stock closer to its 52-week low of $23.69, reflecting investor disappointment. The broader market trends have been relatively stable, suggesting the decline was specific to Scholastic's performance.
Company Outlook
Scholastic reaffirmed its fiscal 2025 guidance, anticipating revenue growth of 4-6% and adjusted EBITDA of $140-150 million. The company expects improved profitability in the second half of the fiscal year, driven by growth investments and strategic capital allocation.
Executive Commentary
CEO Peter Warrick stated, "We remain confident that our core fundamental businesses are well positioned for long-term growth." He also highlighted efforts to monetize and expand Scholastic's classic intellectual properties. CFO Hadji Glover expressed optimism about increasing profitability in the second half of fiscal 2025.
Q&A
During the earnings call, analysts inquired about gross margin expectations, with executives indicating modest growth due to product mix changes. Questions also focused on the expansion of state-sponsored literacy programs and the strategic transition of book clubs.
Risks and Challenges
- Market Saturation: The retail book market is slightly down, posing challenges for growth.
- Supplemental Curriculum Sales: The company faces difficulties in this area, impacting revenue potential.
- Economic Pressures: Broader macroeconomic factors could affect consumer spending on educational products.
- Supply Chain Issues: Ongoing global disruptions could impact production and distribution timelines.
- Competitive Landscape: Scholastic must navigate a competitive market with other educational and media companies vying for market share.
Full transcript - Scholastic Corporation (SCHL) Q1 2025:
Conference Operator: Good day and thank you for standing by. Welcome to the Scholastic Reports Q1 Fiscal Year 2025 Results Conference Call. At this time, all participants are in a listen only mode. Please be advised that today's conference is being recorded. After the speakers' presentation, there will be a question and answer session.
I would now like to hand the conference over to your speaker today, Jeffrey Matthews.
Jeffrey Matthews, Chief Growth Officer, Investor Relations, Scholastic: Hello, and welcome everyone to Scholastic's fiscal 2025 First Quarter Earnings Call. Today on the call, I'm joined by Peter Warrick, our President and Chief Executive Officer and Hadji Glover, our Chief Financial Officer and Executive Vice President. As usual, we have posted the company investor presentation on our IR website at investor. Scholastic.com, which you may download now if you've not already done so. We'd like to point out that certain statements made today will be forward looking.
These forward looking statements, by their nature, are subject to various risks and uncertainties, and actual results may differ materially from those currently anticipated. In addition, we will be discussing some non GAAP financial measures as defined in Regulation G. Reconciliations of those measures to the most directly comparable GAAP measures may be found in the company's earnings release and the company's financial tables filed this afternoon on a Form 8 ks. This earnings release has also been posted to our Investor Relations website. We encourage you to review the disclaimers in the release and investor presentation and to review the risk factors disclosed in the company's annual and quarterly reports filed with the SEC.
Should you have any questions after today's call, please send them directly to our IR email address investorrelationsscholastic.com. Now I'd like to turn the call over to Peter Warrick to begin this afternoon's presentation.
Peter Warrick, President and Chief Executive Officer, Scholastic: Thank you, Jeff, and good afternoon, everyone. Thanks for joining us. I'd like to start by congratulating Jeff on his appointment as Scholastic's 1st Chief Growth Officer. In this new role, Jeff will refine and implement Scholastic's long term growth strategy in partnership with his peers on our management executive committee. He'll also continue to lead the company's Investor Relations and Corporate Development functions as well as Scholastic's Cross Company Corporate Sustainability and Impact Program.
Jeff's deep knowledge of Scholastic and our industry as well as 30 plus years of experience in strategy, M and A and Investor Relations has already had a profound impact here since Jeff rejoined as the company has prioritized growth, capital allocation and long term shareholder value. I'm thrilled to have Jeff now also leading the development and implementation of growth initiatives across Scholastic, building on the long term growth strategy and targets he's helped us to create. With that, I'll turn to our quarter one overview. Scholastic began fiscal 2025 preparing for the important back to school season, positioning the company in the school year ahead for yet another opportunity to bring the excitement of books, reading and stories to millions of kids and families, while supporting schools and educators. During the Q1, we continued to execute on our most compelling long term growth initiatives.
We invested to reinforce and build upon the unique strengths of our children's books and education businesses, while advancing our growth strategy as a global children's media and content company with trusted and critically acclaimed publishing, a growing slate of exciting media properties in development and production and early wins arising from our acquisition of 9 Storey Media Group. 1st quarter revenue rose year over year on the addition of 9 Storey and the seasonal operating loss improved. As a reminder, Scholastic typically records operating losses in the quiet first and third quarters, which coincide with summer and winter school breaks in the United States. During the quarter, we returned over $10,000,000 to shareholders through a combination of market share repurchases and our regular dividend. We remain confident in our outlook and are affirming our fiscal 2025 guidance.
We continue to target modest top line and bottom line growth, reflecting the partial year contribution of 9 Story Media Group. We look forward to an important year ahead as we execute on our plan and advance long term growth initiatives. We remain committed to our capital allocation priorities, investing in our most compelling growth opportunities and returning capital to shareholders. Now with that, I'll turn to the highlights across our business segments. In its seasonally smallest quarter, children's books revenue continued to grow.
Our school reading events division, which combined our book fairs and book clubs channels a year ago, produces minimal revenues during the first quarter when schools are not in session, but was busy over the summer preparing for the new school year. We remain focused on delivering the joyful celebration of reading that only Scholastic Book Fairs can bring as we invest in this business for long term growth. Continued category optimization, new case types and strategic value pricing should all contribute to our performance this year and beyond. Fall fare bookings have been strong and we remain on track to achieve our target of 90,000 fares in fiscal 2025. In book clubs, initial responses to this fall's promotions indicate that the new strategies implemented for this back to school season are generating higher teacher and sponsor participation.
After strategically transitioning book clubs to a smaller, more profitable core business, in fiscal 2024, we're now in the process of reengaging loyal customers and revitalizing the strategic channel to teachers and families. While we expect the same headwinds we saw last spring, we're confident that school reading events, which raised approximately $200,000,000 in cash and in kind value last year for schools and teachers, is strongly positioned for the long term and remains as differentiated and relevant as ever. In trade publishing, we continue to execute well in a retail book selling market that was down slightly year over year for Sukana BookScan. 1st quarter was a relatively quiet quarter for our domestic trade publishing division versus a year ago when sales in the quarter benefited from the release of the paperback edition of the 4th title in the Hunger Games series ahead of the title's movie release. Importantly, Scholastic's critically acclaimed publishing continued to successfully engage young readers last quarter with multiple Scholastic published front and backlist titles maintaining their presence across the New York Times (NYSE:NYT) Children's Series, Picture Book, Middle Grade and Graphic Novel Best Seller lists.
In quarter 1, newly released successes included Aaron Blabey's latest title in the Bad Guys series, Bad Guys in the Serpent and the Beast, When We Flew Away by best selling author Alice Hoffman Karen Sleepover, the latest graphic novel in the Babysitter Club Little Sisters series and Unico Awakening, our first title in the new kid friendly manga series. We also saw strong results from Pokemon Super Duper Extra Deluxe (NYSE:DLX) Handbook and the official Goosebumps coloring book ahead of the 2nd season of the Goosebumps series for Disney (NYSE:DIS) plus Looking at this fall and quarter 2, we're excited to be publishing in time for the holiday season additional new titles from best selling global franchises, including the final book in Aaron Blabey's Bad Guys series and Christmas at Hogwarts, a picture book that will delight Harry Potter fans of all ages. Given the timing of this year's publishing plan compared to a year ago, our publishing division will face another difficult year over year comparison in quarter 2. We continue to expect the releases of highly anticipated new Dog Man and Hunger Games titles in the second half of the fiscal year to benefit full year revenues. In our newest reportable segment, Scholastic Entertainment, the recent addition of 9 Story, which closed in June, positively contributed to revenue and EBITDA in the Q1.
Scholastic continued to advance its evolution as a global children's media company, expanding our ability to reach more kids where they are and profitably participate in the full life cycle of our children's franchises and IP. Development and production continue to move forward on major projects. This fall, we are taking to market the 1st Magic School Bus series for preschool and an updated Clifford animated series. We also look forward to announcing soon the launch date of Goosebumps Season 2 airing on Disney plus These core Scholastic brands have significant upside for Scholastic as we leverage 9 Stories licensing and merchandising sales teams. We're taking advantage of early opportunities to monetize and expand the reach of classic Scholastic IP on advertising supported distribution platforms.
In quarter 1, we launched the Magic School Bus on Tubi, where it became one of our top performing properties. We also stood up a new Clifford Classic channel on YouTube in the U. S. With viewership showing positive momentum. We look forward to updating you on upcoming developments as we prepare for growth through synergies with Scholastic's existing print and media properties in fiscal 2026 and beyond, while building on core properties in fiscal 2025.
Turning to Education Solutions. 1st quarter sales declined year over year, reflecting lower curriculum and collection sales, primarily related to lower spending on supplemental curriculum products as school districts focus on adopting and implementing new English Language Art core programs. With spending on supplemental curriculum pressured in the near term, we move forward with investments in updated and new literacy programs that leverage Scholastic's content and align with current literacy instruction. We continue to anticipate these new products will contribute to growth beginning in fiscal 2026. Looking ahead, we expect lower sales trends in this segment to continue in the 2nd quarter ahead of an anticipated larger and more profitable 4th quarter.
We forecast growth in sales to state and community literacy partners in the second half of fiscal twenty twenty 5, driven by expanded participation in state sponsored programs as our partners continue investing to improve kids' access to books outside of school. And finally, in international, revenues were in line with prior year. We continue to expect modest growth in major markets and operational improvements in Canada to drive further improvements in operating margins and contribution relative to fiscal 2024. And with that, I'll turn the call over to Hadji to review our fiscal 2025 Q1 results.
Hadji Glover, Chief Financial Officer and Executive Vice President, Scholastic: Thank you, Peter, and good afternoon, everyone. Today, I will refer to our adjusted results for Q1 excluding one time items unless otherwise indicated. Please refer to our press release tables and SEC filings for a complete discussion on one time items. As Peter discussed earlier, revenues increased and operating loss improved from a year ago in our seasonally quiet Q1. I'm proud of our team's hard work and preparation ahead of the back to school season.
The investments we are making in our core businesses position us well near and long term and we look forward to making further progress against our plan this fiscal year and beyond. Turning to our consolidated financial results. In the Q1, revenues increased 4% to $237,200,000 and profitability improved on multiple measures. The company's seasonal operating loss in the quarter was $85,600,000 an improvement from $92,800,000 from the prior year period. Adjusted EBITDA was a loss of $60,500,000 declining from a loss of $70,600,000 a year ago.
Net loss improved to $60,300,000 from $69,500,000 in the prior year period. On a per diluted share basis, loss declined to $2.13 compared to a loss of $2.20 last year. As a reminder, Scholastic results are highly seasonal. In addition to the Q1, we also generally record an operating loss in the 3rd quarter with profitable second and fourth quarters. Now turning to our segment results.
In children's book publishing and distribution, revenues for the Q1 increased 3% to $105,400,000 primarily driven by higher revenues in our trade channel. Segment operating loss decreased $4,400,000 from the prior year period to $36,600,000 primarily reflecting higher revenues in a seasonally quiet quarter for the segment. In the Q1, our school reading events business revenues and profits are not meaningful as schools are largely not in session in the summer. Book fair revenues increased 5% to $28,800,000 in the quarter. Fare count is on track to achieve our target of 90,000 fares in fiscal 2025, which we expect to contribute to modest growth in our book fairs this school year.
Book clubs revenue of $2,700,000 were in line with prior year period revenues of $2,600,000 After strategically transitioning Book Clubs to a smaller, more profitable core business in fiscal 2024, our team has implemented new strategies to reengage teachers and customers this school year. Overall, we remain confident that the school reading events business is well positioned for this year's back to school season. Trade revenues were $73,900,000 in the Q1, up slightly compared to the prior year revenues of $72,500,000 reflecting higher sales of Scholastic IP and foreign rights deals. This more than offset lower front list revenues compared to a year ago, when sales benefited from the release of the paperback edition of the 4th book in the Hunger Games series, The Ballad of Stone Birds and Snakes. The company's best selling publishing continues to resonate with customers.
We are excited about the many front list titles we are publishing, including major global franchise releases in the second half of our fiscal year. Education Solutions segment revenues were down 16% to $55,700,000 in the 1st quarter, reflecting lower spending on supplemental curriculum products. This was partly offset by growth in state sponsored programs. As school districts focus on adopting and implementing new core programs, near term pressures on supplemental literacy curriculum continue to impact sales of supplemental instructional materials and key product lines, including classroom libraries and collections in the Q1. As Peter noted, our teams are developing new structured literacy programs and supplemental products for schools scheduled to launch in time for the 2025 2026 school year.
Segment operating loss improved by $1,700,000 to $17,000,000 primarily driven by higher state sponsored program revenues as increased participation has a significant impact on profitability. This coupled with decreased operating expenses in the quarter more than offset the impact of lower sales of supplemental instructional materials. I will now turn to our new Entertainment segment, with consolidated results from the company's existing Scholastic Entertainment division historically reported in the children's book segment combined with the results from 9 Story Media Group, which we acquired in June. Entertainment segment revenues were $16,600,000 and the segment operating income was $1,200,000 primarily reflecting the contribution of the 9 Story Media Group. 9 Story revenues and profits were up on a pro form a basis relative to the prior year period.
We're making progress on our integrated production and development slate and continue to execute on company wide synergies, which should benefit this segment in fiscal 2026 and beyond. International segment revenues were $56,800,000 in the Q1 compared to the prior year period revenues of $57,200,000 Excluding the $200,000 year over year impact of unfavorable foreign currency exchange, international revenues were in line with the prior year, as lower revenues in Canada were partly offset by strong backlist sales of Dogman and Hermann games in the UK. The segment operating loss increased 1,300,000 to $8,300,000 compared to $7,000,000 in the prior year period. Unallocated overhead costs of $24,900,000 in the Q1 improved from $25,600,000 in the prior year period, primarily driven by lower employee related costs in the quarter. Now turning to cash flow and the balance sheet.
Net cash used by operating activities of $41,900,000 compared to $38,100,000 in the prior year. Free cash used in the first quarter was $68,700,000 compared to a use of $57,800,000 in the prior year period, primarily reflecting higher CapEx spending, including on new products and education solutions. In addition, we now include production spending and borrowing related to production loans, both within the new Entertainment segment, as part of our definition of free cash flow. Production loans are typically secured by tax and other receivables and therefore essentially an offset to working capital. Consistent with other companies in the media industry and how we view and manage the business, we include borrowing and repayments of these loans and our free cash flow definition to better reflect the overall timing and generation of free cash flow in this business.
During the quarter, the company borrowed $225,000,000 under its existing revolving credit facility to complete the 9 Story Media Group transaction and to meet the seasonal working capital needs. We're currently in the process of amending and extending our credit facility, increasing the revolver from $300,000,000 to $400,000,000 for another 5 years, which is unsecured. Furthermore, we'll continue to explore opportunities to optimize our strong balance sheet. At the end of the quarter, net debt was $152,100,000 compared to a net cash position of $107,700,000 at the end of fiscal 2024, primarily driven by the 9 Story Media Group transaction, partly offset by positive free cash flow of $62,500,000 over the last 12 months. In addition to our growth investments, we continue to deploy capital to our shareholders in the Q1 through our regular dividend and open market share repurchases.
We repurchased 163,000 shares last quarter for $5,000,000 Together with our regular dividend, we returned over $10,000,000 in the Q1, as Peter said. We will continue to pursue opportunities to leverage our balance sheet and to deploy capital by 1st, investing in growth opportunities 2nd, maintaining a strong and efficient balance sheet and third, returning excess cash to shareholders to enhance their returns. As we look ahead to the rest of the year, we are affirming our fiscal year 2025 guidance. We continue to expect revenue growth of 4% to 6% and adjusted EBITDA of $140,000,000 to 150,000,000 dollars The outlook for the full year free cash flow remains between $20,000,000 $30,000,000 reflecting our planned investments and working capital needs. I would like to reinforce a note about timing that Peter discussed.
We expect lower year over year trade publishing sales related to the timing of our publication plan and headwinds in our Education Solutions segment to contribute to lower results in the Q2 compared to the prior year period. Per our plan, we continue to expect increased profitability year over year in the second half of our fiscal twenty twenty five. Thank you for your time today. We remain positive about the remainder of the year and continue to focus on our growth investments. I will now hand the call back to Peter for his final remarks.
Peter Warrick, President and Chief Executive Officer, Scholastic: Thank you, Hadji. As I laid out in July, Scholastic's fiscal 2025 plan is focused on building on and accelerating the progress we made last year towards our strategic goals. In the Q1, we continue to execute on these initiatives as planned, while preparing for the new school year in our school reading events. We remain confident that our core fundamental businesses are well positioned for long term growth. We look forward to continuing to pursue Scholastic's opportunity to create value and impact this year and beyond.
Thank you very much. And let me now turn the call over to Jeff.
Jeffrey Matthews, Chief Growth Officer, Investor Relations, Scholastic: Thank you, Peter. With that, we will open the call for questions. Operator?
Conference Operator: Thank you. Our first question comes from Brennan McCarthy with Sidoti. You may proceed.
Brennan McCarthy, Analyst, Sidoti: Hey, good afternoon everybody.
Peter Warrick, President and Chief Executive Officer, Scholastic: Good afternoon.
Brennan McCarthy, Analyst, Sidoti: Wanted to start off looking at gross margins, it looks like there was a nice improvement there year over year. Can you talk about what you're seeing with gross margins and whether you see further improvement looking at the rest of the year just given the downturn in inflation?
Hadji Glover, Chief Financial Officer and Executive Vice President, Scholastic: Yes. Thank you for that question. As far as the gross margin, it's really the mix that's driving the conversation around mix is really driving this. We do see modest growth in our gross margin throughout the rest of the year and we plan for that already in our outlook.
Conference Operator: Got
Brennan McCarthy, Analyst, Sidoti: it. Thanks, Haji. Yes, that's great. I wanted to turn to the Ferris business. I know last quarter, the Q4 of fiscal 'twenty four, I know you noted there were some pressure on consumer spending that impacted the Ferris business.
Is that still a trend that you're seeing, I guess, looking out to the Q2, the 2nd fiscal quarter?
Peter Warrick, President and Chief Executive Officer, Scholastic: Well, the we've really only just got moving with our fares business. But at the moment, the fares are pretty much operating as we expected for the fall season. And whilst those pressures, I think, probably still continue, we've made some good adjustments in terms of how we present the fares. And we also have the benefits of having a really full sort of 90,000 plus fares this year. So that's also a mitigating factor.
But I think it's also important to say that we're really only expecting modest revenue per fare growth in fiscal 2025, which was not the case in fiscal 2024. And therefore, I think that gives us much more sort of sense that things will go as we are planning.
Brennan McCarthy, Analyst, Sidoti: Got it. Thanks, Peter. And just as a follow-up question, and I know we're only 1 month into the about 1 month into the school year. But looking at the school reading events business, clubs and then the school channels, How is that those how have those businesses been performing so far this school year relative to your expectations at the start of the fiscal year?
Peter Warrick, President and Chief Executive Officer, Scholastic: They've been I mean, the good news is that they've been operating pretty much exactly as we expected. And there have been no bad surprises, no good surprises. It's pretty much as we were expecting. And so I think that's pretty positive. I think the one area that we have been particularly pleased with, although it's the smallest of those two businesses, has been the clubs business, where we've seen quite an uptick actually in the numbers of sponsors, particularly teachers.
So I think the work that we did last year to prepare for redesigning the materials and content, I think has been is early signs show that that's having that's been a very worthwhile thing to have done.
Brennan McCarthy, Analyst, Sidoti: Got it. And in the clubs business, I know you mentioned you were testing and still are testing new go to market strategies there. Can you provide additional color on some of those strategies and I guess how they're resonating with customers
Conference Operator: at this point?
Peter Warrick, President and Chief Executive Officer, Scholastic: Yes. I mean one of the things that we've done is that we've redesigned our flyers, for example, and it's been very much focused on igniting the interest of our core customers and our core most profitable customers. So that's one thing that we've done. The other thing that we've been doing is actually the whole process has been very much more teacher centric than was the year before. And therefore, I think that that's going to be very worthwhile too.
Brennan McCarthy, Analyst, Sidoti: Got it. That's helpful. I wanted to ask a question on the Education Solutions business. It sounds like the outlook there is quite favorable for the state sponsored business in the back half of this year. I guess what's the I guess what are some of the prospects of getting new business from either new states or new state entities for that line of business?
Peter Warrick, President and Chief Executive Officer, Scholastic: Well, I think the I mean, there's an overall trend, which is kind of happening in the marketplace, which is that there's much greater attention being paid, particularly by education faculties, education departments, but also by state legislatures in making sure that they can get books to students at home. It's been shown very much that one's able to do much more with kids who are striving readers as long as they have books in the home. And that's something that we've worked with in a number of states and has been very successful. I think there's a growing recognition that, that is what's needed. In addition to that, we've also got other partnership models that we've been able to develop to get books into the home.
And we're feeling that we're feeling quite confident that we'll have another good year in that part of the business. I mean, one of the good things that's happening in some ways is that whilst they're actually selling books into schools, particularly into school districts and all the rest of it and has been more difficult for us, we've had this opportunity to actually get more of our books into the homes through the activities of partners, state, philanthropic and parents. And so we've been able we are very consciously building up that part of our business to sort of rebalance to some extent the business as there are changes in the marketplace.
Brennan McCarthy, Analyst, Sidoti: Great. Thanks, Peter. One more for me and then I'll turn it over. Just on the balance sheet, just with the new net debt position, are you comfortable with where leverage is now? Or do you see the company allocating more cash flow to pay down the revolver in the future?
Hadji Glover, Chief Financial Officer and Executive Vice President, Scholastic: Yes. Currently, we are very confident in where we stand today. As we mentioned in the press in the in my sort of section, that we are looking at other opportunities on our balance sheet, but that's in the immediate term right now.
Brennan McCarthy, Analyst, Sidoti: Great, great. That's all for me. Thanks, everybody.
Conference Operator: Thank you. And this concludes our Q and A. I will pass the call back to management for any closing remarks.
Peter Warrick, President and Chief Executive Officer, Scholastic: Well, thank you everyone for joining today's call and for your continued support. I'd like to again thank all of Scholastic's employees for their hard work and preparation ahead of the back to school season. We look forward to an important year ahead as we execute on our plan for fiscal 2025 and make progress toward realizing Scholastic's long term opportunities.
Conference Operator: Thank you. This concludes today's conference call. Thank you for your participation and you may now disconnect.
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