Scholastic Corporation (SCHL) has reported disappointing results for its fiscal first quarter, with revenue and profit falling short of estimates. The publisher’s core business has been impacted by lagging book sales, leading to a net loss of $74.2 million for the quarter, compared to a loss of $45.5 million in the same period last year. Revenue also declined by 13% to $228.5 million, 15% below consensus estimates. The trade revenue, which primarily reflects book sales, experienced a significant drop of 19% compared to the previous year.
The company typically records losses in its first fiscal quarter, which coincides with summer vacation and school being out of session. However, the loss this year was larger than expected. Scholastic attributed its underperformance to softness in the retail market, as the surge in book sales during the pandemic moderated.
During the lockdowns, digital and print book sales experienced a boost as people turned to reading. However, as more individuals returned to the office and schools resumed in-person learning, leisure time decreased, resulting in a decline in book sales. Last year, unit sales for children and young adult books dropped by almost 10%. The market segment is projected to grow by just over 1.5% this year, which would be the slowest expansion since 2018.
Scholastic’s stock took a hit, plummeting over 13% on Friday. Year-to-date, the shares are down approximately 14%. Despite this setback, the company sees opportunities in its non-publishing business. In the coming month, a TV series based on the popular book series Goosebumps, developed and co-produced by Scholastic Entertainment, will be aired on Disney+ and Hulu. The company expects this series to introduce a new generation of readers to the beloved Scholastic series that has sold over 400 million copies to date.
Scholastic is also optimistic about its book fairs, which are a key revenue driver. The company plans to transition them into a smaller, more profitable business. Despite the challenges faced in the retail market and the decline in book sales, Scholastic’s President and CEO, Peter Warwick, remains hopeful. He stated, The global retail bookselling market continues to revert year-over-year, approaching pre-pandemic levels.
In summary, Scholastic Corporation’s disappointing Q1 results, marked by lower than expected revenue and a larger net loss, can be attributed to lagging book sales and softness in the retail market. However, the company has plans to capitalize on its non-publishing business and remains optimistic about upcoming opportunities, including the release of a Goosebumps TV series. Despite the current challenges, Scholastic aims to navigate the changing market and drive growth in the quarters ahead.
