Scholastic Reports Wider Adjusted Operating Loss in Q1 of Fiscal 2027

The company reported a revenue decline of 4%, totaling $216.8 million, down from $225.6 million in the same quarter last year. Scholastic recorded an operating loss of $92.2 million, consistent with the previous year. The adjusted operating loss was $88.7 million, compared to $81.9 million a year ago, attributed to higher overhead costs, partially offset by better results in the Entertainment and International segments. Chief Financial Officer Haji Glover noted that the adjustment for the prior year's sale-leaseback transactions resulted in a $2 million increase in the adjusted operating loss. Adjusted EBITDA also showed a loss of $63.6 million, worse than the $55.7 million loss from the previous year, but improved by $0.6 million on a comparable basis.

The net loss for the quarter was $71.2 million, or $3.77 per diluted share, slightly higher than the $71.1 million loss, or $2.83 per diluted share, reported last year. The adjusted net loss was $68.6 million, or $3.63 per diluted share, compared to $63.3 million, or $2.52 per diluted share, in the previous quarter. Glover explained that the per-share loss was influenced by the reduction in outstanding shares due to repurchase activities in fiscal 2026.

CEO Peter Warwick stated that the first quarter tends to be Scholastic's smallest revenue period, as schools are generally out of session, limiting book sales. However, he expressed optimism about the upcoming second quarter. Revenue from children’s book publishing and distribution fell to $105.8 million from $109.4 million. Book fair revenue also declined slightly to $33.2 million from $34.1 million, although book club revenue rose to $2.1 million from $1.8 million. Warwick reported strong early indicators for fall book fairs, noting increased bookings and fair counts compared to the previous year, with a focus on expanding into new school communities.

Consolidated trade revenue fell by $3 million to $70.5 million due to a lack of international co-edition sales that had occurred in the prior year. However, U.S. trade revenue grew by 4%, supported by popular titles from author Dav Pilkey.

Looking ahead, the upcoming schedule for the second quarter includes an illustrated edition of "Harry Potter and the Half-Blood Prince," a new "Dog Man" title slated for November, and related publishing activities for the upcoming film adaptation of "The Hunger Games: Sunrise on the Reaping." Warwick also highlighted a Harry Potter campaign in preparation for a new HBO series expected to launch around Christmas.

In the Entertainment segment, revenue rose to $20.1 million from $13.6 million, with the adjusted operating loss narrowing to $1.6 million from $4 million. Glover noted that this improvement was due to better operational leverage and business mix.

Conversely, Education revenue dropped to $30.4 million from $40.1 million, reflecting ongoing pressures on school spending and higher costs, which widened the adjusted operating loss to $23.3 million from $21.2 million. The company is implementing a restructuring plan for its Education segment to enhance sales productivity and aims for an improvement in revenue trends later this year.

International revenue rose slightly to $60.5 million from $59.4 million. Adjusted operating loss in this segment improved to $2.7 million from $4.1 million, attributed to cost management. Scholastic anticipates international revenue growth for the full year, though modestly lowered operating income due to inflation and increased costs.

During the quarter, Scholastic utilized $94.6 million in operating cash flow and reported free cash flow use of $110.8 million. The company's net debt decreased to $86.8 million from $242.8 million a year earlier. Subsequently, about $29.6 million was returned to shareholders, including $25.8 million for share repurchases and $3.8 million in dividends, with approximately $157 million authorized for future repurchases as of August 31.

Management reaffirmed guidance for fiscal 2027, projecting revenue growth of about 2% to 4%, adjusted EBITDA between $135 million and $145 million, and free cash flow of approximately $35 million to $40 million, expecting revenue growth to commence in the second quarter and continue through the fiscal year.'