Scholastic(SCHL) - 2026 Q1 - Quarterly Results

Fiscal 2026 Q1 Review Executive Summary & CEO Commentary Scholastic reported a seasonal Q1 operating loss, with CEO Peter Warwick highlighting steady progress in book fairs, Entertainment IP, and strategic Education efforts, alongside real estate monetization plans - The company typically generates an operating loss in the first quarter due to seasonality when schools are not in session[1][2] - Fall book fair bookings are encouraging and exceed prior year bookings, showing strong engagement with hosts[3] - Scholastic Entertainment is expanding IP reach and value, creating new brands, and building higher-margin digital and licensing revenue streams, leveraging 9 Story Media Group capabilities[3] - The Education division faced pressure from a difficult and volatile funding environment, leading to delayed or reduced school purchases[4] - The company is evaluating potential sale-leasebacks of key real estate assets to enhance shareholder value, which have drawn substantial interest[5] Consolidated Financial Highlights Q1 FY26 saw a 5% revenue decrease to $225.6 million, a 4% operating loss increase to $92.2 million, and a 28% diluted loss per share widening, while Adjusted EBITDA improved 8% to a $55.7 million loss | In $ millions (except per share data) | Fiscal 2026 | Fiscal 2025 | Change ($) | Change (%) | | :----------------------------------- | :---------- | :---------- | :--------- | :--------- | | Revenues | $ 225.6 | $ 237.2 | $ (11.6) | (5)% | | Operating income (loss) | $ (92.2) | $ (88.5) | $ (3.7) | (4)% | | Earnings (loss) before taxes | $ (97.0) | $ (91.8) | $ (5.2) | (6)% | | Diluted earnings (loss) per share | $ (2.83) | $ (2.21) | $ (0.62) | (28)% | | Operating income (loss), ex. one-time items * | $ (81.9) | $ (85.6) | $ 3.7 | 4 % | | Diluted earnings (loss) per share, ex. one-time items * | $ (2.52) | $ (2.13) | $ (0.39) | (18)% | | Adjusted EBITDA * | $ (55.7) | $ (60.5) | $ 4.8 | 8 % | Overall Financial Performance Consolidated revenues decreased 5% to $225.6 million due to lower Education Solutions sales, resulting in a $92.2 million operating loss, though Adjusted EBITDA improved 8% to a $55.7 million loss - Revenues decreased 5% to $225.6 million, mainly due to lower Education Solutions sales amid a volatile funding environment[7] - Operating loss increased 4% to $92.2 million (including one-time charges), but improved by $3.7 million excluding these charges[8] - Adjusted EBITDA improved 8% to a loss of $55.7 million, reflecting reduced discretionary overhead and higher Children's Book Publishing and Distribution revenues[8][9] Quarterly Results by Segment Children's Book Publishing and Distribution This segment's revenues increased 4% to $109.4 million, driven by an 18% rise in Book Fairs, despite a 33% drop in Book Clubs, leading to an improved operating loss of $35.1 million | Metric | FY26 Q1 ($M) | FY25 Q1 ($M) | Change ($M) | Change (%) | | :---------------------- | :----------- | :----------- | :---------- | :--------- | | Total Revenues | 109.4 | 105.4 | 4.0 | 4 % | | Book Fairs Revenues | 34.1 | 28.8 | 5.3 | 18 % | | Book Clubs Revenues | 1.8 | 2.7 | (0.9) | (33)% | | Consolidated Trade | 73.5 | 73.9 | (0.4) | (1)% | | Operating income (loss) | (35.1) | (36.6) | 1.5 | 4 % | - Higher redemptions of Scholastic Dollars in Book Fairs are indicative of positive engagement with Book Fair hosts[11] Education Solutions Education Solutions revenues significantly decreased 28% to $40.1 million due to school funding uncertainty, resulting in an increased operating loss of $21.2 million | Metric | FY26 Q1 ($M) | FY25 Q1 ($M) | Change ($M) | Change (%) | | :---------------------- | :----------- | :----------- | :---------- | :--------- | | Revenues | 40.1 | 55.7 | (15.6) | (28)% | | Operating income (loss) | (21.2) | (17.0) | (4.2) | (25)% | - The division continues to execute on more focused product, marketing, and sales strategies with the long-term goal of regaining market share[12] Entertainment Entertainment revenues decreased 18% to $13.6 million due to production delays, widening the operating loss to $4.0 million, partly from $2.5 million in intangible amortization related to the 9 Story transaction | Metric | FY26 Q1 ($M) | FY25 Q1 ($M) | Change ($M) | Change (%) | | :---------------------- | :----------- | :----------- | :---------- | :--------- | | Revenues | 13.6 | 16.6 | (3.0) | (18)% | | Operating income (loss) | (4.0) | (0.5) | (3.5) | NM | - The company incurred $2.5 million in intangible amortization related to the 9 Story transaction during the quarter[13] International International revenues grew 4% to $59.4 million (excluding currency impact), driven by Australia, UK, and Asia, leading to a 49% improved operating loss of $4.2 million | Metric | FY26 Q1 ($M) | FY25 Q1 ($M) | Change ($M) | Change (%) | | :---------------------- | :----------- | :----------- | :---------- | :--------- | | Revenues | 59.4 | 56.8 | 2.6 | 5 % | | Operating income (loss) | (4.2) | (8.3) | 4.1 | 49 % | - Excluding favorable foreign currency exchange of $0.2 million, International revenues increased 4%[14] - Adjusted operating loss improved by $4.2 million, driven by higher revenues and operational efficiencies[14] Overhead Overhead costs were $27.7 million, but adjusted costs decreased $6.6 million excluding $9.4 million in one-time charges, reflecting successful cost-saving initiatives | Metric | FY26 Q1 ($M) | FY25 Q1 ($M) | Change ($M) | Change (%) | | :---------------------- | :----------- | :----------- | :---------- | :--------- | | Operating income (loss) | (27.7) | (26.1) | (1.6) | (6)% | - Excluding one-time charges, adjusted overhead costs decreased $6.6 million due to cost-saving initiatives[15] Capital Position and Liquidity Cash Flow and Debt Net cash used by operating activities increased 95% to $81.8 million, and net debt rose to $242.8 million, reflecting working capital needs, dividends, and share repurchases | In $ millions | Fiscal 2026 | Fiscal 2025 | Change ($) | Change (%) | | :------------------------------------------------ | :---------- | :---------- | :--------- | :--------- | | Net cash (used) provided by operating activities | $ (81.8) | $ (41.9) | $ (39.9) | (95)% | | Additions to property, plant and equipment and prepublication expenditures | (14.9) | (24.4) | 9.5 | 39 % | | Net of borrowings (repayments) film related obligations | (3.5) | (2.4) | (1.1) | (46)% | | Free cash flow (use)* | $ (100.2) | $ (68.7) | $ (31.5) | (46)% | | Net cash (debt)* | $ (242.8) | $ (152.1) | $ (90.7) | (60)% | - Net cash used by operating activities increased by 95% to $81.8 million, driven by lower net income and seasonal working capital[17] - Net debt increased to $242.8 million from $152.1 million, reflecting working capital, dividends, and share repurchases[18] - The Company distributed $5.2 million in dividends and has $70.0 million remaining for share repurchases[18] Real Estate Monetization Initiatives Scholastic is evaluating potential sale-leaseback transactions for its NYC and Missouri real estate, expecting significant additional liquidity for debt reduction and share repurchases this fall - Scholastic has retained Newmark Group to identify investment partners for potential sale-leaseback transactions of its owned real estate assets[19] - These processes are expected to conclude this fall and could provide significant additional liquidity for debt reduction and share repurchases[19] Additional Information Non-GAAP Financial Measures The company provides non-GAAP measures like Adjusted EBITDA and Free Cash Flow for supplemental understanding, not as substitutes for GAAP financial information - Non-GAAP measures like "Adjusted EBITDA" and "Free Cash Flow" are included to supplement GAAP financial statements[20] - This information is supplemental and not a substitute for GAAP financial information[20] Conference Call Details Scholastic discussed Q1 results on a September 18, 2025 conference call, with a webcast and slides available on its investor relations website - A conference call was held on September 18, 2025, at 4:30 p.m. ET to discuss results, moderated by Peter Warwick and Haji Glover[21] - Access to the live webcast and dial-in details were provided, with an archived webcast and slides available at investor.scholastic.com[22] About Scholastic Scholastic Corporation is a global children's publishing, education, and media company with over 100 years of history, empowering literacy through diverse content and channels worldwide - Scholastic Corporation (NASDAQ: SCHL) is a global children's publishing, education, and media company with over 100 years of history[23] - The company's mission is to empower children to become lifelong readers and learners through bestselling books, literacy resources, and entertaining media[23] - Scholastic operates globally, reaching over 135 countries through school-based book clubs, book fairs, libraries, retail, and online platforms[23] Forward-Looking Statements This news release contains forward-looking statements subject to market and product acceptance risks, where actual results could differ materially from current expectations - The news release contains forward-looking statements subject to risks and uncertainties, including market conditions and product acceptance[25] - Actual results could differ materially from those currently anticipated[25] Unaudited Financial Statements Consolidated Statements of Operations This section details revenues, operating costs, and net income (loss) for the three months ended August 31, 2025, and August 31, 2024 | | Three months ended | | | | :-------------------------------------- | :--------- | :--------- | :--------- | | | 08/31/25 | 08/31/24 | | | Revenues | $ 225.6 | $ 237.2 | | | Operating costs and expenses: | | | | | Cost of goods sold | 123.5 | 128.3 | | | Selling, general and administrative expense | 177.2 | 182.1 | | | Depreciation and amortization | 16.3 | 15.3 | | | Asset impairments and write downs | 0.8 | — | | | Total operating costs and expenses | 317.8 | 325.7 | | | Operating income (loss) | (92.2) | (88.5) | | | Interest income (expense), net | (4.5) | (3.0) | | | Other components of net periodic benefit (cost) | (0.3) | (0.3) | | | Earnings (loss) before income taxes | (97.0) | (91.8) | | | Provision (benefit) for income taxes | (25.9) | (29.3) | | | Net income (loss) | (71.1) | (62.5) | | | Basic and diluted earnings (loss) per share of Class A and Common Stock | | | | | Basic | $ (2.83) | $ (2.21) | | | Diluted | $ (2.83) | $ (2.21) | | | Basic weighted average shares outstanding | 25,161 | 28,290 | | | Diluted weighted average shares outstanding | 25,410 | 28,908 | Segment Results This section presents revenues and operating income (loss) for each operating segment for the three months ended August 31, 2025, and August 31, 2024 | | | | Three months ended | | | Change | | | :----------------------------------- | :------- | :------- | :------- | :------- | :------- | :------- | :------- | | | 08/31/25 | | | 08/31/24 | | $ | % | | Children's Book Publishing and Distribution | | | | | | | | | Revenues | | | | | | | | | Books Clubs | $ 1.8 | | $ 2.7 | | $ (0.9) | (33)% | | Book Fairs | 34.1 | | 28.8 | | 5.3 | 18 % | | School Reading Events | 35.9 | | 31.5 | | 4.4 | 14 % | | Consolidated Trade | 73.5 | | 73.9 | | (0.4) | (1)% | | Total Revenues | 109.4 | | 105.4 | | 4.0 | 4 % | | Operating income (loss) | (35.1) | | (36.6) | | 1.5 | 4 % | | Operating margin | NM | | NM | | | | | Education Solutions | | | | | | | | | Revenues | 40.1 | | 55.7 | | (15.6) | (28)% | | Operating income (loss) | (21.2) | | (17.0) | | (4.2) | (25)% | | Operating margin | NM | | NM | | | | | Entertainment | | | | | | | | | Revenues | 13.6 | | 16.6 | | (3.0) | (18)% | | Operating income (loss) | (4.0) | | (0.5) | | (3.5) | NM | | Operating margin | NM | | NM | | | | | International | | | | | | | | | Revenues | 59.4 | | 56.8 | | 2.6 | 5 % | | Operating income (loss) | (4.2) | | (8.3) | | 4.1 | 49 % | | Operating margin | NM | | NM | | | | | Overhead | | | | | | | | | Revenues | 3.1 | | 2.7 | | 0.4 | 15 % | | Operating income (loss) | (27.7) | | (26.1) | | (1.6) | (6)% | | Operating income (loss) | $ (92.2) | $ | (88.5) | $ | (3.7) | (4)% | Supplemental Balance Sheet and Cash Flow Items This section provides selected balance sheet items and cash flow details, including net cash from operating activities and free cash flow (use) | Selected Balance Sheet Items | | | | | :--------------------------- | :--------- | :--------- | :--------- | | | 08/31/25 | | 08/31/24 | | Cash and cash equivalents | $ 94.3 | | $ 84.1 | | Accounts receivable, net | 187.0 | | 201.1 | | Inventories, net | 322.2 | | 310.3 | | Accounts payable | 175.8 | | 184.0 | | Deferred revenue | 181.0 | | 173.9 | | Accrued royalties | 86.6 | | 77.5 | | Film related obligations | 14.7 | | 34.1 | | Lines of credit and long-term debt | 331.2 | | 231.1 | | (1) Net cash (debt) | (242.8) | | (152.1) | | Total stockholders' equity | 878.0 | | 957.3 | | Selected Cash Flow Items | | | | | | | Three months ended | | | | 08/31/25 | | 08/31/24 | | Net cash provided by (used in) operating activities | $ (81.8) | | $ (41.9) | | Property, plant and equipment additions | (10.0) | | (20.0) | | Prepublication expenditures | (4.9) | | (4.4) | | Net borrowings (repayments) of film related obligations | (3.5) | | (2.4) | | (2) Free cash flow (use) | $ (100.2) | | $ (68.7) | - Net cash (debt) is defined as cash and cash equivalents less production cash, net of lines of credit and short-term and long-term debt, excluding film related obligations[32] - Free cash flow (use) is defined as net cash from operating activities, adjusted for acquisitions, asset sales, capital expenditures, prepublication costs, and film related obligations[33] Supplemental Results - Excluding One-Time Items This table reconciles reported financial results to those excluding one-time items for diluted EPS, net income, earnings before taxes, and segment operating income | | | | | Three months ended | | | | | | | | | :----------------------------------- | :------- | :------- | :------- | :------- | :------- | :------- | :------- | :------- | :------- | :------- | :------- | :------- | :------- | | | | | 08/31/2025 | | | | | 08/31/2024 | | | | | | | Reported | One-time items | | Excluding One-time items | | | Reported | One-time items | | Excluding One-time items | | | Diluted earnings (loss) per (1) share | $ (2.83) | $ 0.31 | $ (2.52) | | $ (2.21) | $ 0.08 | $ (2.13) | | | (2) Net income (loss) | $ (71.1) | $ 7.8 | $ (63.3) | | $ (62.5) | $ 2.2 | $ (60.3) | | | Earnings (loss) before income taxes | $ (97.0) | $ 10.3 | $ (86.7) | | $ (91.8) | $ 2.9 | $ (88.9) | | | Children's Book Publishing (3) and Distribution | $ (35.1) | $ 0.8 | $ (34.3) | | $ (36.6) | $ — | $ (36.6) | | | Education Solutions | (21.2) | — | (21.2) | | (17.0) | — | (17.0) | | | (4) Entertainment | (4.0) | 0.0 | (4.0) | | (0.5) | 1.7 | 1.2 | | | (5) International | (4.2) | 0.1 | (4.1) | | (8.3) | — | (8.3) | | | (6) Overhead | (27.7) | 9.4 | (18.3) | | (26.1) | 1.2 | (24.9) | | | Operating income (loss) | $ (92.2) | $ 10.3 | $ (81.9) | | $ (88.5) | $ 2.9 | $ (85.6) | | - One-time items for Q1 FY26 included $0.8M asset impairment in Children's Book Publishing, less than $0.1M acquisition costs in Entertainment, $0.1M severance in International, and $8.7M severance plus $0.7M other expenses in Overhead[36][37] Adjusted EBITDA (Consolidated & Segment) This section calculates consolidated and segment Adjusted EBITDA, reconciling it from earnings before income taxes, excluding one-time items, interest, depreciation, and amortization | | | Three months ended | | | | :------------------------------------------ | :------- | :------- | :------- | :------- | | | 08/31/25 | | 08/31/24 | | | Earnings (loss) before income taxes as reported | $ (97.0) | | $ (91.8) | | | One-time items before income taxes | 10.3 | | 2.9 | | | Earnings (loss) before income taxes excluding one-time items | (86.7) | | (88.9) | | | (1) Interest (income) expense | 4.5 | | 3.4 | | | Depreciation and amortization | 26.5 | | 25.0 | | | (2) Adjusted EBITDA | $ (55.7) | | $ (60.5) | | | | | | | | | | Three months ended | | | | | | | | :----------------------------------- | :------- | :------- | :------- | :------- | :------- | :------- | :------- | :------- | :------- | :------- | :------- | :------- | :------- | | | CBPD (1) | EDUC (1) | ENT (1) | INTL (1) | OVH (1) | | Total | | | Earnings (loss) before income taxes as reported | $ (35.1) | $ (21.2) | $ (4.5) | $ (4.7) | $ (31.5) | | $ (97.0) | | | One-time items before income taxes | 0.8 | — | 0.0 | 0.1 | 9.4 | | 10.3 | | | Earnings (loss) before income taxes excluding one-time items | (34.3) | (21.2) | (4.5) | (4.6) | (22.1) | | (86.7) | | | (2) Interest (income) expense | 0.0 | 0.0 | 0.5 | (0.0) | 4.0 | | 4.5 | | | (3) Depreciation and amortization | 7.6 | 6.1 | 4.8 | 1.9 | 6.1 | | 26.5 | | | Adjusted EBITDA | $ (26.7) | $ (15.1) | $ 0.8 | $ (2.7) | $ (12.0) | | $ (55.7) | | | | | | | | | | Three months ended | | | | | | | | | | | | | | | 08/31/24 | | | | | | | | | CBPD (1) | EDUC (1) | ENT (1) | INTL (1) | OVH (1) | | Total | | | Earnings (loss) before income taxes as reported | $ (36.6) | $ (17.0) | $ (1.1) | $ (8.7) | $ (28.4) | | $ (91.8) | | | One-time items before income taxes | — | — | 1.7 | — | 1.2 | | 2.9 | | | Earnings (loss) before income taxes excluding one-time items | (36.6) | (17.0) | 0.6 | (8.7) | (27.2) | | (88.9) | | | (2) Interest (income) expense | 0.0 | — | 1.1 | (0.0) | 2.3 | | 3.4 | | | (3) Depreciation and amortization | 7.5 | 6.2 | 3.5 | 1.9 | 5.9 | | 25.0 | | | Adjusted EBITDA | $ (29.1) | $ (10.8) | $ 5.2 | $ (6.8) | $ (19.0) | | $ (60.5) | | - Adjusted EBITDA is defined as earnings (loss), excluding one-time items, before interest, taxes, depreciation, and amortization, and is considered a meaningful measure of operating profitability[40]