SCHOLASTIC CORP quarterly report, Q1 FY2027

Business Context and Reporting Period

Scholastic Corporation’s unaudited Form 10-Q covers the three months ended August 31, 2026, the first quarter of fiscal 2027. Fiscal 2027 ends May 31, 2027. The company operates in Children’s Book Publishing and Distribution, Education, Entertainment and International markets. Results are highly seasonal, with the first quarter typically affected by the summer school shutdown and lower school-based activity.

Key Financial Metrics

Metric	Q1 FY2027	Q1 FY2026	Change
Revenue	$216.8 million	$225.6 million	Down 4%
Operating income (loss)	$(92.2) million	$(92.2) million	Flat
Net income (loss)	$(71.2) million	$(71.1) million	Down $0.1 million
Diluted EPS	$(3.77)	$(2.83)	Lower
Cash flow from operations	$(94.6) million	$(81.8) million	Greater use of $12.8 million
Cash flow from investing	$(17.3) million	$(14.9) million	Greater use of $2.4 million
Cash flow from financing	$83.9 million	$66.8 million	Increase of $17.1 million

Gross margin was approximately 45.5%, compared with 45.3% in the prior-year quarter. Operating margin was approximately negative 42.5% in both periods, while net margin was approximately negative 32.8%, compared with negative 31.5%.

Cost of goods sold declined to $118.1 million, or 54.5% of revenue, from $123.5 million, or 54.7%.
Selling, general and administrative expense increased to $178.3 million from $177.2 million, primarily due to higher rent following the headquarters and distribution-center sale-leaseback transactions.
Depreciation and amortization declined to $12.6 million from $16.3 million following the property sale.
Interest expense declined to $2.3 million from $5.0 million due to lower average borrowings; interest income increased to $0.7 million from $0.5 million.
The effective tax rate was 24.0%, compared with 26.7% in the prior-year quarter.

Liquidity, Debt and Capital Allocation

Cash and cash equivalents were $106.8 million at August 31, 2026, compared with $134.9 million at May 31, 2026 and $94.3 million at August 31, 2025.
Total debt excluding film-related obligations was $184.8 million, consisting of $175.0 million under the U.S. Credit Agreement and $9.8 million of international credit-line borrowings. Film-related obligations were an additional $19.3 million.
The $400.0 million unsecured revolving credit facility matures in November 2029. Borrowings under the facility carried a weighted-average interest rate of 5.3% at quarter-end. The company reported compliance with all required debt covenants.
Availability under the U.S. Credit Agreement was $224.6 million, net of letters-of-credit commitments. Additional current credit-facility availability was $21.2 million.
The company repurchased approximately $25.3 million of common stock during the quarter. Remaining authorization was $157.4 million.
The Board declared a $0.25-per-share quarterly dividend on September 16, 2026, payable December 15, 2026.

Material Changes Versus the Prior Comparable Period

Children’s Book Publishing and Distribution revenue declined $3.6 million to $105.8 million, primarily because a prior-year co-edition trade sale did not recur. Segment operating loss widened to $38.2 million from $35.1 million as higher rent and employee-related costs outweighed tariff refunds.
Education revenue declined $9.7 million, or 24.2%, to $30.4 million due to continued pressure on school and district budgets. The segment operating loss increased to $23.3 million from $21.2 million.
Entertainment revenue increased $6.5 million, or 47.8%, to $20.1 million due to higher episodic deliveries, production services and distribution revenue. Operating loss improved to $1.8 million from $4.0 million.
International revenue increased $1.1 million to $60.5 million, although revenue was essentially flat excluding a favorable $1.2 million foreign-exchange impact. The operating loss improved to $2.9 million from $4.2 million.
Revenue no longer included $3.1 million of headquarters rental income recorded in the prior-year quarter because of the fiscal 2026 sale-leaseback transactions.
Tariff refunds totaled $9.4 million through August 31, 2026, including $6.6 million received during the quarter, benefiting product costs and margins.
No asset impairment charges were recorded in the current quarter; the prior-year quarter included a $0.8 million impairment related to a discontinued product.

Guidance, Outlook, Risks and Unusual Items

Management did not provide specific quantitative revenue or earnings guidance in the filing. Management expects fall book-fair bookings to be ahead of the prior year and anticipates benefits from new trade releases, including Dog Man: Sprinkle in Time, Harry Potter-related publishing and the film adaptation of Sunrise on the Reaping. Entertainment production activity is expected to remain supportive, while Education continues to face school and district budget pressure. Cost-alignment and transformation initiatives are expected to support Education performance.

Seasonality normally produces negative cash flow from June through September; management expects available cash, operating cash flow and credit facilities to be sufficient for anticipated needs.
Key risks include school-budget constraints, volatile product, freight and labor costs, tariffs, variable interest rates, foreign-exchange movements, timing of book releases and entertainment deliveries, and execution of cost-saving initiatives.
A May 2026 warehouse fire damaged inventory. The company recognized $0.6 million of losses and a corresponding insurance receivable in fiscal 2026; no insurance proceeds had been received by August 31, 2026, and additional recoveries remain uncertain.
The company expects potential recoveries from an intellectual-property settlement and may receive a distribution from a copyright class-action settlement, but no receivable was recorded because realization was not yet probable and reasonably estimable.
The company repurchased 289,624 shares from the estate of former executive and chair M. Richard Robinson, Jr. for $11.5 million, or $39.76 per share, in a related-party transaction approved without the participation of the estate’s preliminary executor, who is a company chair and executive officer.
Foreign-currency forward contracts had notional value of $28.1 million at quarter-end and were used for economic hedging, not trading.

Important Facts for Investors to Verify

Whether Education demand and school-district budget pressure continue into the main school-year selling periods.
The sustainability of tariff-refund benefits and the potential impact of future tariffs, freight and fuel costs on gross margin.
Fall book-fair bookings, trade-title performance and the timing of Entertainment production deliveries.
Seasonal cash requirements, operating cash flow recovery and continued reliance on revolving debt during the first half of the fiscal year.
Debt covenant compliance, variable-rate borrowing costs and available revolver capacity.
The timing and amount of insurance proceeds related to the warehouse fire and any copyright or intellectual-property settlement recoveries.
The rationale, governance and remaining capacity of the share-repurchase program, including related-party repurchases.