Scholastic Corporation — Form 10-Q Summary
Reporting period: The filing covers the quarter ended February 29, 2024 and the nine months then ended (Scholastic fiscal 2024). This differs from the request metadata of “2023 Q3.” Financial figures are in millions of dollars unless otherwise noted.
Financial results and key metrics
| Metric | Q3 FY2024 | Q3 FY2023 | Nine months FY2024 | Nine months FY2023 |
|---|---|---|---|---|
| Revenue | $323.7 | $324.9 | $1,114.8 | $1,175.7 |
| Operating income (loss) | $(34.9) | $(27.7) | $(32.7) | $14.3 |
| Net income (loss) attributable to Scholastic | $(26.5) | $(19.2) | $(23.8) | $10.6 |
| Diluted EPS | $(0.91) | $(0.57) | $(0.80) | $0.30 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $84.7 | $28.9 |
- Consolidated cost of goods sold was 45.9% of revenue in Q3, versus 49.6% a year earlier; for the nine months it was 46.0%, versus 48.1%. Lower printing and freight costs helped, partly offset by royalties and, in Education Solutions, product mix, fulfillment and prepublication amortization.
- SG&A rose to $194.8 in Q3 from $178.0, and to $592.1 for nine months from $554.4. Increases included growth-related spending, labor and facilities costs, severance and $3.0 associated with the planned 9 Story investment. The prior-year periods benefited from approximately $3.3 of COVID-related subsidies and $5.0 of insurance recoveries for prior photo-litigation settlements.
- Segment results for the nine months: Children’s Book Publishing and Distribution revenue was $689.2 and operating income $68.5; Education Solutions revenue was $215.5 and operating loss $13.7; International revenue was $202.8 and operating loss $6.1. Unallocated overhead was $81.4.
Cash, debt and liquidity
- Cash and cash equivalents were $110.4 at February 29, 2024, down from $224.5 at May 31, 2023. Cash from operations of $84.7 was more than offset by $69.5 of investing outflows and $129.4 of financing outflows; cash declined $114.1 over the nine months.
- Operating cash flow improved by $55.8 year over year, primarily because inventory purchases were approximately $148 lower as purchasing returned toward historical patterns. Investing outflows included $43.8 of property, plant and equipment additions; financing outflows included $143.0 of common-stock reacquisitions and $18.9 of dividends.
- Total debt was $31.5, all classified as current: $25.0 outstanding under the $300.0 revolving credit agreement and $6.5 under international lines. The revolving borrowing rate was 6.77%; the company reported compliance with its financial covenants.
- Reported available capacity was $274.6 under the U.S. facility and $23.7 under short-term facilities. Management said liquidity was sufficient for anticipated operating, investing and financing needs. The business is seasonal, and its first and third fiscal quarters are generally lower-revenue periods.
Changes, outlook and notable items
- Q3 revenue was nearly flat year over year, while the net loss widened by $7.3. Nine-month revenue fell $60.9, and results shifted from prior-year net income to a loss.
- Children’s Book Publishing and Distribution revenue declined, especially in Book Clubs, as Scholastic reduced unprofitable offers and repositioned the business. Trade titles provided offsets; Book Fairs revenue was broadly steady. Education Solutions faced lower supplemental-material sales and timing shifts in summer-learning revenue. International revenue rose in Q3 but declined slightly over nine months.
- Management described Q3 performance as in line with expectations, noting modest revenue declines and higher expected losses in the seasonally small quarter, amid a complex U.S. school environment. It expects Education Solutions operating costs to remain elevated in Q4; it also said favorable Children’s segment cost of goods sold was expected to continue into Q4. No consolidated full-year numerical guidance is stated in the supplied filing text.
- On March 11, 2024, Scholastic signed an agreement to acquire 100% of the economic interests and a minority of voting rights in 9 Story Media Group for approximately $186, subject to adjustments and closing conditions. Closing was expected in Q1 FY2025. The company said it could initially finance the investment using its U.S. credit facility and would assess longer-term financing options.
- On March 20, 2024, the board declared a $0.20-per-share quarterly dividend and authorized an additional $54.6 for repurchases, bringing the stated current authorization to $100.0 after subsequent repurchases. At February 29, $46.0 remained under the then-current authorization; $142.7 of repurchases, including excise tax, were reported for the nine months.
- Other notable items: a $0.5 impairment charge for a leased sales office the company planned to vacate; acquisition of the remaining 5% of Make Believe Ideas for $2.1; and a reported absence of goodwill or intangible-asset impairment charges. Normal-course lawsuits were not expected to materially affect financial position or results, according to the company; the amount of anticipated insurance recoveries on a prior intellectual-property settlement was not yet reasonably determinable.
Key investor verification points
- Confirm the fiscal-period comparison: this is FY2024 Q3, ended February 29, 2024, despite the request metadata.
- Review the 9 Story purchase agreement, final price adjustments, Canadian approval and other closing conditions, funding plan, and potential impact on leverage and liquidity.
- Track whether Book Clubs’ repositioning and integration with Book Fairs stabilize revenue and improve profitability, and whether planned Book Fairs spending generates growth.
- Assess Education Solutions’ response to changing literacy instruction and the timing and recovery of summer-learning sales.
- Monitor cash usage, share repurchases and dividends alongside current debt, seasonal working-capital needs and covenant compliance.
- Review school-content and funding risks, including state restrictions or policy changes that could affect school sales or book fairs, as well as foreign-exchange and variable-rate borrowing exposure.