8-K: Scholastic Reports Modest Revenue Growth in Fiscal 2025 Third Quarter, Affirms Adjusted EBITDA Outlook

Scholastic Corporation reported a 4% revenue increase and improved operating results for its fiscal third quarter ended February 28, 2025, while narrowing its Adjusted EBITDA outlook to approximately $140 million.

Summary

• Scholastic Corporation reported its fiscal 2025 third quarter results, showing a 4% increase in revenues to $335.4 million compared to $323.7 million in the prior year.
• The company's operating loss improved by 32% to $23.9 million, compared to a loss of $34.9 million in the same quarter last year.
• Adjusted EBITDA increased significantly by 183% to $6.0 million.
• The Children's Book Publishing and Distribution segment saw a 5% revenue increase to $203.3 million, driven by strong performance in Book Fairs and Clubs.
• Education Solutions revenues decreased by 16% to $57.2 million due to headwinds in the supplemental curriculum market.
• The Entertainment segment's revenues were $12.8 million, primarily due to the addition of 9 Story Media Group.
• International revenues increased by 5% to $59.3 million, excluding unfavorable foreign currency exchange.
• The company narrowed its full-year Adjusted EBITDA outlook to approximately $140 million and forecasts modest full-year revenue growth.
• Scholastic returned over $35 million to shareholders through share repurchases and dividends in the third quarter and increased its share repurchase authorization to $100 million.
• The company owns its headquarters building in Soho, New York City, and distribution facilities in Jefferson City, MO.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While revenue and EBITDA improved, the company lowered its guidance and faces headwinds in certain segments. The increased share repurchase authorization is a positive sign.

Positives

• Revenue increased by 4% to $335.4 million.
• Operating loss improved by 32% to $23.9 million.
• Adjusted EBITDA increased by 183% to $6.0 million.
• Children's Book Publishing and Distribution segment revenues increased by 5%.
• Book Fairs revenues increased by 8% to $110.7 million.
• Book Clubs revenues increased by 14% to $15.2 million.
• International revenues increased by 5% excluding unfavorable foreign currency exchange.
• Share repurchase authorization increased to $100 million.
• The company expects $11.1 million in rental revenue in fiscal year 2026 from its New York City headquarters building.
• Scholastic's branded YouTube channels drew almost 10 million views in February, up nearly 40 times from a year ago.

Negatives

• Education Solutions revenues decreased by 16% to $57.2 million.
• The company narrowed its full-year Adjusted EBITDA outlook to approximately $140 million, from $140 million to $150 million previously.
• The company now forecasts modest full-year revenue growth, compared to prior guidance of 4% to 6% growth.
• Net cash used by operating activities was $12.0 million, compared to net cash provided of $13.1 million in the prior year period.
• Free cash use was $30.7 million in fiscal 2025, compared to free cash use of $7.1 million in the prior period.

Risks

• Increasing pressure on family and school spending on books and educational materials.
• Continued slowdown in the supplemental curriculum market impacting the Education Solutions division.
• Intensifying spending pressure expected to continue into the fourth quarter.
• The tax basis on the Jefferson City, MO distribution facilities is low, reflecting many years of accumulated depreciation.

Future Outlook

The company has narrowed its outlook for Adjusted EBITDA to approximately $140 million and forecasts modest full-year revenue growth.

Management Comments

• Peter Warwick, President and Chief Executive Officer, said, Scholastic achieved modest revenue growth and improved operating results in the third quarter.
• Peter Warwick noted that strong performance by School Book Fairs and Clubs, successful new titles and the addition of 9 Story Media Group contributed to positive results.
• Management expects intensifying spending pressure to continue into the fourth quarter.

Industry Context

Scholastic's performance is being impacted by broader trends in the children's book and educational materials markets, including increasing pressure on family and school spending and a slowdown in the supplemental curriculum market. The company is leveraging its IP on platforms like YouTube, reflecting the shift in kids' media consumption habits.

Comparison to Industry Standards

• It is difficult to compare Scholastic directly to other companies due to its unique mix of publishing, education solutions, and media businesses.
• However, the company's book fair and club performance can be benchmarked against other children's book distributors, while its media segment can be compared to other children's entertainment companies like Disney or Nickelodeon.
• The growth in Scholastic's YouTube channel views is a positive sign, indicating successful monetization of its IP in the digital space, similar to how other media companies are expanding their digital presence.

Stakeholder Impact

• Shareholders will benefit from the increased share repurchase authorization and continued dividend payments.
• Employees may be affected by ongoing cost actions and restructuring initiatives.
• Customers will continue to have access to Scholastic's books and educational materials.
• Suppliers may be impacted by changes in Scholastic's spending and investment decisions.

Next Steps

• The company will continue to focus on long-term growth and profitability.
• Scholastic expects to continue purchasing shares, from time to time as conditions allow, on the open market or in negotiated private transactions for the foreseeable future.
• The segment continues to invest in new products for release in the 2025/2026 school year.
• The company has also begun a strategic review of this important and valuable business, as we explore options to optimize it for long-term success.

Key Dates

Keywords

Scholastic, financial results, third quarter, revenue, EBITDA, book fairs, book clubs, 9 Story Media Group, share repurchase, education solutions