Scholastic Corporation Q4 FY2025 earnings call

• Children's Book Publishing and Distribution: Strength in publishing with Hunger Games and Dog Man titles, book fairs saw higher fair counts but slightly lower revenue per fair, book clubs had profit contribution growth. Trade publishing benefited from new titles. Strategic integration of Children's Book group.
• Entertainment: Integration of 9 Story enhanced reach and monetization, green lights for new productions like Dasher, Sam Witch, and renewal of Daniel Tiger's Neighborhood. Strong YouTube engagement and development of new series.
• Education: Repositioning for sustainable growth, focusing on core strengths and customer segments, rationalizing product portfolio. State and community literacy partnerships showed strength.
• International: Revenue and profit increase, realigned International Education business for improved efficiency, expected to grow profit in 2026.

Children's Book Publishing and Distribution segment

• Fourth quarter revenue increased 9% to $288.2 million, full-year revenue up 1% to $963.9 million.
• Book fair revenue in Q4 was $177.8 million, up 5%, full-year $548.3 million, up 1%. Partially offset by modestly lower revenue per fair but higher fair count.
• Book Clubs revenue in Q4 was $13.1 million, down 9%, full-year revenue up 2% to $64.2 million, reflecting higher revenue per sponsor and increased orders during the year.
• Trade Publishing Q4 revenue up 19% to $97.3 million driven by the latest Hunger Games title, full-year revenue up 1% to $351.4 million due to strong sales of global best-selling franchises.

Entertainment segment

• Q4 revenue $14.8 million vs $0.6 million prior year, full-year revenue $61 million vs $1.9 million prior year. Gains from acquisition of 9 Story Media Group. Strong engagement on YouTube, with average view duration on Scholastic channels exceeding 20 minutes in May.

Education segment

• Q4 revenue $125.7 million, down 7%, full-year revenue $309.8 million, down 12% due to pressure in the broader supplemental curriculum market. However, state and community literacy partnerships showed strength.

International segment

• Q4 revenue increased 8% to $76.8 million, full-year revenue up 2% to $279.6 million. Driven by strong trade channel performance, especially for Hunger Games and Dog Man titles.

• Adjusted EBITDA targeted to grow strongly in fiscal 2026, midpoint expects 20% growth excluding $10 million incremental tariff expense.
• Revenue expected to grow modestly (2%-4%) reflecting core business strength but continued consumer spending headwinds.
• Fiscal 2026 free cash flow expected $30 million-$40 million.
• Cost savings initiatives expected to contribute to higher profitability, with $15 million-$20 million in additional cost savings plus gross profit improvements.

• Macroeconomic environment pressure on consumer and school spending.
• Tariff impact on cost of product, especially for nonbook and novelty items sourced from countries with tariff increases.
• Continued pressure in the broader supplemental curriculum market for Education segment.

Q: Curious as to what are the sources of those cost savings going forward?

A: A majority of the cost actions are coming out of more discretionary functions, things that are not really revenue-driven.

Q: Curious as to what are the kind of driving factors behind the expectation of flat revenue in Education Solutions business in fiscal '26?

A: Parts of the education business are going well like state-sponsored work, market cyclically difficult but expected to improve, and repositioning the business for efficiency and growth.

Q: From a profitability standpoint, what's your expectation for the entertainment business for fiscal '26?

A: Expect it to be slightly lower but in line with this year, with inflationary impacts on the production side.