Scholastic Corporation Q1 FY2026 earnings call

Management Statement and Operational Highlights

• Real Estate: Making progress on real estate monetization process with significant investor interest in SoHo headquarters and Jefferson City distribution center, on track with timeline outlined in July.
• Children's Book Publishing: Strong demand for global franchises like Suzanne Collins' 'Sunrise on the Reaping' and Dave Pilkey's 'Dog Man'. Fall book fair bookings strong, ahead of last year; redemption of Scholastic dollars high. Integrated trade fairs and clubs into new Children's Book group to streamline operations.
• Scholastic Entertainment: Positioned for renewed growth with 9-story Media Group integration. Clifford franchise on track for 10M monthly views on YouTube by year-end. Launched Scholastic branded streaming app; Paris Hilton's 'Paris & Pups' trailer viewed over 1.8M times.
• Education: Despite funding uncertainties, receiving positive feedback on new products like Knowledge Library. Strategy focused on aligning with school needs and waiting for funding certainty to increase purchases.
• Cost Management: Driving financial discipline and operational leverage, with unallocated overhead costs decreasing $6.6 million in Q1.

Segment Performance

• Children's Book Publishing and Distribution: Revenues increased 4% to $109.4 million in Q1. Book fair revenue was $34.1 million, up 18% due to higher Scholastic dollar redemptions. Segment adjusted operating loss improved to $34.3 million from $36.6 million prior year. Book Clubs revenue was $1.8 million, down from $2.7 million year-over-year.
• Trade Publishing: Revenues were $73.5 million in Q1, essentially flat with prior year, reflecting strong demand for Hunger Games and Harry Potter titles.
• Scholastic Education: Segment revenues were $40.1 million in Q1, down from $55.7 million prior year, due to lower spending on supplemental curriculum products and timing of state-sponsored program revenues. Segment adjusted operating loss was $21.2 million, wider than prior year's $17 million.
• Scholastic Entertainment: Revenues decreased by $3 million to $13.6 million, primarily due to fewer episodic deliveries. Segment adjusted operating loss was $4 million, a decline from prior year but including incremental amortization expense.
• International: Revenues were $59.4 million in Q1, up from $56.8 million prior year. Excluding foreign currency impact, revenues up $2.4 million, driven by higher revenues in Australia, U.K., and Asia. Segment adjusted operating results improved to a loss of $4.1 million from $8.3 million prior year.

Guidance

• Affirmed full year fiscal 2026 guidance: Revenue growth 2% to 4%, adjusted EBITDA $160 million to $170 million, full year free cash flow between $30 million and $40 million.
• Expect strong second quarter benefiting from major trade releases.
• Continues to focus on cost reduction and operational leverage for profitable growth.

Risks

• Forward-looking statements subject to various risks and uncertainties where actual results may differ from anticipations.
• Impact of tariffs: Closely following policy changes, expecting approximately $10 million of incremental tariff expenses in fiscal year.
• Market volatility: Uncertainty in school district spending due to funding delays and budget impasses affecting the Education segment.

Q: Feedback on new Education Solutions products and how they're resonating with schools?

A: Jeff Matthews said they're getting great feedback, especially on Knowledge Library and core products, though it's a challenging selling environment due to funding uncertainties.

Q: Variables to turn around spending trend in Education?

A: Jeff Matthews noted schools continue to spend, but certainty of future funds is key; as funding certainty increases, school districts will be more confident in purchasing. Also, schools need to fill classrooms with additional materials after investing in core curricula.

Q: When will Entertainment segment's digital flow through to P&L?

A: Peter Warwick stated digital model is high margin and will grow progressively, not a sudden change soon, but benefits from YouTube and other digital efforts will be a major source of high-margin revenue over time.

Q: Quantifying revenue opportunity for 9-story media business?

A: Haji Glover said they're in early stages, on 2 platforms with opportunity to increase to 6-7, and it's an opportunity to build viewership and drive book sales, but quantifying impact will take a few months.

Q: Reconciliation of funding uncertainty impact on Education business trajectory?

A: Jeff Matthews said this year will be more back-end loaded, shifted selling year to align with fiscal year, expecting headwinds to moderate over fall and spring, and positioned to be ready for big spring selling season.

Q: Swing factors for cash flow improvement in remaining fiscal year?

A: Haji Glover mentioned receipts coming in stronger in second half, different capital expense profile than prior year (lower investments in One Scholastic fulfillment center), and focusing on growth investments with a different profile this year.