Scholastic Corporation (NASDAQ:SCHL) Q1 2026 Earnings Call Transcript

Scholastic Corporation (NASDAQ:SCHL) Q1 2026 Earnings Call Transcript September 18, 2025

Scholastic Corporation misses on earnings expectations. Reported EPS is $-2.52 EPS, expectations were $-2.44.

Operator: Good day, and thank you for standing by. Welcome to the Scholastic reports, First Quarter, Fiscal Year 2026 Results. [Operator Instructions] I would now like to hand the conference over to your speaker today, Jeffrey Matthews, Executive Vice President and Chief Growth Officer.

Jeffrey Mathews: Hello, and welcome, everyone, to Scholastic’s Fiscal 2026 First Quarter Earnings Call. Today on the call, I’m joined by Peter Warwick, our President and Chief Executive Officer; and Haji Glover, our Chief Financial Officer and Executive Vice President. As usual, we posted this call’s investor presentation on our IR website at investor.scholastic.com, which you may download now if you’ve not already done so. We would like to point out that certain statements made today will be forward-looking. These forward-looking statements, by their nature, are subject to various risks and uncertainties and actual results may differ materially from those currently anticipated. In addition, we will be discussing some non-GAAP financial measures, as defined in Regulation G.

The reconciliations of those measures to the most directly comparable GAAP measures may be found in the company’s earnings release and accompanying financial tables, filed this afternoon on a Form 8-K. This earnings release has also been posted to our Investor Relations website. We encourage you to review the disclaimers in the release and investor presentation and to review the risk factors disclosed in the company’s annual and quarterly reports, filed with the SEC. Should you have any questions, after today’s call, please send them directly to our IR e-mail address, investor_relations@scholastic.com. And now, I’d like to turn the call over to Peter Warwick, to begin this afternoon’s presentation.

Peter Warwick: Thank you, Jeff, and good afternoon, everyone. Scholastic had a productive summer, as we prepared for the back-to-school season and advanced important initiatives. As expected, our first quarter reflected the normal seasonality of our business, with an operating loss in line with previous years. We continue to make strong progress on our previously announced real estate monetization process, with significant investor interest in both our SoHo headquarters and our Jefferson City distribution center. We remain on track, with the time line, we outlined in July. Haji will share further details in his remarks. At the same time, we’re driving greater financial discipline and operational leverage across the company, while affirming our full year guidance.

These actions position us well, for profitable growth in the quarters and years ahead. In our Children’s Book Publishing and Distribution segment last quarter, trade sales were solid, strong continued demand for our global franchises drove unit sales in excess of the overall growth in the children’s and young adult markets. Suzanne Collins: Sunrise on the reaping, has now sold 3.7 million copies worldwide, since its March release. Looking ahead, in October, we’re excited to release the 25th title in Lauren Tarshis’s, I Survived series, another middle-grade best seller along with the illustrated addition of Catching Fire and the interactive illustrated edition of Harry Potter and the Goblet of fire. In November, we will publish a collector’s edition of Sunrise on the reaping, to sustain momentum ahead of Lionsgate’s feature film adaptation in 2026.

We’re also building towards another major global release, with Dave Pilkey’s, Dogman, big Jim believes. Preorders are tracking in line with the last dogman, positioning this newest title for a strong on sale. The Dog Man franchise has more than 70 million copies in print, across 48 languages. And next spring, Dave Pilkey’s Captain Underpants returns in an entirely new format, with the first Epic manga, illustrated by Motojero. In book fairs, quarter 1 represents only a small portion of annual revenue, given the school summer vacations, but early indicators are encouraging. Fall bookings are strong and ahead of last year’s bookings. Redemption of Scholastic dollars, our reward currency in book fairs is high, indicating good engagement with book fair hosts.

We’re also making progress in booking more larger fairs and reducing churn. In book clubs, quarter 1 also represents a small portion of annual revenue with year-over-year change, reflecting the timing of mailings. With the integration of trade fairs and clubs into the new Children’s Book group, we now have one aligned organization coordinating editorial, merchandising, marketing and distribution to maximize the reach and value of our publishing, across both our proprietary and retail channels. Our initial priority has been streamlining operations and infrastructure, enhancing data analytics, optimizing inventory and overhead and driving early cost savings while building a foundation for long-term profitable growth. Turning to Scholastic Entertainment.

We’re positioned for renewed growth, as industry greenlighting accelerates and our 360-degree IP strategy gains traction. Now with the capabilities and assets of 9-story Media Group fully integrated into our strategy and organization. We’re using YouTube as a launch pad for new properties after integrating all 9 story branded channels under the Scholastic banner. Clifford remains a cornerstone franchise, both in traditional linear and on digital platforms. We expect to surpass 10 million monthly views by calendar year-end, of classic Clifford content on YouTube and we’re supporting this with new publishing consumer products and promotional partnerships to lay the groundwork for Clifford’s next phase of growth. The trailer for Paris Hilton’s Paris & Pups dropped on all social media platforms and has been viewed more than 1.8 million times.

The Series YouTube launch is coming September 23, with episodes releasing weekly and toys launching in fall 2026, with Playmates Toys, as they announced this morning. Scholastic holds global publishing rights with tie-in books also scheduled for fall 2026. This approach, pairing digital-first content with publishing is central to our strategy. It not only expands the reach of our IP, but also builds brand affinity that flows back into book sales. As just announced, we’ve also launched the first ever Scholastic branded streaming app, in partnership with Future today. The app offers families a free, safe and trusted destination, to enjoy beloved scholastic programming on demand, with nearly 400 half hours of content and will scale to more than 1,300 half hours by fiscal 2027.

A significant marketing campaign begins this month to build awareness and adoption. Together, these initiatives are expanding the reach of Scholastic’s IP, creating high-margin digital revenue streams and strengthening our position at the intersection of Publishing and media. In Scholastic Education, sales were pressured in the quarter, by a volatile funding environment, reflecting the delay of some federal education grants and cancellation of others. Further, several states are facing budget impasses. In this challenging environment, we continue taking steps to strengthen this business for the long term. Under new leadership, the team is refocusing our go-to-market functions on our core strengths, rationalizing the product portfolio and prioritizing investments in high-impact offerings, like Knowledge library.

While near-term results remain constrained by the market, education continues to be central to Scholastic’s mission, we remain confident in its long-term potential. International results reflected continued portfolio rationalization and a focus on margin improvement. We see growth opportunities, in expanding English as a second language programs and in growing markets like India and the Philippines. Overall, Scholastic delivered a solid start to fiscal 2026. We advanced our strategy, including recent reorganizations, investing in some of our strongest franchises and IP, made progress on our potential real estate monetization and prepared for the important back-to-school season. With these actions, we’re affirming our full year guidance and remain confident in our ability to deliver meaningful profit growth, while continuing to create long-term value for our shareholders and lasting impact for children worldwide.

Thank you. And I’ll now turn it over to Haji.

Haji Glover: Thank you, Peter, and good afternoon, everyone. As usual, I will refer to our adjusted results for the first quarter, excluding onetime items unless otherwise indicated. Please refer to our press release tables and SEC filings for a complete discussion of onetime items. As Peter discussed earlier, our first quarter reflected the normal seasonality of our business, during the quiet summer months. I’m proud of our team’s hard work, preparing for the back-to-school season and we are well positioned to achieve our plan, this fiscal year and beyond. Beginning with our consolidated financial results and our typically small summer first quarter, when our school reading events division had minimum sales, revenues decreased 5% to $225.6 million.

Our seasonally adjusted operating loss improved to $81.9 million from $85.6 million, in the prior year period. Reflecting cost-saving initiatives, adjusted EBITDA was a loss of $55.7 million, an improvement from a loss of $60.5 million a year ago. Net loss was $63.3 million compared to $60.3 million, in the prior year period. On a per diluted share basis, adjusted loss increased to $2.52 compared to a loss of $2.13 last year, primarily reflecting lower shares outstanding due to share buybacks. As a reminder, Scholastic results are highly seasonal. In addition to first quarter, we also generally recorded an operating loss in our third quarter with profitable second and fourth quarters. Turning to our segment results. In Children’s Book Publishing and Distribution, revenues for the first quarter increased 4% to $109.4 million, reflecting growth in school book fairs.

Segment adjusted operating loss improved to $34.3 million from $36.6 million in the prior year period. Book fair revenue were $34.1 million in the quarter, an increase of 18%, driven by higher Scholastic dollar redemptions. Book Clubs revenue were $1.8 million in the quarter compared to $2.7 million a year ago, reflecting the timing of mailings, as Peter discussed. In our Trade Publishing division, revenues were $73.5 million in the first quarter, essentially flat with prior year period, reflecting continued strong demand for Hunger Games and Harry Potter titles. We are optimistic in our publishing plan for this fiscal year, which features many exciting new titles in upcoming quarters. Turning to Scholastic Education, Segment revenues were $40.1 million in the first quarter versus $55.7 million in the prior year period, reflecting lower spending on supplemental curriculum products and the timing of state sponsored program revenues.

Segment adjusted operating loss was $21.2 million in the first quarter compared to a loss of $17 million in the prior year period, reflecting lower gross profit, partly offset by cost cuts and careful expense control. Turning to our Entertainment segment. Revenues decreased by $3 million to $13.6 million compared to $16.6 million in the prior year, primarily driven by fewer episodic deliveries, as anticipated. Segment adjusted operating loss was $4 million, a decline of $5.2 million from the prior year quarter. The current year period includes $700,000 in incremental amortization expense on intangible assets related to the timing of the acquisition in the prior year period. As Peter discussed, we remain encouraged by recent momentum and are positioned for renewed growth, as industry green lighting accelerates.

International segment revenues were $59.4 million in the first quarter, up from $56.8 million a year ago. Excluding the $0.2 million year-over-year impact of favorable foreign currency exchange, segment revenues were up $2.4 million primarily driven by higher revenues in Australia, the U.K. and Asia. Segment adjusted operating results improved to a loss of $4.1 million compared to a loss of $8.3 million in the prior year period, reflecting higher revenues and continued optimization of this business. Unallocated overhead costs decreased by $6.6 million to $18.3 million in the first quarter primarily, driven by lower employee expenses from cost reduction initiatives. Now turning to cash flow and the balance sheet. In the quarter, seasonal net cash used by operating activities was $81.8 million compared to net cash used of $41.9 million in the prior year period.

This increase in cash use was primarily driven by fluctuations in net working capital with higher inventory purchases, including tariff charges, the timing of general operating expense payments, higher interest, partially offset by higher customer remittance. Severance payments were also higher as part of the cost-saving initiatives. Free cash used in the first quarter was $100.2 million compared to $68.7 million in the prior year period, reflecting lower cash flow from operations partially offset by lower capital expenditures. At quarter end, the company had borrowings of $325 million under its unsecured revolving credit facility. Net debt was $242.8 million compared to net debt of $136.6 million at the end of fiscal 2025, which was due to the working capital requirements.

In the first quarter, we continued to return excess cash to shareholders through our regular dividends of $5.2 million. We currently have $70 million remaining on our share buyback authorization. The company expects to continue purchasing shares time to time as conditions allow, on the open market or a negotiated private transactions for the foreseeable future. As we previously announced, the company retained Newmark Group, to identify investment partners for potential sale-leaseback transactions of all or part of its own office and retail real estate in New York City and its Jefferson City distribution centers. These processes have generated significant interest and are progressing. We expect both to conclude this fall. While there can be no guarantees of transactions of either or both properties, we remain optimistic about both in the context of our capital allocation priorities, which include debt reduction and share repurchases.

Now for our outlook for the remainder of the year. Our strategic efforts to align spending with long-term goals are driving favorable operating margins, supported by our ongoing SG&A optimization. Our goal for these actions is to sustainably lower our cost structure, especially with respect to non-revenue generating and consulting expenses. As for the impact of tariffs, we are closely following changes in policy and continue to expect approximately $10 million of incremental tariff expenses this fiscal year in our cost of product. We expect a strong second quarter benefiting from major trade releases. As Peter previously indicated, we are affirming our fiscal year 2026 guidance for revenue growth of 2% to 4%. Adjusted EBITDA of $160 million to $170 million and full year free cash flow between $30 million and $40 million.

Thank you for your time today. I’ll hand the call back to Peter for his final remarks.

Peter Warwick: Thank you, Haji. In conclusion, after a solid start to the fiscal year and the return of students to schools, Scholastic is positioned well to continue its momentum and execute its plan for substantial earnings growth in fiscal 2026. As I laid out in July, our plan is focused on building Scholastic’s long-term opportunity as a global leader in the children’s publishing, media and education spaces meeting kids, families and schools essential needs to educate, inform and engage kids. In support of that, we continue to reduce costs, strengthen our organization, return capital to shareholders and take steps to optimize our capital structure and balance sheet. We look forward to providing our next update in December, after a big second quarter. Thank you all very much. Let me now turn the call over to Jeff.

Jeffrey Mathews: Thank you, Peter. With that, we will open the call for questions. Operator?

Q&A Session

Operator: [Operator Instructions] Our first question comes from Brendan McCarthy with Sidoti.

Brendan Michael McCarthy: I just wanted to start off looking at the Education Solutions business. I know we just wrapped up the summer months. But I’m curious if you’ve had any early feedback on some of the new products that you brought to the market and maybe how they’ve have been resonating with schools or students.

Jeffrey Mathews: Brendan, this is Jeff here. I’ll step in as the head of this — interim head of this business. Look, we were getting great feedback from customers around some of the new products. Of course, it’s a difficult selling situation. As Peter described, there are some delays and cancellations of some federal funds. So I think in that environment, we are very encouraged by the — what we’re hearing particularly with knowledge library and as well as our core products, our classroom libraries and our classroom magazines.

Brendan Michael McCarthy: Got it. I appreciate the color, Jeff. And I guess, at this point, what do you think — so I understand there’s been the pause in spending from states and school districts. What do you think are key variables to keep an eye on that would ultimately turn this trend around.

Jeffrey Mathews: That’s a good question. And it’s important to understand it’s not — there hasn’t — the schools are continuing to spend money. It’s an environment when the certainty of future funds is low, they are more likely to hold back on anything but the most necessary must-have purchases. What we’re doing — our strategy is very much focused on helping our customers understand why Scholastic’s products align with their most critical needs. Of course, as there’s greater funding certainty and we’ve seen that some of the federal programs that had been paused or some federal grants have been paused were released in late August. As there becomes more certainty, we expect that school district and — school and district leaders will be more forthcoming with and more confident in their ability to purchase because there’s no question schools continue to need materials in the classroom.

In many cases, they’ve made significant investments in their core curricula over the last year or 2. This is a time when they start to need to fill out their classrooms with additional materials, to support their teachers and support their students. So with that respect, the cycle is favorable, it’s just getting through this moment of uncertainty that has been caused by volatility, largely in Washington.

Brendan Michael McCarthy: That makes sense. Jeff, certainly something to keep an eye on there. I wanted to turn to the Entertainment segment. I know your priority has really been focused on getting some content up on to YouTube, where there’s the advertising revenue share model. I guess what’s the — when can we expect to really see that kind of flow through into the financial statements into the P&L? And I guess more of a long-term perspective to what does long-term success really look like with the 9-story media business?

Peter Warwick: It’s Peter here, Brendan. Look, the digital model that we now have and the digital income that we’re getting is high margin and it’s going to grow. So that’s really — that’s a really good thing for us. It’s about — we will see the major benefits, going progressively out into the future. It’s not — there’s not going to be some sort of like sudden change this quarter or next quarter, if you know what I mean. But there’s a lot of — what’s going on, is the benefits of what we’re doing with things like YouTube and so on. Is that it’s not just a source of high-value revenue. It’s also exposing our brand and it’s driving kids to buy books about Clifford or whatever as well. I mean, we now have 1.2 million subscribers, to Scholastic channels on YouTube.

We didn’t have those before and so this is a major thing. And we are pretty confident that over time, this is going to be a major source of high — it’s high margin revenue because it’s the revenue share from the advertising that comes with it. And it’s also — it’s part of this 360-degree strategy that we’ve talked to you and others about that we are able to — what we’re really doing is integrating as closely as possible, both a publishing and media strategy and seeing the interrelationships between the 2 and gaining benefits from both our media and our book properties.

Brendan Michael McCarthy: Right. That makes sense. Peter. I guess just in terms of scale, are you able to maybe quantify what the revenue opportunity might look like as it relates to 9 story. And I guess, strictly speaking from the perspective of monetizing the digital content side.

Haji Glover: This is Haji. Just taking that question from you. So right now, we’re really in early stages of this and we’re going to try to really see — right now, we’re only on 2 platforms with the opportunity to increase that to another 6 or 7 platforms. And I think when we look at it, this has been both an opportunity for us to get our content in front of new viewership and really build on the success of what we already have. But being able to actually quantify this impact is probably going to take us a few months as we see the viewership grow. And then once again, we’re dealing with a partner in this and sharing the share of that revenue. And most likely, we’ll see this opportunity or upside in 2027.

Brendan Michael McCarthy: Understood. One question for me on the cost structure side, looking at SG&A. Just curious as to where you’re taking cost out of the business and where — maybe where you see additional room for expense reduction there?

Haji Glover: Well, I can say this that we really dove deep into the restructuring of the organization and this fiscal year — early part of this fiscal year and we continue to define areas or where those opportunities for us to reduce spend, we will do. But we did — we definitely took a really good look at it prior to actually given our guidance, and our guidance reflects the majority of our spend reductions. I think we announced somewhere between $15 million and $20 million of price cost reductions. And we’re right now seeing the fruition of that come through in our financials.

Brendan Michael McCarthy: Got it. Got it. One more question for me just on the guidance affirmation. I guess at this point, I know we’re only at the start of the school year. But at this point, what variables might cause a material underperformance or outperformance of the full year fiscal guide?

Haji Glover: For us, it’s all about understanding where the retail market is. As you know, we’re experiencing a lot of things in the marketplace. Consumer and school spending is somewhat in question. But we feel very confident in the plan we put out from an organization perspective. I don’t foresee any major concerns from my side, what’s going on. But there could potentially be some upside and downside, and we’re going to manage it as an organization. And that’s why we leave the opportunity to be very conservative on how we approach things. But at the end of the day, we want to continue to invest in growth, which is in our revenue side of the business and fall back on things that do not generate revenue and the most important thing for us is the concerns of tariffs, as it reflects our business because we are a retail business.

And those expenses, which we’ve already planned for, which is about $10 million this year, we’re continuing to monitor all the things that are going on with the government, down in D.C.

Peter Warwick: And I think it’s — Brandon, the other thing is that, as I mentioned, school book fairs are the number of fairs that we have are up. And it’s too early to tell. But clearly, a key thing that matters to us is things like revenues per fare, the average revenue for fare. We haven’t had enough fairs yet to be able to be able to calculate that yet. But I think we’re — we’ll see about that. No reason to think that we’re not on track with what our planning is. And it’s good having a number of fairs booked being up. So that’s also a good thing.

Operator: Our next question comes from [indiscernible] with B. Riley Securities. .

Unknown Analyst: I want to go back to the Education Solutions business. You flagged the funding uncertainty as an impact on spending for supplemental materials. I think in the recent past, you’ve also indicated you expect market conditions to get better over the next 12 to 24 months. How do we reconcile those 2? Should we anticipate a similar trajectory for the business as we observed in 1Q as you move through fiscal ’26? Or do you think things stabilize as an opportunity to improve profitability as you move through the year?

Jeffrey Mathews: Drew, this is Jeff again. We are expecting, based on the current patterns that this year will be more back-end loaded than previously. it’s been inside baseball, but we have shifted our selling year to be aligned with our fiscal year. That going to give us — which will mean we’ll go into Q4 with a very full pipeline. We didn’t start Q1. This summer, we started with an empty pipeline. We also expect that as we, you’ve seen this as I’m sure you were doing monitoring the headlines around federal education policy in the states that some of these — the delays over the summer and in the spring, which, of course, have — there’s a long lead time with part purchases given selling cycles. Those were particularly hard hitting over the summer, we expect we’re hopeful that will — those headwinds will moderate over the fall and into the spring.

And we’re doing everything we can to be very well positioned, of course, to lean into the market now, sopping up money that’s available and then make sure we’re ready for a very big spring selling season.

Unknown Executive: Also on top of that, Drew, just to be clear that we are very diligent about our frugality and what we spend and how we continue to look at our expenses within that business. So I just want to make sure you’re clear on that.

Unknown Analyst: Okay. All right. Helpful. Maybe looking at fiscal 2Q, Peter, I think you characterized your expectations for the quarter or that it will be big. I’m curious as if you can expound upon that and kind of what the puts and takes are for the quarter.

Peter Warwick: Well, I think — I mean, first of all, there’s the trade — just looking through the segments, really. If you look at trade publishing, we’ve got a big quarter 2. And we’ve got some really good stuff coming, including a new Dog Man. And all the indications that we’re seeing with advanced sales in and all the rest of it are in giving us good feelings that that’s going to be significantly higher than we had in quarter 2 last year. And we’re feeling pretty good about the year as a whole as well. The other areas such as book fairs, I mean, as we mentioned before, the fair count in quarter 2 — in our quarter 2 will be higher than the fair count in the prior year. And that’s — the bookings are up and everything is looking pretty good at the moment, but it’s — I can’t give you any more information than that because we really need to have more fairs actually done sorted out and all the rest of it.

But what I can tell you is that I think the folks doing it psychologically are feeling pretty good. So that’s — I’ll take that. The other thing that we’re seeing in terms of puts and takes is actually our cost base. I mean you’d see even in education that we had — there was a significant reduction in year-over-year revenues, but the difference in revenues was pulled very significantly down when you actually look at the — when you look at your sales were down $15 million, but OI was only down by $4 million. And that’s because of the cost savings that we’ve been making. The other benefit that we’ve had, just on the cost side is our operating expenses generally and the things that we’ve been doing. And those will — some — a lot of that was created in quarter 1, but a lot of it is also a flow-through from the benefits that we had in costs in the second half of the prior financial year.

They’re flowing through now. So I’m feeling good about all of those things. I think the other thing that we’ve seen is we’ve had a good pickup in international markets as well, particularly U.K. and Australia and New Zealand. I mean Australia, the whole education year and school book fair is the other way around as we want to hear. So they’re busy and active at the moment, and we had a good quarter 2 from quarter 1, sorry, from them. The other thing we’ve seen is that our book business, particularly in the U.K. has been doing very well, especially with some of these key titles like Sunrise on the reaping, Suzanne Collins’s is Hunger Games series, Dog Man, et cetera, et cetera. So those are — they’re all making me feel pretty good about quarter 2 at the moment.

And they give me a strong sense that we’re — the guidance that we’ve given for the year is we’re absolutely on track for that. And in terms of our internal expectations, we were happy with what we were doing in quarter 1. They were — that from an internal — the way we’ve been targeting and we’ve be expecting that was — that’s good.

Unknown Analyst: Great. And then maybe one last one for me for Haji. You outlined the drivers behind the negative variance for cash flow and free cash flow, specifically in your preamble versus the year ago period. It sounds like you believe you can make that up over the balance of the fiscal year. What are the swing factors to achieving that?

Haji Glover: So the majority of it is actually around our revenue and how we sort of forecast our revenue for the year. So receipts are going to come in a little bit stronger first half — excuse me, second half versus first half. That’s number one. Number 2 is we’re really tightly watching. And actually, our forecast for spending on capital expense is a different profile than last year. We made significant investments last year on our One Scholastic fulfillment center. Those are actually coming down year-on-year. So that’s number one. And then number two, just the things that we’re looking at to invest in from a growth perspective, a slightly different profile this year than last year. So I’m extremely excited about where we are.

And then last thing I want to say is we both had the Dave Pilkey and Suzanne Collins to pay last year, whereas this year, we only have to pay just Dave Pilkey, in terms of the new titles that are being released. So that’s another thing. So I’m very excited and confident about where we are, from a capital perspective and where we’re spending our money this year.

Operator: And this concludes our Q&A. I will pass the call back to management for any closing remarks.

Peter Warwick: Well, thank you very much. And also thank you to our authors and illustrators, educators, employees. It’s their hard work and creativity that drives our success. And I’d also like to thank our shareholders and all, who joined us this afternoon live or on the recorded call later. We appreciate very much your support. Bye.

Operator: Thank you. Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.