Scholastic (SCHL) Q1 2026 Earnings Call Transcript

Image source: The Motley Fool.

DATE

Sep. 18, 2025 at 4:30 p.m. ET

CALL PARTICIPANTS

President and Chief Executive Officer — Peter Warwick

Chief Financial Officer and Executive Vice President — Haji Glover

Executive Vice President and Chief Growth Officer — Jeffrey Mathews

Need a quote from a Motley Fool analyst? Email pr@fool.com

RISKS

Education Solutions Funding Volatility-- Sales pressured by a "volatile funding environment," according to Peter Warwick, with explicit mention of federal grant delays and cancellations as well as state budget impasses adversely impacting the segment.

Higher Net Debt-- Net debt rose to $242.8 million from $136.6 million at the end of fiscal 2025, resulting from increased working capital requirements and elevated cash use in the quarter.

Incremental Tariff Expenses-- Management expects approximately $10 million in incremental tariff costs in fiscal 2026, which will elevate product cost structure.

TAKEAWAYS

Revenue-- $225.6 million, down 5%, attributed to seasonally minimal school reading events division sales.

Adjusted Operating Loss-- Adjusted operating loss of $81.9 million, an improvement from $85.6 million in the prior year, reflecting successful cost-saving initiatives.

Adjusted EBITDA-- Loss of $55.7 million in adjusted EBITDA, better than the $60.5 million loss last year, indicating effective expense management.

Net Loss-- $63.3 million compared to $60.3 million in the prior year period, with higher per-share adjusted loss caused by lower shares outstanding due to buybacks.

Children's Book Publishing & Distribution Revenue-- Increased 4% to $109.4 million, led by a strong book fairs performance.

Book Fairs Revenue-- $34.1 million, up 18%, driven by higher Scholastic Dollar redemptions.

Book Clubs Revenue-- $1.8 million, down from $2.7 million, reflecting timing of mailings.

Trade Publishing Revenue-- $73.5 million, flat as continued demand for flagship franchises offset other shifts.

International Revenue-- $59.4 million, up from $56.8 million, driven by Australia and favorable foreign currency of $200,000.

International Adjusted Operating Loss-- Improved to $4.1 million from $8.3 million as cost restructuring lowered employee expenses (adjusted operating results).

Free Cash Use-- $100.2 million, up from $68.7 million, primarily due to higher inventory, operating expenses, interest, and severance payments, partially offset by remittance increases.

Shareholder Return-- $5.2 million paid in regular dividends with $70 million remaining on buyback authorization.

Real Estate Monetization-- Sale-leaseback processes for SOHO headquarters and Jefferson City distribution center drawing strong investor interest and expected to conclude this fall.

Full-Year Guidance Affirmed-- Management reiterated its revenue growth outlook of 2%-4%, adjusted EBITDA of $160 million-$170 million, and free cash flow of $30 million-$40 million for fiscal 2026.

SUMMARY

Scholastic(NASDAQ:SCHL) management highlighted an improvement in operating and adjusted EBITDA losses despite a seasonal revenue dip. The Children's Book Publishing and Distribution segment outperformed on book fairs and maintained strong sales in trade publishing, bolstered by successful global franchises. Operating leverage was achieved through cost-saving initiatives, mitigating the impact of funding headwinds in Education Solutions and supporting improved international results. Leadership confirmed "significant investor interest" according to Peter Warwick in real estate monetization assets and expects those processes to close in fall, which aligns with capital allocation priorities, including debt reduction and continued buybacks. High-margin digital initiatives, particularly the consolidation of Nine Story Media Group assets and YouTube strategy, are positioned as long-term income drivers, with near-term results visible in subscriber growth and engagement rather than immediate financial impact.

CEO Warwick stated, "We remain on track with the timeline we outlined in July" for the real estate monetization process, emphasizing tangible progress in strategic asset sales.

Revenue in the International segment grew mainly in Australia, supported by "portfolio rationalization and a focus on margin improvement," according to Peter Warwick, suggesting targeted geographic and operational strategies.

Management called out the impact of cost optimization, noting that "Unallocated overhead costs decreased by $6.6 million to $18.3 million," according to Haji Glover, demonstrating SG&A discipline.

President Warwick said, "The Dogman franchise has more than 70,000,000 copies in print across 48 languages," underscoring the scale of proprietary IP reach supporting recurring sales.

Preorders for Dave Pilkey’s upcoming Dogman title "are tracking in line with the last Dogman," according to Peter Warwick, signaling continuity in franchise momentum ahead of its release.

INDUSTRY GLOSSARY

Scholastic Dollars: A proprietary reward currency used at Scholastic book fairs for book fair hosts to redeem for products or services, indicating host engagement and fair activity.

Sale-Leaseback: A transaction in which an entity sells real estate assets and simultaneously enters into a lease to continue using the property, commonly applied for capital allocation and balance sheet optimization.

Greenlighting: The formal approval to proceed with production of new entertainment content, often related to digital or media properties in the publishing industry.

Full Conference Call Transcript

Operator: Good day, and thank you for standing by. Welcome to the Scholastic Reports First Quarter Fiscal Year 2026 Results. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speakers' presentation, there will be a question and answer session. Press star one on your telephone and wait for your name to be announced. To withdraw your question, please press star one again. I would now like to hand the conference over to your speaker today, Jeffrey Mathews, Executive Vice President and Chief Growth Officer. Hello, and welcome everyone to Scholastic's fiscal 2026 First Quarter Earnings Call.

Today on the call, I am joined by Peter Warwick, our President and Chief Executive Officer, and Haji Glover, our Chief Financial Officer and Executive Vice President.

Jeffrey Mathews: As usual, we posted this call's investor presentation on our IR website at investor.scholastic.com, which you may download now if you have 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.

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 email address investor_relations@scholastic.com. And now I would 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 continued 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 timeline we outlined in July. Haji will share further details in his remarks. At the same time, we are 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 3,700,000 copies worldwide since its March release.

Looking ahead, in October, we are excited to release the twenty-fifth title in Laurent Tasha's I Survive series, another middle-grade bestseller along with the illustrated edition 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 are 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 Dogman franchise has more than 70,000,000 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 Motojiro. In book fairs, quarter one represents only a small portion of 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 are also making progress in booking more larger fairs and reducing churn. In book clubs, quarter one 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 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 are positioned for renewed growth as industry greenlighting accelerates and our 360-degree IP strategy gains traction.

Now with the capabilities and assets of Nine Story Media Group fully integrated into our strategy and organization, we are using YouTube as a launch pad for new properties after integrating all Nine Story branded channels under the Scholastic banner. Clifford remains a cornerstone franchise, both in traditional linear and on digital platforms. We expect to surpass 10,000,000 monthly views by calendar year-end of classic Clifford content on YouTube. And we are 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 and Pops dropped on all social media platforms and has been viewed more than 1,000,000 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 have 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 we 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 are 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 investment 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, invested 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 are 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 will 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 one-time items unless otherwise indicated. Please refer to our press release tables and SEC filings for a complete discussion of one-time items. As Peter discussed earlier, our first quarter reflected the normal seasonality of our business during the quiet summer months. I am 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. In 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 the 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 was $34.1 million in the quarter, an increase of 18% driven by higher Scholastic dollar redemptions. Book clubs revenue was $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 the 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, turning to Scholastic Education, which features many exciting new titles in upcoming quarters.

Reflecting lower gross profit, a loss of $17 million in the prior year period. Operating loss was $4 million, a decline of $5.2 million from the prior year quarter. Acquisition in the prior year period. Remain encouraged, as Peter discussed, by recent momentum and our position for renewed growth as industry greenlighting. The current year period includes $700,000 in incremental amortization expense on intangible assets related to the timing of the accelerates. International segment revenues were $59.4 million in the first quarter, up from $56.8 million a year ago. Exchange. Segment revenues were up $2.4 million, primarily driven by higher revenues in Australia, excluding the $200,000 year-over-year impact of favorable foreign currency. The UK, 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, primarily driven by lower employee expenses from cost reduction initiatives. Unallocated overhead costs decreased by $6.6 million to $18.3 million in the first quarter, operating activities was $81.8 million compared to net cash used of $41.9 million in the prior year period. Now turning to cash flow in the balance sheet. Increase in cash use in the quarter, seasonal net cash used by this 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. Reflecting lower cash flow from operations partially offset by lower capital expenditures. Free cash used in the first quarter was $100.2 million compared to $68.7 million in the prior year period. Revolving credit facility. At quarter-end, the company had borrowings of $325 million under its net debt $242.8 million compared to net debt $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 from time to time as conditions allow, on the open market or in 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 in 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 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 will 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 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: As a reminder, to ask a question, please press one on your telephone and wait for your name to be announced. To withdraw your question, please press one again. One moment for questions. Our first question comes from Brendan Michael McCarthy with Sidoti. You may proceed.

Brendan Michael McCarthy: Great. Good afternoon, everybody. Appreciate you taking my questions here. I just wanted to start off looking at the Education Solutions business. I know we just wrapped up the summer months. But I am curious if you have had any early feedback on some of the new products you brought to the market. Maybe how they have been resonating with schools or students.

Jeffrey Mathews: Hi, Brendan. This is Jeff here. I will step in as interim head of this business. Look, we are getting great feedback from customers around some of the new products. Of course, it is 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 what we are 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 are key variables to keep an eye on that would ultimately turn this trend around?

Jeffrey Mathews: Yeah. That is a good question. It is important to understand that there has not been an environment when schools are continuing to spend money. It is the certainty of future funds that is low, they are more likely to hold back on anything but the most necessary must-have purchases. What we are 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 is greater funding certainty, and we have seen that. Some of the federal programs that had been paused or some federal grants have been paused were released in late August. Excuse me.

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 is no question schools continue to need materials in the classroom. In many cases, they have made significant investments in their core curricula in the last year or two. 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 is just getting through this moment of uncertainty that has been caused by volatility, largely in Washington.

Brendan Michael McCarthy: That makes sense. Thanks, 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 onto YouTube, where there is the advertising revenue share model. I guess, when can we expect to really see that kind of flow through into the financial statements, you know, into the P&L and what does long-term success really look like? I guess more of a long-term perspective too, what does it look like with the Nine Story Media business?

Peter Warwick: Hey. It is Peter here, Brendan. Look, the digital model that we now have and the digital income that we are getting is high margin. And it is going to grow. So that is really a good thing for us. It is about we will see the major benefits going progressively out into the future. It is not going to be some sort of sudden change this quarter or next quarter, if you know what I mean. But a lot of what is going on is the benefits of what we are doing, things like YouTube, and so on, is that it is not just a source of high-value revenue.

It is also exposing our brand, and it is 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 did not 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-margin revenue because it is the revenue share from the advertising that comes with it. And it is also part of this 360-degree strategy that we have talked to you and others about, that we are able to talk 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 two in our quarter two will be higher than the fair count in the prior year. And that is, you know, the bookings are up. And everything is looking pretty good at the moment. But I cannot 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 is, you know, I will take that.

The other thing that we are seeing for, you know, in terms of puts and takes is actually our cost base. I mean, you would see even in education, that, you know, we had that 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, you know, when you look at the sales were down $15 million, but OI was only down by $4 million. And that is because of the cost savings that we have been making. The other benefit that we have had just on the cost side, is our operating expenses generally and things that we have been doing.

And those will, some of that was created in quarter one, but a lot of it is also flow through from the benefits that we had in costs in the second half of the prior financial year. They are flowing through now. So I am feeling good about all of those things. I think the other thing that we have seen is, we have had a good pickup in one or two international markets as well, particularly the UK and Australia and New Zealand. I mean, Australia, you know, the whole education year and school book fair is the other way around as you want to hear.

So they are busy and active at the moment, and we had a good quarter one from them. The other thing we have seen is that our book business in the UK has been doing very well, especially with some of these key titles like Sunrise on the Reaping, Suzanne Collins' Hunger Games series, Dog Man, etcetera, etcetera. So those are, you know, they are all making me feel pretty good about quarter two at the moment. And, you know, they give me a strong sense that the guidance that we have given for the year is we are absolutely on track for that.

And, you know, in terms of our internal expectations, we were happy with what we were doing in quarter one. They were, you know, from an internal the way we have been targeting and expecting, that was, you know, that is good.

Brendan Michael McCarthy: Great. Thanks, Peter. 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. 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 are forecast our revenue for the year. So receipts are going to come in a little bit stronger in the second half versus the first half. That is number one. Number two is that we are 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 once Scholastic fulfillment center. Those are actually coming down year on year. So that is number one. And then number two, just the things that we are looking at to invest in, from a growth perspective, slightly different profile this year than last year.

So I am extremely excited about where we are. And then the last thing I want to say is, we both had the Dave 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 is another thing. Perspective and where we are spending our money this year. So I am very excited and confident about where we are from a capital perspective.

Brendan Michael McCarthy: Alright. Thank you, Drew. Okay. Alright. Appreciate it, guys. Thanks.

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

Jeffrey Mathews: Well, thank you very much, and also, thank you to our authors and illustrators, employees. You know, it is their hard work and creativity that drives our success. And I would 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.

Where to invest $1,000 right now

When our analyst team has a stock tip, it can pay to listen. After all, Stock Advisor’s total average return is 1,056%* — a market-crushing outperformance compared to 188% for the S&P 500.

They just revealed what they believe are the 10 best stocks for investors to buy right now, available when you join Stock Advisor.

See the stocks »

*Stock Advisor returns as of September 15, 2025

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.