Scholastic Management Discusses Q2 2013 Results - Earnings Call Transcript
December 20, 2012 12:50 PM ET
Q2 2013 Earnings Call
December 20, 2012 8:30 am ET
Richard Robinson - Chairman, Chief Executive Officer, President and Chairman of Executive Committee
Maureen E. O’Connell - Chief Financial Officer, Chief Administrative Officer and Executive Vice President
Margery W. Mayer - Executive Vice President and President of Scholastic Education
Judith A. Newman - Executive Vice President and President of Scholastic Book Clubs & E-Commerce
Ellie Berger - President of Trade Publishing Division
Andrew E. Crum - Stifel, Nicolaus & Co., Inc., Research Division
Good day, ladies and gentlemen, and welcome to the Scholastic Q2 FY 2013 Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded.
I'd now like to turn the conference over to your host, Mr. Gil Dickoff, Senior Vice President, Treasury and Investor Relations. Please go ahead.
Thank you so much, operator, and good morning, everyone. Before we begin, I would like to point out that the slides of this presentation are available for simultaneous viewing on our Investor Relations website at investor.scholastic.com.
I would also like to note that this presentation contains certain forward-looking statements, which are subject to various risks and uncertainties, including the condition of the children's book and educational materials markets and acceptance of the company's products in those markets, and other risks and factors identified from time to time in the company's filings with the Securities and Exchange Commission. Actual results could differ materially from those currently anticipated.
Our comments may include references to certain non-GAAP financial measures as defined in Regulation G. The reconciliation of these non-GAAP financial measures with the relevant GAAP financial information and other information required by Regulation G is provided in the company's earnings release, which is posted on the Investor Relations website at investor.scholastic.com.
Now I'd like to introduce Dick Robinson, the Chairman, CEO and President of Scholastic, to begin our presentation.
Thank you, Gil, and good morning, everybody. Thank you for joining our fiscal 2013 second quarter analyst and investor conference call. For this morning's prepared comments, I'm joined by Maureen O'Connell, CFO and CAO. Our members of the management team will also be available to answer your questions later on the call. And today, I will cover our Q2 performance and key developments during the quarter, and I will then update you on our continuing development of digital reading and learning products for use in school and at home.
We had a tremendous year in fiscal 2012 with the phenomenal success of The Hunger Games trilogy and impressive sales of READ 180 Next Generation, and we knew that we would have a challenging year in fiscal 2013 given the timing of our planned product launches and tough comparisons for The Hunger Games. And indeed, 2013 has been a challenging year, and those challenges were exacerbated by external forces as well.
On November 20, 2012, we updated our outlook as a result of deferred decision-making affecting sales of our higher-margin educational technology products as school districts focus their spending on professional development training for the new Common Core Standards, as well as lower-than-anticipated sales in the Children's Book Publishing and Distribution segment. Our second quarter results were in line with the revised fiscal year 2013 outlook that we announced in November. Importantly, our operating performance did reflect the sales uplift in several of our businesses in November.
To align our cost base with our revised fiscal 2013 outlook, we have immediately begun to implement cost savings actions, which include our decision not to pay management bonuses for this fiscal year. These cost reduction actions, which Maureen will address shortly, will result in savings in the range of $20 million to $30 million over the remainder of the fiscal year and will impact all the businesses.
In Children's Books, we had strong sales of both our front list and back list in Trade, with sales of new releases partially offsetting anticipated lower year-over-year sales of The Hunger Games trilogy. Fast-paced sales of the new Captain Underpants title, the first in 6 years, attest to the enduring interest in this wonderful character. While our new multi-platform series, Infinity Ring, and the first book in the new Maggie Stiefvater quartet, The Raven Boys, both hit the New York Times and Publishers Weekly Bestseller List.
Strong Thanksgiving week sales demonstrates that our titles, including The Hunger Games box set, are proving to be popular holiday gifts this season. We also expect that next year's release of the paperback version of Catching Fire and anticipating -- anticipation for the Catching Fire film next fall will help support ongoing interest in The Hunger Games trilogy.
We also have a number of exciting new releases planned this year, including the third book in the Infinity Ring series, which will be available in February 2013; a new young adult novel by Paul Rudnick entitled Gorgeous; and My Adventures as a Young Filmmaker by Andrew Jenks, the award-winning filmmaker and star of MTV's critically acclaimed series, World of Jenks.
In School Book Clubs, revenue declined versus the second quarter of last fiscal year. Large increases in order volumes were offset by greater declines in customer spending per order. Superstorm Sandy also affected ordering in the quarter as some of our best customer schools were closed. We are making adjustments to our cost base in this business to reflect the revised outlook and the changing buying patterns of more than 800,000 teacher customers, representing 20 million children and their parents.
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