How Harry Potter Killed Scholastic Shares

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Scholastic Corp. (NASDAQ: SCHL) released its most recent quarterly results before the markets opened on Thursday. Looking at the numbers year over year, there is a huge disparity, and a reason behind it. One of the most wildly successful book series of all-time, Harry Potter, might have made comparable sales nearly unattainable.

Last year, “Harry Potter and the Cursed Child: Parts I and II,” was the best-selling book in North America. The book came out in July 2016 and clearly had a huge impact on revenues. Although there are other factors involved, Harry Potter was by far and away the biggest, leading to roughly a $100 million disparity.

The company said that it had a net loss of $1.81 per share and $189.2 million in revenue for the quarter, compared with consensus estimates that called for break-even earnings and $208.3 million in revenue. The same period of last year had a net loss of $1.15 per share and revenue of $282.7 million.

In terms of its segments, the company reported:

  • Children’s Book Publishing and Distribution revenue totaled $66.8 million, down from $137.8 million last year.
  • Education revenue was $45.0 million, down from $55.2 million.
  • International revenue was $77.4 million, down from $89.7 million.

The outlook for the 2018 fiscal year was affirmed. The company expects to see EPS in the range of $1.20 to $1.30 and revenues between $1.65 billion and $1.70 billion. The consensus estimates are $1.21 in EPS and $1.68 billion in revenue.

At quarter’s end, cash and cash equivalents exceeded the total debt by $299.9 million, compared to $275.5 million a year ago. The actual total for cash and cash equivalents was $311.9 million at the end of the quarter, versus $287.6 million in the same period of last year.

Richard Robinson, board chair, president and CEO, commented:

We expect to continue our success in trade this year as we announce new Harry Potter publishing leading up to the 20th anniversary of Harry Potter in the U.S. in 2018. In our school channels, we are starting our important back-to-school season with a well-defined book fair strategy, including new merchandising to highlight age-appropriate groupings of books, and in book clubs, a return to the multi-grade offers which teachers have been asking for. In addition, we are expanding our curriculum content in Education, backed up by a strengthened field sales operation, to support our continued growth in the core literacy curriculum market.

Shares of Scholastic were last seen down almost 10% at $34.70, with a consensus analyst price target of $44.00 and a 52-week range of $33.51 to $49.38.