LuxUrban Hotels Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 18, 2024

There are 5 speakers on the call.

Operator

Thank you

Speaker 1

for standing by, and welcome to the Scholastic Reports 4th Quarter Fiscal Year 20 24 Results. Session. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Jeffrey Matthews. Please go ahead, sir.

Speaker 2

Hello, and welcome everyone to Scholastic's fiscal 2024 Q4 earnings call. Today on the call, I'm joined by Peter Warrick, our President and Chief Executive Officer and Hadji Glover, our Chief Financial Officer. As usual, we have posted the accompanying 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.

Speaker 2

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 reconciliation of these measures to the most directly comparable GAAP measures may be found in the company's earnings release and the company's financial tables filed this afternoon on a Form 8 ks. 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.

Speaker 2

Should you have any questions after today's call, please send them directly to our IR email address investorrelationsscholastic.com. And now, I would like to turn the call over to Peter Wirk to begin this afternoon's presentation.

Speaker 3

Thank you, Jeff, and good afternoon, everyone. Thank you for joining us. In the Q4 of fiscal 2024, Scholastic continued to execute on its strategy, investing in key growth initiatives and long term opportunities, while navigating current market headwinds. Increasing pressure on spending affecting our Education Solutions and School Reading Events businesses impacted consolidated revenue last quarter, resulting in a 10% or $53,000,000 decline relative to last year's strong quarter 4 performance. And that's in contrast to our expectations for modest growth.

Speaker 3

Consequently, profits in our seasonally most important 4th quarter fell below the prior year and our revised guidance. 4th quarter adjusted operating income was $67,000,000 down from last year's record of $92,000,000 Adjusted EBITDA was $91,000,000 compared to $115,000,000 a year ago. We took steps to manage expenses in line with lower than expected demand. SG and A and corporate overhead excluding one time items both improved even as we maintain spending on long term opportunities. For fiscal 2024, adjusted EBITDA was $137,000,000 versus $196,000,000 a year ago, again reflecting the revenue headwinds we've experienced since last fall.

Speaker 3

With careful working capital management and our businesses' capital efficient models, we continue to generate strong free cash flow of $73,000,000 up from $60,000,000 in the prior year. This exceeded our revised outlook of $55,000,000 to $65,000,000 Delivering on our commitment to capital allocation, we also deployed Scholastic's strong balance sheet to drive long term value in fiscal 2024. We returned over 100 and $81,000,000 to shareholders through dividends and share repurchases during the year. We also announced $182,000,000 strategic investment in 9 Story Media Group, which we closed on June 20. Scholastic's investment to acquire 100 percent economic interest in 9 Story is a major advance in our evolution as a global children's media company.

Speaker 3

It greatly expands Scholastic's ability to reach more kids where they are and profitably participate in the full life cycle of our children's franchises and IP. Starting this fiscal year, 9 Story will be consolidated and integrated with Scholastic Entertainment in a new entertainment segment. Since its 2017 reboot, Scholastic Entertainment has successfully proven that there's significant demand for Scholastic's brand and publishing IP on screens as well as on the page and that we can effectively and profitably meet this demand. In addition to adding a sizable business with solid EBITDA margins today, the 9 Storey acquisition significantly expands Scholastic's opportunities to leverage its trusted brand, best selling publishing and beloved global children's franchises across print, screens and merchandising. After only a month, the combined division is quickly moving forward with an integrated plan that I'll discuss shortly.

Speaker 3

Last quarter, Trade Publishing, the starting point for much of Scholastic's content, saw sales increase by 3%, excluding revenues from Scholastic Entertainment. The spring release of the 12th book in Dave Pilkey's Dog Man series reached the number one best selling spot across all book categories in the U. S, Canada, Ireland, Australia and New Zealand and the top children's book spot in the U. K. Its success also drove strong sales of earlier titles in the series demonstrating again Scholastic's ability to build global franchises.

Speaker 3

Despite solid trade results, last quarter's revenues in the children's book segment declined by 9%, reflecting the resizing of book clubs and the increasing pressure this spring on consumer spending and participation in school book percent with planned resizing, while we also tested new offers, marketing and promotional formats for the school year ahead. Sales in school book fairs decreased by 6% in quarter 4, reflecting lower revenue per fare relative to last year's record level, partly offset by growth in fare count. As we've discussed, revenue per fare has been partly impacted by the addition of smaller fares as we've grown fare count as well as increased churn among some higher value fares. Headwinds in the school environment in particular high rates of absenteeism this year and increasing pressure on consumer spending across the economy especially among fares core market, middle class families have impacted the number of transactions per fare, especially this spring when schools host second fairs. This has more than offset the benefit of higher transaction sizes, which reflects our strong merchandising.

Speaker 3

Turning to our Education Solutions segment. Revenues declined by 17% in the business' seasonally most important Q4. As many schools have adopted core curricula and implemented new structured literacy programs this year, they paused spending on supplemental curriculum products this spring. This particularly impacted sales of classroom libraries and book collections, as well as products not explicitly aligned with the science of reading. In contrast, sales to non school state and community literacy partners rose overall.

Speaker 3

As we navigated the currently challenging market, we continued investing in this segment's long term growth potential in anticipation of a cyclical return of spending on supplemental products in the 2025 2026 school years. We're currently executing on a comprehensive new product plan as I'll discuss shortly. Finally, international revenues declined modestly last quarter, mostly reflecting headwinds in Asia. As I laid out a year ago, Scholastic's strategy to grow long term earnings and free cash flow builds on the unique strengths of our domestic and international children's book and education businesses, while also protecting the profitability and cash flow generation of our core business models. Leveraging our balance sheet and strong free cash flow outlook, we aim to sustainably fund these growth investments and return capital to shareholders.

Speaker 3

Scholastic's growth investments are guided by 4 key market trends and growth factors, which I'll run through. First, as brands, content and channels proliferate online and on screens accelerated by new technologies like generative AI, we're leaning into Scholastic's trusted brand with families and educators and our global best selling children's franchises to differentiate ourselves and grow sustainably. 2nd, as kids spend more and more time on screens, we're expanding our ability to reach kids where they are with high quality engaging content both on screen and on the page. 3rd, the school struggled to reverse declining reading scores as seen again with recent NAEP results at 30 plus year lows. We're developing new partnership models with state, community and philanthropic organizations to support and fund literacy programs outside the school.

Speaker 3

And 4th, as parents and families take a more active role in their children's education at school and at home, especially post COVID, we're building new channels to reach and support families directly. Turning to our near and long term outlook. For fiscal 2025, we're targeting modest growth in revenue and adjusted EBITDA, including the benefit of our strategic investment in 9 Storey as Hadji will discuss. As I said, we're moving ahead with investments in our most compelling growth opportunities, while we navigate continuing market headwinds, especially for Education Solutions. In the new entertainment segment, we're executing on an expanded development and production slate, while green and production orders from the key platforms continue well below their record levels 2 3 years ago, we'll continue to build on core properties in fiscal 2025 while preparing for growth through synergies with Scholastic in fiscal 2026 and beyond.

Speaker 3

9 Storey has long standing and valuable IP partnerships in Daniel Tiger's neighborhood and Wild Kratts. In Daniel Tiger's Neighborhood and Wild Kratts, PBS's top 2 shows currently. We're optimistic both will continue for at least several more seasons. We're quickly moving forward to update our franchise licensing and distribution plans for key Scholastic brands including Clifford and Magic School Bus as development moves forward on major projects even in the currently tight market. These core brands have significant value to our partners and upside to Scholastic, leveraging 9 Stories licensing and merchandising sales teams.

Speaker 3

9 Stories strong YouTube presence and expertise presents another opportunity for Scholastic's content that we've also begun executing on. In children's books, we have a bestseller field publishing plan featuring 2 of today's largest children's franchises in the world. First, we'll be publishing another Dog Man title this fall followed by the worldwide theatrical release of the Dog Man movie in January 2025. 2nd, we're thrilled to be publishing Sunrise on the Reaping, the highly anticipated 5th book in Suzanne Collins worldwide best selling Hunger Games series and doing so in March 2025 simultaneously in the U. S, Canada, U.

Speaker 3

K, Australia and New Zealand. Lionsgate has already announced a movie adaptation of the book scheduled to be released in November 2026, which promises to continue bringing new readers to this mega franchise through fiscal 2027 beyond. This fall, we also look forward to publishing Christmas at Hogwarts, a timeless picture book that will delight families and Harry Potter fans of all ages. We're also excited about the Harry Potter bake, create and decorate book, a companion to the New York Times bestsellers, The Official Harry Potter Baking Book and The Official Harry Potter Cookbook. Building upon our leading position in graphic novels, which have dominated the children's publishing industry and their ability to engage kids, this August, we launched Unico Awakening, the highly anticipated first title in a multi volume kid friendly manga series.

Speaker 3

And we'll also launch 2 additional middle grade full color manga series later in the fiscal year. In addition, we have a full lineup of exciting new titles from beloved and best selling authors Raina Telgemeier, Alice Hoffman, Pam Minyoth Ryan and Brian Selznick. We have new publishing in our major series like The Babysitter's Club, Goosebumps and I Survived and we'll be publishing the finale of Aaron Blabey's Bad Guys series in December with another movie to follow in summer 2025. In March, we'll be publishing That's Not Funny, David, a brand new No David book from internationally acclaimed Caldecott Honor creator, David Shannon. In school book fairs, we're planning for modest growth for fiscal 2025 as we invest in long term growth initiatives, including actions to grow revenue per fair this year and beyond.

Speaker 3

Share the fair is a new giving program enabling schools to collect digital contributions from the school community to support students who need help buying books. The program was successfully piloted in fiscal 24 and we're optimistic about its full rollout in fiscal 2025. Continued category optimization, new case types and strategic value pricing should also contribute positively to revenue per fare. We have exciting plans around the release of the Dogman title and film leveraging Scholastic Book Fairs exclusive access to the hottest children's and young adult titles. With respect to fair count, we've invested in our sales structure and processes to increase prospecting, reduce churn and ensure our book fair host success.

Speaker 3

So far, we're on track with early bookings to achieve our fiscal 2025 target of 90,000 fares. This year, we will continue investing to grow long term fare count and the addressable market for book fairs. With piloting new operating models to profitably serve schools outside our core public school markets and investing in our sponsored fairs growth, which taps local and national organizations to bring book fairs to schools in high need communities which we currently don't serve. In school book clubs, we're launching redesigned flyers and new offers and enhancing our value proposition with unique Scholastic assets to reengage a profitable core of customers and revitalize this strategic channel to teachers and families. Complementing our school based channels to kids and families and leveraging our trusted brand and distribution infrastructure, we've also begun piloting new direct to home channels and offers to families of young children.

Speaker 3

Based on extensive research and testing, we're targeting a substantial opportunity to help parents and caregivers support their kids' early development as readers and learners. While we don't expect these investments to materially contribute to top line growth in fiscal 2025, we're optimistic about the opportunity in 2026 beyond and we look forward to providing further updates. Turning to Education Solutions, we're targeting solid growth in our sales to state and community literacy partners as these organizations continue investing to improve kids' access to books at home and outside the school, which is proven to benefit reading development. We're also launching new partnership models and programs for philanthropic organizations to give kids in high needs schools and communities the ability to choose and build their own home libraries. We expect growth from new literacy funding sources to help offset further declines in sales of supplemental literacy materials, especially those not explicitly aligned with the science of reading.

Speaker 3

This year, we plan to continue investing in a pipeline of literacy extensive and engaging classroom magazine content, new knowledge building libraries to replace our level book rooms and guided reading collections and engaging new decodable collections, including for older students, building on our Ready for Reading program, which we launched last year. We expect to launch these products in the 2025, 'twenty six school year and anticipate they'll contribute to growth beginning in fiscal 2026 as the funding cycle for supplemental products improves. In international, modest growth across major markets including in trade and continued operational improvements in Canada are expected to drive further improvements in operating margins and contribution relative to fiscal 2024 as we pursue opportunities to build operating scale in major markets and expand our English language offering in Asia. Hajil will provide more details in a moment including the expected contribution of our strategic investment in 9 Storey and actions we're taking on the cost side. In summary, Scholastic's fiscal 2025 plan is to continue and accelerate the progress of fiscal 2024 toward our strategic goals.

Speaker 3

As we respond to our dynamic markets both in the short and long term, we remain committed to realizing the full potential of Scholastic's unique strengths, our trusted brand, our unique channels and our extensive content to meet an essential growing need among kids, parents and educators giving kids the power and joy of stories and learning. With that, I'll turn the call over to Hadji to review our and fiscal 2025 guidance.

Operator

Thank you, Peter, and good afternoon, everyone. Today, I will refer to our adjusted results for the Q4 and full fiscal year, 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 noted, a more challenging market for our Education and Book Fair businesses caused Q4 performance to fall below our prior year period and below our revised guidance. Widespread adoptions of ELA core curricula and the continued shift of science based approaches for literacy instructions impacted spending on supplemental materials, while increasing softness in customer spending impacted revenues per fare and book fairs.

Operator

While steps were taken to preserve operating margins, we maintained spending on key initiatives, including new structured literacy programs, which we expect to launch in the 2025, 2026 school years. In book fairs, we successfully added new fairs, but due to the strong operating leverage in this business, operating margins were negatively impacted by lower average revenue per fair. In response to these headwinds, we tightly managed inventory and cash contributing to favorable free cash flow. Despite these challenges, trade channels in U. S.

Operator

And U. K. Performed well due to a strong publishing pipeline and we resized our U. S. Book Plus business as we tested new offerings to profitably grow this channel in future periods.

Operator

Internationally, our Canadian operations continue to benefit from restructuring activities in prior periods. Turning to our consolidated financial results. In the 4th quarter relative to prior year, revenues decreased 10% to $474,900,000 reflecting the market headwinds I just described. Operating income of $66,800,000 was down $25,200,000 Net income was $50,500,000 compared to $75,700,000 in the prior year period and earnings per diluted share were $1.73 compared to $2.26 This reflected in the lower net income partially offset by the benefit of significant share repurchases, which lowered diluted share count to 29,200,000 from 33,500,000 a year ago. Adjusted EBITDA decreased to 91,000,000 from 115,000,000 in the prior year period.

Operator

For the full year, revenues decreased 7 percent to $1,600,000,000 Operating income decreased 58 percent to 44,700,000 dollars Net income was $34,600,000 down from $86,300,000 in the prior year period and adjusted EBITDA decreased to $136,900,000 from $196,300,000 in fiscal 2023. Full year earnings per diluted share were $1.14 down 54% from $2.49 in the prior year period. Now turning to our segment results. In Children's Book Publishing and Distribution, revenues for the Q4 decreased 9% to $266,000,000 driven by resizing of book clubs, lower revenue per fair in book fairs and timing related revenue in Scholastic Entertainment, partially offset by increased sales in trade. Revenues were down 8% to $955,200,000 for the full fiscal year.

Operator

Segment operating income was down $8,500,000 from the prior year period to $49,900,000 primarily reflecting the high operating leverage impact of lower revenue per fare. For the full fiscal year, operating income for the Children's book segment decreased $21,500,000 to 121,900,000 dollars Footfair revenues decreased 6% in the 4th quarter to $169,500,000 and 2% for the full year to $541,600,000 Although fair count increased revenue per fair was lower than prior year record levels, though well ahead of pre pandemic levels on lower transaction volumes. Merchandising efforts resulted in higher transaction sizes, partially offsetting the spending headwinds that impacted participation as discussed by Peter. Book Club revenue in the 4th quarter of $14,400,000 were down versus the prior year period revenues of $26,200,000 Full year revenues of $62,700,000 trailed the prior year revenues of $117,800,000 dollars As Book Club is resized to a smaller and more profitable business, efforts are underway to test various offerings to improve teacher engagement. The School Musical Entertainment revenues which are also recorded in consolidated trade channel.

Operator

Trade revenues in the 4th quarter increased to $81,600,000 compared to prior year revenues of $79,300,000 Full year revenues were $349,000,000 in line with $348,100,000 in the prior year. Despite a difficult retail market, the company's best selling publishing continues to resonate with customers. Scholastic Entertainment revenues decreased due to the prior year release of EVA the outlet TV series. Beginning in fiscal 2025, Scholastic Entertainment will be combined with 9 Story Media Group in a new segment for the company. Excluding the impact from resizing book clubs and timing of Scholastic Entertainment release dates, the revenues in the segment decreased 3% in the 4th quarter and 1% for the full year.

Operator

In Education, Q4 revenues were $135,700,000 down 17% from prior year period. And for the full year, revenues were $351,200,000 down 9% when compared to 2023. As we discussed, the challenging market for supplemental literacy curricula as well as increasing competition impacted sales for key product lines, including classroom libraries and summer reading collections. This was partly offset by the growth in our sales to non school state and community literacy partners, which we see as a strategic growth opportunity. Segment operating income decreased $19,400,000 to $35,600,000 in Q4 compared to the prior year period.

Operator

Full year segment operating income decreased to $21,900,000 compared to $58,400,000 in the prior year period. Lower revenues coupled with continued investment in future product offerings resulted in lower operating margins. The International segment revenues of $70,800,000 in the 4th quarter trailed prior year period revenues of $73,900,000 partly reflecting $400,000 year over year impact unfavorable foreign currency exchange. For the full year, International segment revenues of $273,600,000 were down from the prior year's revenue of $279,400,000 Year over year, the foreign exchange had a negative $1,100,000 impact. The decrease in revenues was primarily due to lower sales in the Asia and Australia trade channels due to softness in the retail market.

Operator

This was partially offset in the U. K. Where the company's popular global titles performed well. The segment operating income in the 4th quarter decreased to $1,800,000 compared to $2,200,000 in the prior period. For fiscal 2024, segment operating loss was $3,100,000 compared to a loss of $3,600,000 in the prior year.

Operator

Unallocated overhead costs were $20,500,000 in the 4th quarter, improving from $23,600,000 in the prior period, reflecting lower employee related costs. For the full year, unallocated overhead costs of $96,000,000 were 4% higher when compared to prior year of $91,900,000 The year over year increase was primarily related to inflationary impact on overhead costs. Now turning to cash flow and the balance sheet. For the full year, net cash provided by operating activities was $154,600,000 compared to $148,900,000 in the prior year. Free cash flow increased to $73,400,000 in fiscal 2024 compared to $60,000,000 in the prior year period.

Operator

Improvements in cash flow were largely driven by lower inventory purchases, partially offset by lower customer remittance on decreased sales. At the end of the fiscal year, cash and cash equivalents, net of total debt, $107,700,000 compared to $218,500,000 at the end of the prior year. In fiscal 2024, the company continued executing its strategies to deploy capital including returning excess cash to shareholders. Open market share repurchases combined with regular dividend returned over 181,000,000 dollars to shareholders in fiscal year 2024, including nearly $20,000,000 in the quarter. This represents a $21,000,000 increase over fiscal 2023.

Operator

In total, we repurchased over 3,900,000 shares, which net of 500,000 shares issued related to stock compensation represented 11% of company's shares outstanding. Over the past 2 fiscal years, we repurchased 7,300,000 shares, which net of 1,300,000 shares issued for stock compensation represented 18% of the company's shares outstanding. As we begin fiscal 2025, the company borrowed approximately $200,000,000 under its existing revolving credit facility to complete the 9 Store and Media transaction and meet the seasonal summertime working capital needs of the organization. We are currently in the process of securing a more permanent debt facility to fund the acquisition. Based on budgeted growth investments and current forecast working capital needs, including inventory purchasing and lower expected earnings, our current outlook for free cash flow is $20,000,000 to $30,000,000 We will continue to pursue opportunities to leverage our balance sheet and deploy capital by 1st, investing in growth opportunities 2nd, maintaining a strong and efficient balance sheet and third, returning excess cash to shareholders to enhance their returns.

Operator

As discussed beginning in fiscal 2025, we will be adding a new entertainment segment, which will consolidate results from the company's existing Scholastic Entertainment division reported historically in the Children's Books segment with the newly added 9 Story Media Group. The current slide as well as tables in the earnings press release provide historical results for both Scholastic Entertainment and 9 Story. As Peter just discussed, both businesses results benefited in fiscal 20222023 from high levels of spending on new productions by major streaming platforms. This retracted in 2024 with fewer productions being greenlit and is expected to remain under pressure for the next 12 to 18 months. While this has impacted all players in the industry, 9 story has been able to outperform peers on the strength of its premium reputation, IP and partnerships much like the Glasses Containment has.

Operator

In fiscal 2025, we expect solid growth in segment adjusted EBITDA as we execute on the company wide synergies and franchise plans, which should benefit this segment and Children's Books results in fiscal 2026 and beyond. In fiscal 2025, our priority is to continue executing our strategic growth initiatives, including the integration of 9th Degree, while navigating continued headwinds in our Education Solutions segment, resuming modest growth in children's books and tightly managing short term spending. Based on this plan, we expect revenue growth of 4% to 6% and targeting adjusted EBITDA of $140,000,000 to 150,000,000 dollars In the Children's Book segment, we have a very exciting publishing plan, bidding on our global franchises. In book fairs, we expect modest growth on increased fare count and new merchandising and sales initiatives. We will continue to explore strategies in book clubs to increase teacher engagement.

Operator

In our new integrated entertainment segment, we expect to benefit from the addition of 9Story in its strong franchises and partnerships as we execute on our strategic strategies, which we anticipate driving further growth in 2026 and beyond. We expect 9Story to contribute over $80,000,000 in revenue with solid EBITDA in fiscal 2025. In the Education Solutions segment, we expect sales to hold steady despite soft spending on supplemental offerings, offset by forthcoming new product launches slated for the 2025, 2026 school year. Our primary focus remains on expanding initiatives aimed at securing new funding sources to tackle the prevalent reading challenges nationwide. We expect unallocated overhead costs to remain approximately level next year as we continue to improve efficiencies and build capabilities to support long term growth.

Operator

As a reminder, Scholastic results are highly seasonal. We generally record our operating loss in our 1st and third quarters coinciding with summer and winter school vacations with profitable second and fourth quarters. We expect our seasonal loss in Q1 of fiscal 2025 to be in line with prior period. We are looking forward to an exciting and busy year ahead. Thank you for your time today.

Operator

And now I will hand the call back to Peter for his final remarks.

Speaker 3

Thank you, Hadji. While market conditions are more challenging in quarter 4 as the cyclical trends that we've seen this fiscal year continued, we managed our businesses carefully and kept sight on Scholastic's substantial strengths and opportunity. Scholastic's strengths are deep, our trusted brand, proprietary distribution channels, unmatched children's content and global franchises and our robust balance sheet and cash generating businesses. And in a dynamic market driven by long term favorable macro forces, our opportunity is vast to serve the broader growing need for trusted children's books, reading and media by investing in, building on and adapting our strengths. In fiscal 2025, with the talent and creativity of our employees, authors, illustrators and creators and the support of our shareholders, we look forward to continuing to pursue this opportunity to create value and impact.

Speaker 3

Thank you very much. And now let me turn the call over to Jeff.

Speaker 2

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

Speaker 1

And our first question for today comes from the line of Brendan McCarthy from Sidoti and Company. Your question please.

Speaker 4

Hi, good afternoon everybody and thanks for taking my questions. I wanted to start off looking at the book fairs business. Can you talk about your outlook for revenue per fare looking into fiscal 2025? And do you expect to surpass the 90% of pre pandemic fare levels looking out into the next fiscal year?

Speaker 3

Yes, it's Peter. It's Peter here. So in terms of revenue per fare going forward, we're expecting modest growth in the forthcoming financial in the financial year 2025. We would be in terms of the revenue count, we expect that we're going to be probably less than we were pre pandemic. Because during the pre pandemic period, we did do some book fairs that really didn't make very much money at all.

Speaker 3

And it's much better for us to focus on fairs which have the scale. I think what's important is that we put in place, as I described during the call, a number of big improvements, I think, which means that we will be able to make sure that there's less churn to make sure that we can really focus on the fares that do the best thing. And really, we focused on the addressable market, which means the addressable market is one where we can do well with the size of revenues that we hold.

Speaker 4

Great. Thanks, Peter. I appreciate the color there. I wanted to turn to the book clubs business and the shrink to grow strategy. I'm wondering if you can provide some detail on how far along in that strategy Scholastic is and maybe how much longer the company or I guess how much more work on that front does Scholastic have to do as it relates to fiscal 2025?

Speaker 3

Well, I think we've spent a lot of time working what's the best ways of handling that. And I think that we've worked hard and trialed a number of things that we'll be implementing from the fall of this year. I think we're optimistic that the changes that we're making are going to be much more in tune with being able to grow back the business. But the key point about this, Brendan, is that we need this business needs to be profitable. And we have been able to make sure that the profitability year over year has not deteriorated.

Speaker 3

But what we want to be able to do is to modestly grow the business. And also, I think, most importantly, to really engage as much as possible teachers with us. I think that we're really committed in the period going forward to be as teacher centric as we possibly can in the way that we manage that business.

Speaker 4

Understood. Understood. And turning to the Education Solutions business. I know the broad transition to the science of reading has been a bit of a headwind on spending. But as it relates to Scholastic's capital allocation framework, I know acquisitions have always been a big part of that.

Speaker 4

Are you seeing any opportunity out there to maybe go out and acquire a company that is fully geared towards the science of reading?

Speaker 2

Hi, Brennan. This is Jeff. Jeff Matty is here. I can address that on the corporate development perspective. Look, as we've discussed, we see broad opportunities across both education and our children's book segment now adding the entertainment segment.

Speaker 2

In the where we're seeing the most compelling opportunities are, we have some great products that weren't properly aligned. We are taking those kind of great bones and making investments to align them with new pedagogies. The core value around independent reading is still there. That's mostly done organically. We continue to look at opportunities additionally in that segment, while we review opportunities on the children's content and media side as well.

Speaker 4

Got it. Thanks, Jeff. And one more question for me, looking out to fiscal 2025 and as it relates to some of the guidance numbers that you provided, what factors have been causing material underperformance or outperformance relative to your expectations for fiscal 2025?

Speaker 3

Yes, it's Peter here. There were 2 main factors. The and they were the first factor was really that during the final quarter, the number of kids who are actually buying books at our book fairs declined because they didn't have any money from their parents to buy the books. And I think this is very much reflective of the economic environment of many sort of middle class families whose kids go to public schools. That's certainly one fact.

Speaker 3

And that took us by surprise. The number of kids who are participating in the book fairs was lower than we had seen in the fall fairs. The other factor was the one that we've already mentioned really about in the education area that we expected that there will be more opportunities than actually turned out to be the case for supplemental reading materials. And that was because just the sheer volume of new literacy programs and new curricula and particularly those associated with the science of reading. We would see that as being a bit of continuing headwind, if you like, during the forthcoming financial year, but it is cyclical.

Speaker 3

It's something which we'll be in a good position in school years 2025, 2026 to be able to provide schools what they need in order to supplement the new materials they've got and to be able to and they'll have much more time to be able to do that once teachers are properly trained and fully familiar with the new core curriculum materials that they're using.

Speaker 1

Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to management for any further remarks.

Speaker 3

Well, thank you very much. It's Peter here, and thank you to all of those of you who joined us this afternoon. Scholastic has got an important exciting year ahead. We look forward to engaging with our investors in the coming days and to providing further updates on our progress, including with our growth initiatives on our upcoming quarterly calls, including the next one in September. Goodbye.

Speaker 1

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good

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