Scholastic Q4 2025 Earnings Call Transcript

Quartr
Provided by Quartr
July 24, 2025

Key Takeaways

  • Positive Sentiment: Scholastic reported strong fourth quarter and full-year fiscal 2025 results with adjusted EBITDA up 6% year-over-year and revenue growth of 7% in Q4 and 2% for the year, driven by cost controls and operational efficiency.
  • Positive Sentiment: For fiscal 2026, the company forecasts adjusted EBITDA of $160 million to $170 million (20% growth excluding $10 million of tariffs) and modest revenue growth of 2%–4%, with free cash flow of $30 million to $40 million.
  • Negative Sentiment: The Education segment faced continued headwinds, with Q4 revenue down 7% and full-year revenue off 12% due to pressures in the supplemental curriculum market, although state and community literacy partnerships showed promising growth.
  • Positive Sentiment: The Entertainment segment benefited from the Nine Story Media Group acquisition, boosting Q4 revenue to $14.8 million, achieving record YouTube engagement (20+ minute average view duration), and building a pipeline of greenlit productions poised to drive future growth.
  • Positive Sentiment: Scholastic returned $92 million to shareholders in fiscal 2025 through dividends and share repurchases, has a $70 million buyback authorization remaining, and is exploring real estate monetization to unlock further shareholder value.
AI Generated. May Contain Errors.
Earnings Conference Call
Scholastic Q4 2025
00:00 / 00:00

There are 5 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Scholastic Reports Fourth Quarter and Fiscal Year twenty twenty five Results. At this time, all participants are in a listen only mode. After the speakers' presentation, we will open up for questions. To ask a question during the session, you will need to press 11 on your telephone.

Operator

You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jeffrey Mathews, Executive Vice President and Chief Growth Officer. Please go ahead.

Speaker 1

Hello, and welcome, everyone, to Scholastic's fiscal twenty twenty five fourth quarter earnings call. Today on the call, I'm joined by Peter Warrick, our President and Chief Executive Officer and Haji Glover, our Chief Financial Officer. As usual, we have posted the company 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.

Speaker 1

In addition, we'll be discussing some non GAAP financial measures as defined in Regulation G. A reconciliation of these measures to the most directly comparable GAAP measures can be found in the company's earnings release and the company financial tables filed this afternoon on a Form eight 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. Should you have any questions after today's call, please send them directly to our IR e mail address investorrelationsscholastic dot com.

Speaker 1

And now I'd like to turn the call over to Peter Wark to begin this afternoon's presentation.

Speaker 2

Thank you, Jeff, and good afternoon, everyone. Thank you for joining us. Scholastic delivered strong financial and strategic results in the fourth quarter of fiscal twenty twenty five. Adjusted EBITDA grew robustly in line with our original guidance range. Effective cost controls and a sustained focus on operational efficiency allowed us to overcome continued pressure on consumer and school spending while positioning us for earnings growth in fiscal twenty twenty six.

Speaker 2

Revenue growth was also in line with expectations driven by strong performance in our children's book publishing and distribution segment and the strategic acquisition of Nine Storey Media Group early in the financial year. This strong finish reflects the collective efforts of our teams. Amid a challenging macroeconomic environment we made meaningful progress on the priorities we set at the start of the year, strengthening our core businesses, unlocking value from our iconic IP and positioning Scholastic for long term profitable growth. We continued to return capital to shareholders investing over $35,000,000 in dividends and share repurchases in the fourth quarter for a total of $92,000,000 in fiscal twenty twenty five while advancing efforts to unlock value from our significant real estate assets. At the same time we began executing on a set of significant organisational changes, work that's continued into quarter one that we believe will strengthen leadership, enhance growth and improve efficiencies.

Speaker 2

These actions set the stage for continued earnings growth and increased shareholder value in fiscal twenty twenty six while deepening Scholastic's impact in schools, homes and communities around the world. Let me now walk through our quarter four and fiscal twenty twenty five segment performance. Children's book publishing and distribution segment revenue and profit increased last quarter driven by strength across both publishing and book fairs. In trade publishing we launched Sunrise on the Reaping, the newest instalment in Suzanne Collins' Hunger Games series, which became the biggest publishing event yet this year. Released simultaneously in The US, Canada, UK, Australia and New Zealand, it topped bestseller lists globally across print, ebook and audio formats driving significant revenue growth.

Speaker 2

In The US alone the book sold over 2,000,000 copies in its first month. Nearly twenty years after the first Hunger Games book was published, the franchise continues to resonate across generations and geographies. This launch followed the success of Dave Pilkey's Dogman Big Jim Begins, another global phenomenon which helped drive second half results and remains one of the world's top selling titles. These bestsellers more than offset headwinds in consumer spending and softness in the broader retail book market. In book fairs we saw higher fare counts in quarter four with combined case and shippable fares rising 4% to over 100,000 fares for the year.

Speaker 2

This reflects continued improvements in our selling and marketing strategies and customer experience. Revenue per fare declined slightly but remained near record levels supported by improvements in merchandising and strategies that grew transaction sizes. Slightly lower transaction volumes tied to consumer pressures offset these gains. In book clubs, revenue declined in quarter four due to fewer participating teachers, partly offset by larger order sizes and higher student participation per class. For the full year engagement strategies implemented at the start of the school year paid off, driving growth in student participation and revenue per sponsor.

Speaker 2

Notably profit contribution from clubs rose again this year. In our entertainment segment, fourth quarter revenue increased with the addition of Nine Storey Media Group whose successful integration has greatly enhanced our reach and monetization of Scholastic's content, especially on streaming platforms where kids are consuming the majority of media content today. We continue to see strong engagement on YouTube across Scholastic channels like Clifford Classic, Goosebumps, The Magic School Bus and our Scholastic Classic Hub. In May average view duration exceeded twenty minutes, three times the norm for children's content. This robust engagement is fuelling digital revenue growth and increasing the value of our IP.

Speaker 2

Momentum is also building in development and production which I'll return to shortly. Turning to our education segment, revenue and profit declined in quarter four as the broader supplemental curriculum market remained pressured. However areas less reliant on district budgets such as state and community literacy partnerships showed strength driven by increased participation in state sponsored programmes that expand kids access to books outside of school. We're encouraged by the growing number of state philanthropic and community partners focused on literacy and see long term potential in this segment. Finally international segment revenue and profit increased in quarter four reflecting strong trade channel performance particularly for Hunger Games and Dogman titles.

Speaker 2

We also realigned international education business under a new structure which improved operating efficiency and profitability. In fiscal twenty twenty six we expect to significantly grow profit building on the momentum of strong year end results and multiple strategic initiatives. Adjusted EBITDA is targeted to grow strongly. The benefit of last year's cost reductions and recent reorganizations in addition to further cost management and initiatives to improve efficiencies are expected to more than offset the incremental impact of tariffs from the current historically high rates. At the midpoint of guidance adjusted EBITDA is expected to grow 20% excluding $10,000,000 in incremental tariff expense currently anticipated from implemented or announced tariffs.

Speaker 2

Reflecting continued pressure on consumer and especially school spending, revenue is expected to grow modestly. I'll have Jill discuss our financial outlook in more detail shortly. In our children's book publishing and distribution segments we have an exciting trade publishing schedule including Dogman Big Jim Believes in November, the latest in Dave Pilkey's blockbuster series following the success of Big Jim Begins and the Dogman movie which debuted at number one at the box office and is now streaming on Peacock. We're also publishing the full colour edition of Dave's first ever graphic novel, The Adventures of Super Diaper Baby, re releasing his Dragon books for early readers in a new collection and planning a major Captain Underpants publishing moment. March brings Wings of Fire number 16, The Hybrid Prince, the first new book in the series in four years, which kicks off a new trilogy.

Speaker 2

We'll also publish Wings of Fire number nine, Talons of Power in graphic novel format in January. Supported by an enthusiastic global fan base, the original and graphic novel series have sold a combined 40,000,000 copies and remain steady performers on the New York Times bestsellers list. After March's huge global release of Sunrise on the Reaping, we expect the Hunger Games series to continue as a key pillar of our catalogue driven by ongoing sales of Sunrise as well as new heart cover box sets, collector's editions and illustrated editions of Hunger Games titles publishing in the year ahead. We're optimistic that the upcoming Lions Gate movie, and adaptation of the title expected in November 2026, as well as our publishing plan for movie tie in editions will also continue to engage current fans and attract new ones to the Hunger Games. Other major releases this year include the interactive edition of Harry Potter and the Goblet of Fire and new works from best selling authors Alan Gratz, Rainer Telgemeier, Tiffany D Jackson and promising debut authors.

Speaker 2

The breadth of Scholastic's best selling series and authors across formats highlight the company's singular position and track record in building beloved enduring brands. We expect growth in school book fair counts supported by strategic improvements in selling, marketing and fair formats. We also remain focused on merchandising optimization and strategic pricing initiatives which are expected to benefit modest revenue per fare growth. We continue to expand the addressable market for book fairs targeting new types of schools like parochial, charter and independent while executing on multiple initiatives to increase participation and share of wallet during the fair and throughout the year, leveraging Scholastic's trusted relationship and high quality books and products. Some examples include Share the Fair which allows communities to help students in need participate in book fairs, our sponsored fairs programme where local and national partners fund fairs in high need communities not currently served and new fair types like discovery fairs which create new themed opportunities for schools to host additional fairs during the year.

Speaker 2

In book clubs we'll continue executing revitalisation strategies to sustain the profitable revenue gains achieved last year, focusing on teacher engagement and student participation. We're particularly excited about the strategic integration of trade publishing, book fairs and book clubs into our new children's book group under Sasha Quinton's leadership. Sasha has had tremendous impact at Scholastic since joining in 2019, first leading the book fairs to significant profitable growth through her focus on kid first marketing and merchandising. More recently she led the integration of our fairs and clubs into a combined school reading events division. With the addition of Jackie DeLeo, a twenty five year industry leader who most recently helped lead Barnes and Noble's transformation efforts, we're better positioned than ever to align editorial, merchandising and distribution to expand our reach and deliver exceptional experiences for kids.

Speaker 2

This collaborative structure is uniquely possible at Scholastic. We expect it to unlock further efficiencies and potential in our vertically integrated children's book publishing and distribution. It'll also facilitate more productive collaboration between our book and media businesses and the ability of Scholastic IP to reach kids on both screens and the page. We expect this change will progressively drive revenue growth and increase profitability in fiscal twenty twenty six and beyond. Next our Scholastic Entertainment segment.

Speaker 2

We expect to return to revenue growth in entertainment as green lighting activity picks up and our three sixty degree IP strategy gains traction accelerated by our integration of the children's book group. Recent green lights include Dasher, a full length holiday special for Disney, Sam Witch, a preschool animated series and Daniel Tiger's Neighbourhood renewed for season eight by PBS Kids. We also anticipate two more multi episode productions soon including one based on a venerable Scholastic brand. A note about Daniel Tiger. Scholastic owned Nine Storey Media Group has co produced the series since 2012 and also holds worldwide licensing and distribution rights.

Speaker 2

This animated preschool series has become a classic with kids and parents alike for its meaningful stories and ability to help young children learn life skills. By far the biggest platform to kids media consumption, YouTube remains a priority as not only a new source of high margin revenue but greater reach for our IP where kids are today. Two new series are launching in October, one with a toy partnership already secured and a goal for more by fiscal year end. We're also developing a new series for YouTube based on Bob Books, Scholastic's hugely popular and trusted phonics book series for young children among several planned IP collaborations between our entertainment and children's book group. We expect this series to drop in fall of twenty twenty six.

Speaker 2

Our digital distribution continues to grow with over fifteen thousand half hours of advertising video on demand or AVOD content now available on various platforms including 11 free app supported streaming TV channels. These platforms represent both a new revenue stream and expanded global reach for our content. Our brand, IP, distribution platforms, customer base and audience combined with our best in class capabilities afford Scholastic premium placement in the landscape of children's media and IP. We remain confident in our opportunity as we continue to build a robust pipeline of IP based content for screen and streaming platforms around the world. Now on to our education segment.

Speaker 2

We are repositioning this business for sustainable profitable growth following a strategic reorganisation under new leadership. Geoff Matthews, Scholastic's Chief Growth Officer, has stepped in as interim president in addition to his current responsibilities. With two decades of education experience including as an EdTech founder, Geoff brings a deep understanding of the market and is already implementing the next phase of our strategy. Extensive market and customer research confirms our belief in the relevance and strategic value of our supplemental literacy offerings. It also strengthens our commitment to this business.

Speaker 2

These trusted products, magazines, book collections and classroom resources align with Scholastic's core strengths and have clear upside potential. The supplemental curriculum market has faced a perfect storm volatile federal funding, instructional shifts and state adoption cycles. But these trends are cyclical and we expect conditions to begin improving over the next twelve to twenty four months. In the meantime, we're moving forward immediately to refocus our go to market strategy around core strengths and customer segments, rationalise our product portfolio, prioritise investments in high impact offerings, simplify legacy operations and organisational structures and recruit a long term leader for the division. We're targeting flat revenue in FY26 while repositioning the business for improved profitability this year and beyond.

Speaker 2

Now on to our international segment. Revenue and profit are expected to decline modestly following last year's major curriculum sale in New Zealand and strong hunger game and dogman sales across English speaking markets. Going forward we're focused on growing our education and English language footprint in emerging markets and expanding global reach for Scholastic Stories. Before I turn the call over to Haji, I want to briefly touch on board governance. Last week we announced the appointment of two new independent directors, Milena Alberti and Anne Clark Wolfe following a proactive refresh process initiated by our nominating and governance committee.

Speaker 2

Both of these highly qualified individuals will support the board's focus on business transformation, growth strategies and capital allocation, as well as other initiatives to maximise shareholder value. With these additions we've now appointed seven new independent directors over the past four years. I want to sincerely thank Jack Davies and David Young for their combined thirty five years of service to Scholastic and to our shareholders. As we begin fiscal twenty twenty six and prepare for the back to school season, we're operating from a position of strength with a revitalised operating model, beloved content and IP, and a deep commitment to children's literacy and learning. And with that, I'll turn it over to Haji.

Speaker 3

Thank you, Peter, and good afternoon, everyone. Before discussing our outlook, let me begin with our consolidated financial results for the quarter and full fiscal year. As usual, I will refer to our adjusted results excluding one time items. Please refer to our press release tables and SEC filings for a complete discussion of one time items and a reconciliation with related GAAP figures. Revenue increased 7% to $508,300,000 in the fourth quarter and was up 2% to $1,625,500,000 for the fiscal year.

Speaker 3

Adjusted operating income decreased to $63,400,000 in the fourth quarter from $66,800,000 in the prior year period. For the full year, adjusted operating income was $35,800,000 compared to $44,700,000 Lower adjusted operating income in both periods versus a year ago was primarily caused by incremental amortization expenses on intangible assets related to the acquisition of Nine Story in the first quarter of fiscal twenty twenty five. Adjusted EBITDA increased 1% to $91,200,000 in the fourth quarter and was up 6% to $145,400,000 for the fiscal year. Turning to our segment results. In children's book publishing and distribution, revenue for the fourth quarter increased 9% to 288,200,000.0 driven by strong performance in book fairs and our trade publishing division following the publication of Sunrise on the Reaping.

Speaker 3

For the full fiscal year, revenue increased 1% to 963,900,000 Segment adjusted operating income was $58,200,000 up $7,800,000 from the prior year period, reflecting higher revenue in our consolidated trade and school reading events divisions. For the full fiscal year, adjusted operating income for the children's book segment increased $7,500,000 to $131,300,000 Within school reading events, book fair revenue increased 5% in the fourth quarter to $177,800,000 and 1% for the full year to $548,300,000 These results benefited from higher fare count, partially offset by modestly lower revenue per fare. Book clubs revenue was $13,100,000 in the fourth quarter, a decrease of 9% as a result of lower orders in the quarter. Full year revenue increased 2% to $64,200,000 reflecting higher revenue per sponsor and an increase in orders during the year. As Peter noted, clubs contribution margin improved in both periods.

Speaker 3

In our Trade Publishing division, revenue in the fourth quarter increased 19 to $97,300,000 on increased sales driven by the latest Hunger Games title, Sunrise on the Reaping. Full year revenue increased 1% to 351,400,000.0 primarily due to increased sales for new titles in our global best selling franchises, Hunger Games and Dog Man, which more than offset the impact of consumer spending headwinds on backlist sales. In the Education segment, fourth quarter revenue was $125,700,000 down 7% from the prior year period. And full year revenue was $309,800,000 down 12% compared to prior year period. Continuing headwinds in the supplemental curriculum market was seen in lower spending by schools and districts.

Speaker 3

This was partially offset by growth in sales to non school, state, and community literacy partners. Segment adjusted operating income was $31,300,000 in the fourth quarter compared to $35,600,000 in the prior year period. Full year adjusted operating income for the segment was 6,900,000.0 compared to $21,900,000 in the prior year period. Lower revenue impacted operating margins in both periods. In the Entertainment segment, fourth quarter revenue was $14,800,000 compared to $600,000 in the prior year period, and full year revenue was $61,000,000 compared to $1,900,000 in the prior year period.

Speaker 3

Gains in both periods reflected the contribution of the Nine Storey Media Group, which the company acquired in June. Segment adjusted operating loss was $2,100,000 in the fourth quarter compared to a loss of $500,000 a year ago. Segment adjusted operating loss was $7,200,000 for the full year compared to a loss of $1,900,000 a year ago. The fourth quarter includes $2,700,000 and the full year includes $9,200,000 of incremental amortization expense on intangible assets related to the acquisition. On a pro form a basis, Nine Story revenue was down relative to the prior year period, primarily reflecting lower production across the industry, which has begun to accelerate, as I'll discuss later on.

Speaker 3

In the International segment, revenue increased 8% to $76,800,000 in the fourth quarter. For the full year, International segment revenue increased 2% to $279,600,000 Year over year, foreign exchange had an unfavorable impact of $600,000 in the fourth quarter and $1,600,000 in the full year fiscal twenty twenty five. Revenue growth was driven primarily by strong trade channel performance across all major markets. Segment adjusted operating income improved to $6,100,000 in the fourth quarter compared to 1,800,000 in the prior year period. For fiscal twenty twenty five, segment adjusted operating income was $2,900,000 compared to a loss of $3,100,000 in the prior year, reflecting higher revenue and operational efficiencies.

Speaker 3

Adjusted unallocated overhead costs were 30,100,000 in the fourth quarter, increasing from $20,500,000 in the prior year period, reflecting the timing of employee related expenses. For the full year, adjusted unallocated overhead costs of $98,100,000 increased slightly from $96,000,000 last year, primarily related to higher employee related expenses. Now turning to cash flow and the balance sheet. For the full year, net cash provided by operating activities was $124,200,000 compared to $154,600,000 in the prior year period. This decrease was primarily driven by lower cash earnings and increased inventory purchases.

Speaker 3

Free cash flow was $29,200,000 in fiscal twenty twenty five compared to $73,400,000 in the prior year period. This primarily reflects lower cash flow from operations and repayment of production loans driven by working capital timing in our Entertainment division. At year end, the company had borrowings of $250,000,000 under its unsecured revolving credit facility. At the end of fiscal twenty twenty five, net debt was $136,600,000 compared to a net cash position of $107,700,000 at the end of fiscal twenty twenty four, primarily reflecting cash used to fund the Nine Story Media Group acquisition and cash returned to shareholders through dividends and share repurchases. During the year, we continued to return excess cash to shareholders through our regular dividend and open market share repurchases, consistent with our capital allocation priorities.

Speaker 3

We returned over $92,000,000 to shareholders in fiscal twenty twenty five, including over $35,000,000 in the fourth quarter. In total, we repurchased nearly 3,500,000.0 shares, which net of approximately 300,000 shares issued related to stock compensation represented 11% of the company's shares outstanding. Our current share buyback authorization is $70,000,000 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 discussed last quarter, we believe our strong balance sheet provides significant flexibility. We have modest debt.

Speaker 3

We also have non operating assets that could be monetized for significant valuations when appropriate and market conditions allow, which could be deployed in accordance with our capital allocation priorities, including debt reduction. Over the past six months, as the commercial real estate market has improved, we've begun a process to explore potential monetization opportunities to unlock value from these substantial real estate assets. In June, we retained Newmark Group to identify investment partners for a potential sale leaseback transaction of all or part of Scholastic's office and retail real estate in New York City. Earlier this month, we also retained Newmark for a similar process with respect to our distribution center in Jefferson City, Missouri. As we move forward with these processes over the next ninety to one hundred and twenty days, we are optimistic about the significant opportunity for value accretion, although there can be no guarantee that these processes will result in transactions within the coming months.

Speaker 3

Regardless, we remain committed to maximizing value of our real estate assets for the benefit of our shareholders. I look forward to providing further updates on this process as needed and on our next earnings call. Turning to our fiscal twenty twenty six outlook, Scholastic is targeting solid earnings growth in fiscal twenty twenty six with adjusted EBITDA of $160,000,000 to $170,000,000 an increase of approximately $20,000,000 over fiscal twenty twenty five at the midpoint, mainly driven by disciplined cost management and restructuring initiatives. Based on the current tariff policy, our guidance includes approximately $10,000,000 of expected incremental tariff expense and our cost of product. We expect higher tariffs to primarily impact the cost of non book and novelty items sold in our children's book business, which we currently source from countries with tariff increases, including China.

Speaker 3

Overall, we remain confident that our global scale, highly optimized supply chain, and pricing power will help mitigate against any further material tariff related exposure this year. Fiscal twenty twenty six revenue is expected to grow 2% to 4%, reflecting strength in our core businesses, partially offset by continuing headwinds on consumer spending. Our outlook for free cash flow in fiscal twenty twenty six is 30,000,000 to $40,000,000 reflecting higher expected earnings, improved working capital, and lower cash tax, partially offset by higher capital investments and other accrued expenses. Over the last several months, we have taken strategic steps to position our organization to operate more efficiently, aligning spending with our long term strategy and permanently lowering our cost structure by reducing nonrevenue generating and consulting expenses. We expect the restructuring actions across all segments to further benefit this fiscal year's results.

Speaker 3

Each business segment has contributed significantly to our sustained cost management and execution strategies. In fiscal twenty twenty five, these actions resulted in cost savings of approximately $25,000,000 on an annualized basis, of which $15,000,000 was realized during the year, with $10,000,000 of additional benefit expected in fiscal twenty twenty six. In addition, we expect an incremental 15,000,000 to $20,000,000 in cost savings, plus actions to improve gross profit, including through pricing, to contribute to higher profitability. Together, we expect these actions to more than offset the impact of current tariffs and inflation. Turning to our segment outlook.

Speaker 3

In the Children's Book and Distribution segment, we expect revenue growth in school reading events. Given its high operating leverage, anticipated revenue growth will have a positive impact on operating margins and profitability. Revenue in trade publishing is expected to be solid, given the strength of the publishing calendar and approximately level with fiscal twenty twenty five, which benefited from two global hits. In addition, we expect the strategic integration and reorganization of Children's Book Group to drive long term revenue growth and increase profitability in fiscal twenty twenty six and beyond through operational efficiencies and alignment of our editorial, merchandising, and distribution teams. In the Entertainment segment, we expect to benefit from recent production and development green light momentum, as Peter discussed.

Speaker 3

These productions will contribute to revenue growth primarily in the second half of this fiscal year, with the majority of the benefit in fiscal twenty twenty seven, reflecting revenue recognition typical for developments and productions. We anticipate adjusted EBITDA in line with prior year. In the education segment, we are targeting revenue approximately in line with prior year. As Peter noted, following our strategic reorganization under new leadership, we are repositioning this business for long term growth. As we execute on several key initiatives, we anticipate improved profitability in fiscal twenty twenty six and beyond.

Speaker 3

In the International segment, we anticipate a modest decrease in revenue and profits, following the strong performance in trade channels in fiscal twenty twenty five. Unallocated overhead costs are expected to decrease next year as we continue to improve efficiencies and benefit from cost reductions in our overhead functions, as I discussed earlier. As a reminder, Scholastic's results are highly seasonal. We generally record an operating loss in our first and third quarters, with profitable second and fourth quarters. In the fiscal first quarter, we expect a seasonal loss approximately in line with the prior year period.

Speaker 3

Thank you for your time today, and I will now hand the call back to Peter for his final remarks.

Speaker 2

Thank you Haji. We're very pleased with the meaningful progress our team has made over the past six months executing strongly, reducing significant costs, strengthening our organisation and organisational structures, returning capital to shareholders and taking steps to optimise our capital structure and balance sheet. Thanks to this work which continues, we're well positioned for profitable strategic growth in fiscal twenty twenty six. We continue to focus on our long term opportunity as a global leader in the children's publishing media and education space where Scholastic's brand IP and distribution channels present compelling growth opportunities to meet kids, families and schools' essential needs to educate, inform and engage kids. I want to thank our employees, authors, illustrators and creators for their tremendous dedication and hard work and our shareholders for their continued support.

Speaker 2

We all look forward to continuing our momentum to create value and impact in the year ahead. Thank you very much. And now let me turn the call over to Jeff.

Speaker 1

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

Operator

Thank you. At this time, we'll conduct a question and answer session. Our first question will come from the line of Brendan McCarthy from Sidoti. Your line is open.

Speaker 4

Great. Good afternoon and thanks for taking my questions here. I wanted to start off on the cost side. I know you pointed to potential cost savings in fiscal twenty twenty six. Curious as to what are the sources of those cost savings going forward?

Speaker 3

Hey, Brandon. How are doing? This is Haji. Hey, Haji. Good.

Speaker 3

How are you? Alright. So a majority of the cost actions are coming out of non more discretionary functions, things that we can cut back on as we're looking to be more frugal as an organization. Things that are not really revenue driven, those are the major areas that we're looking at from our perspective right now. Got it.

Speaker 3

So you expect that'll flow through to overhead ultimately stepping down in fiscal twenty six compared to fiscal twenty five? Exactly. So we we we're getting the full year impact of the stuff right in f y twenty six. So the f y twenty five stuff as we showed in the or we talked about in the script, we're experiencing we saw 15,000,000 of that in f y twenty five, and we're gonna see another 10,000,000 in f y twenty six.

Speaker 4

Great. Great. Got it. And turning to the Education Solutions business, I think you mentioned you're looking for maybe flat revenue there in fiscal twenty six. Curious as to what are the kind of driving factors behind that expectation?

Speaker 4

And is that different from what you had expected for fiscal twenty six, you know, a couple quarters ago?

Speaker 2

Yeah. It's it's Peter here. Yeah. We when we actually look at our our overall education business, we do have parts which actually have been going well and therefore a lot of the state sponsored work that we do for example and some of the supported work that we get are going well. So we would certainly see those increasing.

Speaker 2

I mean the market continues to be cyclically difficult, especially with districts and schools, but we do expect the situation to progressively improve just because of the normal cyclicality of the education business. So we think that we'll be in a good position to at least have flat revenues in in in what we're what we do in education. But allied to that is the fact that we see growth in the more profitable parts of the business, that we that we're conducting and also we're taking some major steps to, make sure that we are operating as efficiently as possible and repositioning the, the business for, you know, for medium to longer term growth.

Speaker 4

Great. Thanks, Peter. I appreciate the color there. And when you look at how, you know, states or or school districts are approaching, literacy instruction, are are you still seeing a a pretty large shift towards, you know, the science based, reading approach? And do you ultimately still anticipate to launch products, geared towards the science of reading in fiscal twenty six?

Speaker 2

Yes. I mean, science science of reading is certainly, continuing, its sort of growth and importance across states. We've already got some materials which we have which are ready for it. The knowledge library, for example, is strongly aligned with the science of reading, and has had very we expect it to have a very positive feedback. So that's all looking good.

Speaker 2

I think the other thing which is happening around literacy though, which is worth saying, is this increasing realization that having books in the home is one of the really key things for helping kids. And of course that's where our state sponsored and some of our other activities are based. So I think what we're doing is very, very much in line with the way in which literacy is being tackled, you know, in in all states.

Speaker 4

Understood there. And and on those state sponsored programs, what's what's the pipeline look like there? I know that there's a handful of states in the South East that you're that you have partner a partnership with. Just wondering what the pipeline looks there for additional state partners.

Speaker 2

The pipeline the pipeline, we have we have multiple conversations which are going on with state governments. And I just had a full, as it were, review of this actually this week. I'm I'm pretty optimistic that that that things are going well, both in terms of being able to expand what we do in those states, which are in, generally speaking, are in the Southeast. We also have to acknowledge though that the sales cycles are quite long and and, you know, we've been in discussions for quite some time, but I think there's a growing realization that, you know, this this literacy is a problem that really needs to be tackled. And people understand that that that's what that's what parents and electors and everybody else wants.

Speaker 2

And I think that, you know, we're seeing that there's there's very, very good progress being made in a number of states now. And it's also Understood. And that we're that we're very uniquely positioned here. You know, our brand, our books, our distribution channels, we can really offer a tremendous service here, and, you know, that's recognized by the way we've been able to, build our business here over the last, over the last four years.

Speaker 4

Understood. I appreciate the detail there, Peter. And wanted to talk about the the trade channels combination with the school channels. I guess, you are you seeing or hearing any initial feedback from customers just related to that combination or or maybe any internal feedback on on kinda how that or I guess what impact that combination has has made so far?

Speaker 2

Well, the the the main impact at the moment is really internal rather than external, And it's been tremendous, actually. I mean, I've been super pleased with the way in which people feel that this creates an environment whereby both the publishing and the distribution channels can work more effectively together going forward. And there is tremendous excitement about that internally, and we're going to see that externally as well, I'm sure. I mean, we have the opportunity to be able to link what we're selling in schools, through the book book fairs and book club channels in a much more integrated way than we've done before with the with the trade, with the trade publishing. And we'll see that because they're working they're working on short term gains which we can leverage and benefit from in FY '26, particularly in book fairs in the spring for example.

Speaker 2

And, you know, we have this secret sauce, which is that we are both a publisher and a distributor, and that gives us a lot of knowledge. It gives us a lot of leverage, and it's very, very powerful. And I think that bringing this together has been something that I think is really gonna make a difference, and it's even gonna make a difference in the short term. It's gonna have a much bigger impact, I think, during the you know, once you go forward into the next two financial years beyond FY '26.

Speaker 4

Great. That makes sense. One more question for me just on the entertainment business. It looks like revenue stepped down there in fiscal twenty five, but you're looking for the return to revenue growth in in fiscal twenty six. I guess from a profitability standpoint, what's your expectation there for the entertainment business for fiscal twenty six?

Speaker 3

Brandon, this is Haji again. We expect that to be slightly lower, but in line with this year. We have the headwinds, of course, inflation that is impacting that organization, but we're we're guiding to see basically flat profitability.

Speaker 4

Understood. And is that just just so to, provide more detail there, is that just inflationary impacts on on the production side, on the cost side, or are there other, you know, cost trends in in play there?

Speaker 3

So from a from a entertainment perspective, we're we're actually seeing the the production activity pick up a little bit with more green lights coming in. But that's usually gonna like I said in the in the my talk earlier, it's gonna mainly impact us in f y twenty seven. We're gonna see some stuff on the end of of f y twenty six, but mainly in the x y twenty seven on the revenue side.

Speaker 4

Got it. Got it. And and, Haji, I know you mentioned the the real estate assets and the potential monetization there. Are you able to provide any color on the timing of a potential sale leaseback transaction? And, looking at I know you mentioned potentially buying back shares or paying down debt, but are you confident in buying back shares at this level or how do you how can we kind

Speaker 3

of think about the capital allocation priorities? Well, first of I'll talk about the timing. The team is working very really hard right now to get things out. Newmarket's been a really good partner with us so far, and we're hoping, I mentioned earlier, to have something within the next ninety to one hundred and twenty days. In terms of our capital allocation priorities, we're going to remain consistent with, you know, returning capital to shareholders as possible when we can.

Speaker 3

But we we did a lot of of share repurchasing in the fourth quarter, which is shown in our numbers already. So we were ahead of the game because the share price was, you know, a good good opportunity for us to really buy some stuff back.

Speaker 4

Great. Thanks, Haji. Thanks, Peter. That's all from me. Alright.

Speaker 4

Thank you.

Speaker 2

Thank you.

Operator

Thank you. And this concludes our q and a. I will now pass the call back to management for any closing remarks.

Speaker 2

Yes. No. I'm excited. It's Peter here. I'm excited about the new, fiscal year ahead.

Speaker 2

I mean, I think we're in good momentum. We've got a positive outlook, and we continue to focus on creating shareholder value and impact. That's so important to us. And we look forward to providing more updates including on our first quarter call in a couple of months' time. So thank you to all who joined us this afternoon live or if you're listening to the recorded call later.

Speaker 2

We very much appreciate your support. So thank you all very much and goodbye. Ladies and gentlemen, this concludes today's conference call. Thank you

Operator

for participating. You may now disconnect. Everyone have a great day.

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