Exchange: NASDAQ | Sector: Communication Services | Industry: Publishing
Q1 2026
Published: Sep 19, 2025
Earnings Highlights
Revenue of $225.60M down 52.5% year-over-year
EPS of $-2.83 decreased by 324.6% from previous year
Net income of -71.10M
""The digital model that we now have and the digital income that we're getting is high margin and it's going to grow. So that's really -- that's a really good thing for us. It's not just a source of high-value revenue. It's also exposing our brand and it's driving kids to buy books about Clifford or whatever as well. We now have 1.2 million subscribers, to Scholastic channels on YouTube."" - Peter Warwick
Scholastic Corporation (SCHL) QQ1 2026 Results: Seasonality Pressures Offset by Real Estate Monetization and IP-Driven Growth Initiatives
Executive Summary
Scholastic reported a seasonally quiet first quarter of fiscal 2026 (quarter ended Aug 31, 2025) with a material operating loss and net loss, reflecting the typical summer softness in school reading events and ongoing investments to enable long-term growth. Revenue totaled $225.6 million, down modestly on a quarterly basis, while the company continued to pursue cost discipline, SG&A optimization, and portfolio rationalization across segments. Management reaffirmed the full-year guidance: revenue growth of 2-4%, Adjusted EBITDA of $160-170 million, and free cash flow of $30-40 million, signaling a path to improved profitability as back-to-school activity returns and the benefits of cost controls flow through.
Key Performance Indicators
Revenue
225.60M
QoQ: -32.74% | YoY:-52.50%
Operating Income
-92.20M
QoQ: -285.77% | YoY:-239.70%
Net Income
-71.10M
QoQ: -1 875.00% | YoY:-298.05%
EPS
-2.83
QoQ: -2 076.92% | YoY:-324.60%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $225.6; YoY change reported as a decline of 5% in the quarter by management commentary (seasonality) with broader YoY figures shown as -52.5% in the provided metrics data. QoQ decline of 32.74% per the provided data.
Overview of quarterly performance and segment contributions (USD millions unless noted):
- Revenue: $225.6; YoY change reported as a decline of 5% in the quarter by management commentary (seasonality) with broader YoY figures shown as -52.5% in the provided metrics data. QoQ decline of 32.74% per the provided data.
- Operating loss: $92.2; EBITDA: -$85.2; EBITDARatio: -0.378; OperatingIncome: -$92.2; OperatingIncomeRatio: -0.409.
- Net income: -$71.1; Net income margin: -0.315; EPS: -$2.83 (diluted).
- Segments (revenue):
• Children's Book Publishing and Distribution: $109.4
• Education Solutions: $40.1
• Entertainment: $13.6
• International: $59.4
• Book Fairs: $34.1
• Book Clubs: $1.8
- Cash and liquidity: Net debt $242.8m; Revolver borrowings $325m; Free cash flow (FCF) -$100.2m; Operating cash flow -$81.8m; Dividends paid $5.2m; Share buyback authorization remaining: $70m.
- Guidance (FY2026): Revenue growth 2-4%; Adjusted EBITDA $160-170m; Free cash flow $30-40m. Tariff exposure ~ $10m incremental cost in the year.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
225.60M
-52.50%
-32.74%
Operating Income
-92.20M
-239.70%
-285.77%
Net Income
-71.10M
-298.05%
-1 875.00%
EPS
-2.83
-324.60%
-2 076.92%
Key Financial Ratios
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key takeaways from management commentary and Q&A on the earnings call:
- IP/digital monetization and scale potential: Peter Warwick highlighted a broad digital transformation: 'The digital model that we now have and the digital income that we're getting is high margin and it's going to grow.' He noted YouTube subscriber growth (1.2 million) and a branded Scholastic streaming app with Future, targeting >1,300 half hours by fiscal 2027, signaling a meaningful, high-margin revenue stream and brand exposure that supports book sales.
- Real estate monetization progress: 'strong investor interest' in the SoHo headquarters and the Jefferson City distribution center; the process is on track to conclude this fall, reflecting capital allocation to de-lever and recycle capital toward growth initiatives.
- Education Solutions headwinds and back-end load: Jeff Mathews emphasized funding uncertainty as the primary short-term drag and that the year is likely to be 'more back-end loaded than previously' with a pipeline buildup into Q4 and a recovery as federal/state funding certainty improves.
- SG&A and cost discipline: Haji Glover stated the company took '$15-20 million' of price/cost reductions and that 'the majority of our spend reductions' are reflected in the current guidance, underscoring a deliberate cost structure optimization program.
- Outlook for quarter 2 and beyond: Management expects a 'big' second quarter driven by trade releases and stronger book fairs/restocking, supported by a growing publishing slate (Dog Man, Hunger Games/Harry Potter titles) and improving international demand.
- Seasonality and cadence: The executives repeatedly noted that Scholastic's results are highly seasonal, with Q1 typically the smallest quarter and profitability concentrated in Q2–Q4, implying that the trajectory toward FY2026 profitability hinges on the second half execution and the realization of cost saves.
"The digital model that we now have and the digital income that we're getting is high margin and it's going to grow. So that's really -- that's a really good thing for us. It's not just a source of high-value revenue. It's also exposing our brand and it's driving kids to buy books about Clifford or whatever as well. We now have 1.2 million subscribers, to Scholastic channels on YouTube."
— Peter Warwick
"We announced somewhere between $15 million and $20 million of price cost reductions. And we're right now seeing the fruition of that come through in our financials."
— Haji Glover
Forward Guidance
Summary of management-guided FY2026 expectations and assessment:
- Revenue growth target: 2% to 4% for FY2026, indicating a modest top-line recovery as back-to-school and book fairs ramp through the year.
- Adjusted EBITDA target: $160 million to $170 million, underscoring ongoing SG&A optimization and margin improvements from cost discipline and portfolio rationalization.
- Free cash flow target: $30 million to $40 million, with expectations to capture higher receipts in the second half and lower capital expenditures relative to prior-year levels.
- Tariff exposure: Approximately $10 million of incremental tariff expenses anticipated during the year, which the company is monitoring and budgeting for within its cost structure.
- Near-term catalysts and risks: A stronger Q2 backdrop from major trade releases and an improving publishing slate (Dog Man, 25th Suzanne Collins title, etc.) could drive upside to the top end of guidance, while continued government funding volatility and seasonality remain key downside risks. Real estate monetization milestones (sale-leasebacks) are anticipated to close in the fall, which, if realized, should support leverage reduction and capital allocation flexibility. Investors should monitor: (1) book fairs/book clubs revenue cadence and per-fair revenue, (2) Education Solutions pipeline progression and contract timing, (3) digital/IP monetization progress and subscriber growth, and (4) real estate monetization timing and proceeds.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
NYT
47.40%
9.22%
2.63%
40.99%
WLYB
69.80%
8.13%
-0.20%
-456.20%
GCI
37.60%
1.71%
-4.88%
-14.13%
LEE
97.50%
-2.32%
62.80%
-1.28%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Scholastic’s QQ1 2026 results underscore a bifurcated near-term reality: a seasonally weak quarter with a substantial bottom-line shortfall, and a longer-term strategic reset aimed at sustainable growth through real estate monetization, cost discipline, and an accelerated digital/IP strategy. The explicit FY2026 targets (2-4% revenue growth, $160-170M Adjusted EBITDA, $30-40M FCF) imply a conservative base-case path to profitability if the second-half cadence and cost reductions materialize as planned. The real estate monetization program provides a meaningful potential liquidity event that could de-leverage the balance sheet and fund IP/digital investments, while a ramp in 9-story digital content and YouTube monetization offers a high-margin growth vector that could diversify revenue beyond traditional print and school-based channels. The Education Solutions segment remains the largest near-term risk given funding volatility, but management’s emphasis on Knowledge Library and portfolio rationalization suggests a disciplined, programmatic approach to stabilizing the business over time. Overall, the investment thesis hinges on (1) realization of real estate monetization proceeds; (2) sustained execution of cost savings and SG&A optimization; (3) early but scalable monetization of digital/IP assets; and (4) a stabilizing backdrop in education funding enabling a stronger back-half performance. We view Scholastic as a cautious, selective buy candidate for investors who value a long-duration IP-based growth strategy and are willing to tolerate near-term earnings volatility while awaiting the benefits of the structural improvements.
Key Investment Factors
Growth Potential
Catalysts exist across multiple fronts: (1) IP-driven content monetization via 9-story Media Group integration and the Scholastic streaming app, with YouTube content delivering high-margin revenue and brand affinity that drives book sales; (2) International expansion, particularly ESL programs and growth in India/Philippines; (3) Real estate monetization proceeds from the SoHo HQ and Jefferson City distribution center that could materially de-risk the balance sheet and fund growth investments; (4) Knowledge Library and Education Solutions opportunities as funding environments stabilize, potentially restoring higher spend by schools.
Profitability Risk
Primary risks include sustained funding volatility in the U.S. education sector reducing replenishment and core product purchases, tariff-related cost pressures (~$10M annual), ongoing seasonality that depresses Q1 profitability, and execution risk on real estate monetization timelines. Additionally, the transition to a more digital/AV-led revenue mix depends on advertiser market dynamics and platform monetization terms.
Other exposure includes foreign currency movements in International segments and competitive pressure in publishing and educational content markets.
Financial Position
Balance sheet and liquidity considerations remain challenged by the seasonal working capital cycle: net debt of $242.8M and revolving credit facility borrowings of $325M as of quarter-end, with negative free cash flow in Q1 (-$100.2M) and negative EBITDA (-$85.2M). However, management is actively pursuing deleveraging via real estate monetization and share repurchases (remaining $70M buyback authorization), and expects to improve cash generation in H2 with higher receipts and lower capex relative to the prior year.
SWOT Analysis
Strengths
Iconic IP and scale in children’s publishing (e.g., Hunger Games, Harry Potter franchises) supporting a diversified revenue stream
Well-diversified business model across Publishing & Distribution, Education Solutions, Entertainment, and International segments
Progress on real estate monetization (SoHo and Jefferson City) with investor interest, indicating potential capital recycling opportunities
Strategic integration of 9-story Media Group and a broader digital/content strategy, including a Scholastic streaming app and YouTube ecosystem
Cost discipline and SG&A optimization generating meaningful leverage in the P&L and a path to profitability in the back half of the year
Weaknesses
Seasonality creates uneven quarterly profitability with Q1 typically reporting losses
Significant near-term net loss and negative EBITDA despite cost-reduction measures
Education Solutions remains exposed to macro funding volatility and timing risk of state/federal grants
Tariff exposure adds a recurring cost headwind (~$10M forecast in FY2026)
Balance sheet leverage driven by working capital dynamics and seasonal cash outflows
Opportunities
Digital monetization and IP-driven growth through 9-story, Clifford and other properties across YouTube and other platforms
Expansion of ESL and growing markets in India and the Philippines help diversify geographic risk
Sale-leaseback transactions and other real estate monetization could unlock capital for growth and debt reduction
Educations Solutions Knowledge Library and other high-impact offerings could improve long-term trajectory as funding certainties improve
Threats
Volatile public funding and school district budgets could delay discretionary purchases
Tariff risk and potential policy changes affecting cost of goods sold
Adverse macro conditions could suppress consumer and school purchaser demand
Execution risk in integrating and monetizing new digital/IP assets across multiple platforms