Earnings call transcript: Scholastic Q3 2026 beats EPS forecast, stock slips

Scholastic Corporation reported its third-quarter fiscal 2026 earnings, revealing a mixed financial performance. The company posted an earnings per share (EPS) of -$0.15, a significant improvement over the forecasted -$0.60, marking a 75% positive surprise. However, revenue fell slightly short of expectations, coming in at $329.1 million against a forecast of $331.53 million. Despite the EPS beat, Scholastic’s stock declined by 4.16% in premarket trading, reflecting investor concerns over revenue shortfall and the broader market environment.

Scholastic’s overall performance in Q3 FY2026 was mixed. The company faced a 1.9% decline in revenue year-over-year, attributed to timing issues in publishing releases and a softer education sector. However, the Book Fairs segment showed resilience, posting a 2% increase in revenue. The company’s strategic initiatives, including sale-leaseback transactions, aimed to optimize the balance sheet but negatively impacted profitability.

Scholastic’s EPS of -$0.15 significantly outperformed the forecasted -$0.60, resulting in a 75% positive surprise. This improvement contrasts with the prior year’s EPS of -$0.05, indicating a notable shift. However, revenue of $329.1 million fell short of the $331.53 million forecast, reflecting a -0.73% surprise.

Despite the EPS beat, Scholastic’s stock fell 4.16% in premarket trading, closing at $32. This decline comes after a previous close of $33.39. The stock remains within its 52-week range, with a high of $36.24 and a low of $15.77. The market’s reaction suggests concerns over revenue shortfall and broader economic factors affecting investor sentiment.

The premarket decline stands in stark contrast to the stock’s longer-term performance, with shares delivering an impressive 84% return over the past year and a 43% gain in the last six months. According to InvestingPro analysis, the stock is currently trading near its Fair Value, with the company maintaining a market capitalization of $868 million.

Scholastic reaffirmed its full-year FY2026 guidance, expecting revenue to remain flat compared to the previous year. Adjusted EBITDA is projected between $146 million and $156 million, factoring in the $14 million impact from sale-leaseback transactions. The company anticipates free cash flow to exceed $430 million, bolstered by sale-leaseback proceeds.

Peter Warwick, Scholastic’s CEO, remarked, "Our strategic initiatives, including the sale-leaseback transactions, have strengthened our balance sheet, allowing us to focus on capital return programs." He emphasized the company’s commitment to shareholder value through a new $300 million share repurchase authorization.

InvestingPro Tips highlight that management has been aggressively buying back shares, a trend that aligns with the company’s capital allocation strategy. For investors seeking deeper insights, Scholastic is among the 1,400+ US equities covered by comprehensive Pro Research Reports, which transform complex Wall Street data into clear, actionable intelligence. Access to InvestingPro reveals 8 additional exclusive tips about Scholastic’s financial health and growth prospects.

During the earnings call, analysts questioned the impact of sale-leaseback transactions on future profitability. Executives highlighted the strategic benefits of improved liquidity and balance sheet optimization, while acknowledging the near-term pressure on EBITDA. Analysts also inquired about growth strategies in the Book Fairs segment, to which the company responded with optimism about the new Discovery Fairs format and digital payment adoption.

Conference Operator, Call Moderator, Conference Services: Good day, and thank you for standing by. Welcome to the Scholastic reports third quarter fiscal year 2026 results. At this time, all participants are in a listen-only mode. Please be advised that today’s conference is being recorded. After the speaker’s presentation, there will be a question-and-answer session. To ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. I would now like to hand the conference over to your speaker today, Jeffrey Mathews, Executive Vice President, Chief Growth Officer and President, Scholastic Education.

Jeffrey Mathews, Executive Vice President, Chief Growth Officer, and President of Scholastic Education, Scholastic Corporation: Hello, and welcome everyone to Scholastic’s fiscal 2026 third quarter earnings call. Today on the call, I am joined by Peter Warwick, our President and Chief Executive Officer, and Haji Glover, our Chief Financial Officer and Executive Vice President. As usual, we have posted the accompanying 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. In addition, we’ll be discussing some non-GAAP financial measures as defined in Regulation G. The reconciliations of those measures to the most directly comparable GAAP measures may be found in the company’s earnings release and accompanying financial tables filed this afternoon on a Form 8-K.

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 email address, investor_relations@scholastic.com. Now, I would like to turn the call over to Peter Warwick to begin this afternoon’s presentation.

Peter Warwick, President and Chief Executive Officer, Scholastic Corporation: Thank you, Jeff. Good afternoon, everyone, and thank you for joining us. In the third quarter, Scholastic advanced our strategy to support long-term growth and enhance shareholder value. A key milestone was the successful completion of our sale leaseback transactions involving our New York City headquarters and Jefferson City distribution facility. Last December, this unlocked more than $400 million in net proceeds and represented an important step in optimizing Scholastic’s balance sheet. Consistent with our disciplined approach to capital allocation and our belief that the company’s shares represent a highly accretive investment, we moved quickly to return cash to shareholders under an upsized $150 million share repurchase authorization, which we have nearly exhausted. We’ve already bought back more than 4.4 million shares for approximately $147 million in the open market or $33.30 per share on average.

With a view toward further optimizing our balance sheet and enhancing shareholder value, today we’re announcing long-term net leverage targets for the company, as Haji will discuss. As a next step, the board has authorized a $300 million share repurchase authorization comprising of a $200 million modified Dutch auction tender offer, with the remaining $100 million to be used for repurchases in the open market. The offer price range has been set to $36-$40 per share. Assuming it’s fully subscribed, the tender offer would represent approximately 25% of Scholastic shares outstanding as of quarter end. This is yet another step in the capital allocation strategy we’ve been executing since fiscal 2022, already returning over $650 million to shareholders through share repurchases and dividends while continuing to invest in initiatives that support long-term growth.

Haji will provide additional details later in the call. Turning to our operating performance, third quarter results were in line with expectations as we continued executing on initiatives supporting long-term growth and margin expansion. As a reminder, this is typically one of our smaller quarters for revenue and profitability given the seasonality of our business. Based on our performance to date and outlook for the remainder of the year, we’re reaffirming our fiscal 2026 adjusted EBITDA and free cash flow guidance. We expect full year revenue to be approximately flat compared to the prior year, reflecting year-to-date softness in education and very strong comps in trade a year ago. Let me now turn to our segment performance, beginning with children’s book publishing and distribution. Last quarter, Children’s Book Group combined powerful publishing and beloved franchises with unique school-based distribution channels.

Through Book Fairs, Trade Publishing, and our proprietary school network all working together, we reach children and families and connect them with stories in ways no other company can replicate. Book Fairs once again demonstrated the strength of Scholastic’s unique school-based channels. Fair counts continue to grow year to date, and we’re benefiting from higher revenue per fair, strategic merchandising and pricing initiatives, lower cancellations, and greater adoption of eWallet. That’s a digital payment account that allows families to preload funds for students to spend at the fair, increasing participation and simplifying transactions. We’ve also experienced strong redemption of Scholastic Dollars, the reward currency schools receive for hosting book fairs. A key innovation this year is the launch of Discovery Fairs, the first new format we’ve introduced in more than a decade.

These fairs feature curated collections that focus on science, technology, engineering, arts, and math, alongside hands-on science and art kits designed to bring discovery-based reading and learning into the fair experience. Early pilots have already shown robust demand. Building on the partnership we announced last quarter with YouTube sensation Mark Rober, which reac