Well, Harry Potter's been back on Privet Drive for a while, but Scholastic's (NASDAQ:SCHL) third quarter is light on the magic and heavy on Muggle realities. Late yesterday, Scholastic reported a third-quarter loss instead of the expected profit, leading to the stock dropping 11% at one point today.
Scholastic reported a net loss of $6 million, or $0.15 per diluted share, compared to a loss of $0.5 million, or $0.01 per share, in the same quarter last year. Revenues were up 9% at $472 million, with gains from sources including school book clubs and book fairs.
Admittedly, Scholastic said the third quarter is usually its smallest revenue period. However, a rather unexpected angle to its numbers was the impact of the Federal Do Not Call list, which put a halt to most telemarketing efforts. This affected its Direct-to-Home segment, as the company said it limited the number of new families that Scholastic could claim for customers and hiked costs for the families it could approach.
Among the steps taken to address the problem include some management reshuffling, including the resignations of the executives in charge of the Direct-to-Home and Trade areas of the company. While that's meant to console, it doesn't make the challenges posed by the Do Not Call list less daunting.
The Harry Potter franchise has certainly proven a boon to Scholastic in the past, but right now, Harry's MIA. In its conference call (transcript courtesy of CCBN StreetEvents), it said that while the next movie installment -- The Prisoner of Azkaban -- is forthcoming, Scholastic's already "well represented" in the marketplace, with additional shipments "minimal."
Again, perhaps this will just prove to be Scholastic's usual third-quarter malaise with some temporary glitches. It's easy to forgive some irregular quarterly numbers, what with the usual huge boosts provided by Harry Potter. However, the effects of the Do Not Call list bear watching. While Scholastic has lowered its fourth-quarter and year view accordingly, it says it is searching new models for customer acquisition. Success in that area will be a key element in getting Scholastic back up to speed.
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Alyce Lomax does not own shares of any companies mentioned, although she just finished reading Harry Potter and the Order of the Phoenix.
