* Record year-to-date revenues of $779 million, up 4 percent; and record second quarter revenues of $393 million, up 6 percent * Record year-to-date diluted EPS from continuing operations, up 25 percent; and record second quarter diluted EPS from continuing operations, up 36 percent * Science curriculum revenue from state adoptions increased $43 million in the first six months * Fiscal 2008 revenue and earnings guidance increased
GREENVILLE, Wis., Nov. 13, 2007 (PRIME NEWSWIRE) -- School Specialty (Nasdaq:SCHS), a leading education company providing supplemental learning products to the preK-12 market, today reported record fiscal 2008 year-to-date and second quarter financial results. Revenues for the first six months of fiscal 2008 were a record $779.4 million, an increase of 4.2 percent over the same period of fiscal 2007. Diluted earnings per share from continuing operations for the first six months of fiscal 2008 rose 25.2 percent to $3.63, compared with $2.90 for the same period of fiscal 2007.
"Our back-to-school season was one of record results. While our Essentials business did not meet expectations, we did have excellent performance from the employees in our Science group, and our Specialty Segment continues to post solid results," said David Vander Zanden, Chief Executive Officer. "I am also very proud of all our associates for the continuing efforts to control selling, general and administrative (SG&A) costs throughout the entire Company. While our reported results for the second quarter were very strong, we believe the year-to-date results will provide more meaningful comparisons of performance than the results in the distinct quarters due to later school start dates this year that shifted revenue from our first quarter to the second quarter."
The rate of decline in the mass merchant business improved in the second quarter. The Company anticipates additional improvement in the third quarter, and expects to show positive growth beginning in the fourth quarter. The Company announced earlier in the year that it was looking at strategic alternatives for the mass merchant business and expects to make a decision near the end of fiscal 2008.
"The Company's Specialty segment reported a 12.6 percent increase in revenue for the first six months of fiscal 2008 as compared with the same period last year," said Tom Slagle, President and Chief Operating Officer. "Our growth was led by School Specialty Science where we recorded strong sales of our science curriculum products, especially in California and major school districts such as New York City, Cincinnati and Florida's Broward County. Revenue from state adoptions of our science curriculums was up approximately $43 million over the prior year. We are pleased to report that our science curriculums have recently been adopted in Georgia and Kentucky as well. Our associates continued their great efforts at driving efficiencies and reducing costs, as our SG&A expenses as a percent of revenue was down 70 basis points so far this year. We are also encouraged by results of our direct market initiatives where we've introduced sophisticated database marketing techniques to better target customers and prospects with a more focused product offering."
"Our School Specialty Essentials segment, which provides school supplies and furniture, reported year-to-date revenue 6.0 percent below the prior year. The total decline of $21 million is split evenly between furniture and consumables. While we experienced some slow-down in the furniture business, our pipeline suggests that we can close this gap by year end. Our consumables revenues were negatively impacted by decreased reconstruction spending in Louisiana this year along with changes in other business initiatives within the segment that contributed to lower revenue," said Slagle. "We continue to take aggressive steps in making the required changes in several areas of our business model that we believe will begin to drive growth in this important segment of our business."
Second Quarter Financial Results
Revenues for the second quarter of fiscal 2008 rose 5.8 percent from $371.2 million to $392.9 million. Specialty segment revenue grew $33.5 million, or 16.5 percent, from $203.2 million in fiscal 2007's second quarter to $236.7 million in the second quarter of fiscal 2008. The Specialty segment had incremental state adoption revenue related to science curriculums of approximately $29 million in the current quarter, which was offset to some extent by a decline in mass-merchant retail sales of nearly $2 million. Essentials segment revenue was $160.1 million in the second quarter of fiscal 2008 as compared to $172.1 million in fiscal 2007's second quarter. This decrease was attributable primarily to a $7 million decline in school reconstruction projects in Louisiana, the elimination of an unproductive catalog, and not pursuing low-margin bid business. Consolidated gross margin improved by 90 basis points in the second quarter as compared to last year's second quarter, from 41.7 percent to 42.6 percent. The increase in gross margin was attributable to a shift in revenue mix toward the Specialty segment, which has more proprietary products and generates higher gross margin than the Essentials segment.
Operating earnings for the quarter grew $10.9 million, or 19.1 percent, from $56.9 million to $67.8 million. As a percent of revenue, SG&A was 25.4 percent in the current quarter as compared to 26.4 percent in the second quarter of fiscal 2007. The improvement in SG&A was primarily due to continued supply chain efficiencies and other cost-reduction efforts. SG&A increased $1.8 million to $99.7 million, on a revenue increase of $21.7 million.
Earnings from continuing operations increased $7.4 million in the second quarter of fiscal 2008 from $29.6 million in fiscal 2007 to $37.0 million. Diluted earnings per share from continuing operations increased 36.4 percent from $1.29 in fiscal 2007 to $1.76 in fiscal 2008. Approximately $0.15 of this increase is related to the decreased share count. The reduction in the share count is due to the cumulative impact of stock repurchases over the past two fiscal years offset by changes in stock option dilution and actual option exercises. Net income was $36.6 million in the second quarter of fiscal 2008, which included a net of tax loss from the discontinued School Specialty Media (SSM) business of $0.4 million, compared to $29.2 million in fiscal 2007, which also included a net of tax loss of $0.4 million for SSM. Diluted earnings per share in the second quarter of fiscal 2008 were $1.74 as compared to $1.28 in last year's second quarter.
During fiscal 2008's second quarter, the Company repurchased 809,196 shares of its outstanding common stock for a net purchase price of $28.9 million.
Six Months Financial Results
Revenues for the first six months of fiscal 2008 were a record $779.4 million, up $31.1 million or 4.2 percent from $748.3 million in the first six months of fiscal 2007. Specialty segment revenue grew 12.6 percent in the first six months of fiscal 2008 from $412.7 million to $464.9 million. The Specialty segment revenue growth in the first six months was primarily due to science curriculum sales involving state adoptions, which increased approximately $43 million over the prior year. The remaining Specialty segment units, excluding the mass-merchant retail business, had revenue growth in the first six months of over 5 percent. The Essentials segment revenue for the first six months of fiscal 2008 was down 6.0 percent from $346.9 million to $326.3 million. This decline was attributable to a reduction in school rebuilding activity in Louisiana, the elimination of an unproductive catalog, and the decision to not pursue low-margin bid business.
Gross margin improved by 60 basis points in the first six months from 43.1 percent to 43.7 percent. The increased gross margin was related to a shift in revenue mix toward the Specialty segment, which historically has higher gross margins than the Essentials segment. Revenue from the Specialty segment, net of intercompany eliminations, increased to approximately 58 percent of total revenue in the first six months of fiscal 2008 as compared to approximately 54 percent in the first six months of fiscal 2007. Gross margins within both segments were relatively constant in fiscal 2008 as compared to fiscal 2007.
SG&A expenses decreased from 26.3 percent of revenue in the first six months of fiscal 2007 to 25.6 percent of revenue in the first six months of fiscal 2008. SG&A expenses increased $3.2 million from $196.7 million in fiscal 2007 to $199.9 million this year. The increase in SG&A is attributable to the incremental variable selling and distribution expenses associated with the revenue growth. Offsetting this increase to some extent are efficiencies in the supply chain and other cost-reduction efforts. Operating income in the first six months was 18.1 percent of revenue as compared to 16.8 percent of revenue in the first six months of fiscal 2007. Earnings from continuing operations increased 15.1 percent from $67.4 million in the first six months of fiscal 2007 to $77.5 million in fiscal 2008.
Diluted earnings per share from continuing operations increased 25.2 percent from $2.90 in fiscal 2007 to $3.63 in fiscal 2008. Approximately $0.30 of this increase is related to the decreased share count. The reduction in the share count is due to the cumulative impact of stock repurchases over the past two fiscal years offset by changes in stock option dilution and actual option exercises.
Diluted earnings per share, which includes the discontinued SSM business, increased to $3.60 per share in fiscal 2008 from $2.85 in fiscal 2007, a 26.3 percent increase. Net income was $76.9 million in the first six months of fiscal 2008, which includes a net of tax loss of $0.7 million from SSM, compared with the prior year's $66.1 million, which includes a net of tax loss of $1.3 million from SSM.
During the first six months of fiscal 2008, the Company repurchased 1,254,681 shares of its common stock for an aggregate purchase price of $44.9 million. Since the beginning of fiscal 2007, the Company has repurchased 3,380,802 shares for a net purchase price of $121.4 million.
Outlook
"With the busy season behind us and the stronger-than-expected revenue from state adoptions of our science curriculums, we are increasing our full-year fiscal 2008 revenue guidance to a range of $1.08 billion to $1.10 billion and increasing our full-year fiscal 2008 diluted earnings per share from continuing operations guidance to a range of $2.15 to $2.25 per share," said Dave Vander Zanden. "This updated guidance reflects expected increased SG&A expenditures in the second half of the year to support our business system conversion." The prior guidance ranges were $1.06 billion to $1.09 billion for revenue, and $2.00 to $2.20 for diluted EPS from continuing operations. The Company is now expecting free cash flow in fiscal 2008 to be in the range of $70 million to $80 million. The previous guidance for free cash flow was $65 million to $75 million.
Conference Call
Investors have the opportunity to listen to School Specialty's fiscal 2008 second quarter conference call live over the Internet through Vcall at www.vcall.com. The conference call begins today, November 13, at 10:00 a.m. Central Time. To listen, go to the Vcall website at least 15 minutes before the start of the call to register, download and install any necessary audio software. A replay will be available shortly after the call is completed and for the week that follows. A transcript will be available within two days of the call. The conference call will also be accessible through the Investor Information section of the School Specialty corporate web site at www.schoolspecialty.com.
About School Specialty, Inc.
School Specialty is a leading education company that provides innovative and proprietary products, programs and services to help educators engage and inspire students of all ages and abilities to learn. The company designs, develops, and provides preK-12 educators with the latest and very best curriculum, supplemental learning resources, and school supplies. Working in collaboration with educators, School Specialty reaches beyond the scope of textbooks to help teachers, guidance counselors and school administrators ensure that every student reaches his or her full potential.
For more information about School Specialty, visit www.schoolspecialty.com.
Cautionary Statement Concerning Forward-Looking Information
Any statements made in this press release about future results of operations, expectations, plans, prospects, including guidance set forth in this press release under the heading "Outlook" constitute forward-looking statements. Forward-looking statements also include those preceded or followed by the words "anticipates," "believes," "could," "estimates," "expects," "intends," "may," "should," "plans," "targets" and/or similar expressions. These forward-looking statements are based on School Specialty's current estimates and assumptions and, as such, involve uncertainty and risk. Forward-looking statements are not guarantees of future performance, and actual results may differ materially from those contemplated by the forward-looking statements because of a number of factors, including the factors described in Item 1A of School Specialty's Annual Report on Form 10-K for the fiscal year ended April 28, 2007, which factors are incorporated herein by reference. Except to the extent required under the federal securities laws, School Specialty does not intend to update or revise the forward-looking statements.
SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
Unaudited
Three Months Ended Six Months Ended
-------------------- --------------------
Oct. 27, Oct. 28, Oct. 27, Oct. 28,
2007 2006 2007 2006
-------- -------- -------- --------
Revenues $392,919 $371,225 $779,432 $748,296
Cost of revenues 225,378 216,404 438,523 425,564
-------- -------- -------- --------
Gross profit 167,541 154,821 340,909 322,732
Selling, general and
administrative expenses 99,711 97,890 199,856 196,729
-------- -------- -------- --------
Operating income 67,830 56,931 141,053 126,003
Other (income) expense:
Interest expense 4,955 5,634 10,287 11,776
Interest income (6) (23) (14) (58)
Other 2,507 2,508 3,716 3,560
-------- -------- -------- --------
Income before provision
for income taxes 60,374 48,812 127,064 110,725
Provision for income
taxes 23,418 19,168 49,528 43,336
-------- -------- -------- --------
Earnings from
continuing operations 36,956 29,644 77,536 67,389
Earnings (loss) from
operations of
discontinued School
Specialty Media
business unit, net of
income taxes (402) (442) (661) (1,320)
-------- -------- -------- --------
Net income $ 36,554 $ 29,202 $ 76,875 $ 66,069
======== ======== ======== ========
Weighted average shares
outstanding:
Basic 20,434 22,212 20,784 22,548
Diluted 20,966 22,898 21,366 23,213
Basic earnings per share
of common stock:
Earnings from
continuing operations $ 1.81 $ 1.33 $ 3.73 $ 2.99
Earnings (loss) from
discontinued
operations (0.02) (0.02) (0.03) (0.06)
-------- -------- -------- --------
Total $ 1.79 $ 1.31 $ 3.70 $ 2.93
======== ======== ======== ========
Diluted earnings per
share of common stock:
Earnings from
continuing operations $ 1.76 $ 1.29 $ 3.63 $ 2.90
Earnings (loss) from
discontinued operations (0.02) (0.01) (0.03) (0.05)
-------- -------- -------- --------
Total $ 1.74 $ 1.28 $ 3.60 $ 2.85
======== ======== ======== ========
SCHOOL SPECIALTY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
October 27, April 28, October 28,
2007 2007 2006
---------- ---------- ----------
ASSETS (Unaudited) (Unaudited)
Current assets:
Cash and cash equivalents $ 4,611 $ 2,386 $ 9,077
Accounts receivable 198,826 65,900 168,063
Inventories 142,134 177,319 123,281
Deferred catalog costs 12,668 14,848 12,636
Prepaid expenses and other
current assets 17,454 18,398 19,146
Deferred taxes 10,344 10,201 6,260
---------- ---------- ----------
Total current assets 386,037 289,052 338,463
Property, plant and
equipment, net 76,532 77,345 79,381
Goodwill 544,245 534,488 549,094
Intangible assets, net 179,631 183,660 198,772
Other 25,013 26,334 27,977
---------- ---------- ----------
Total assets $1,211,458 $1,110,879 $1,193,687
========== ========== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Current maturities -
long-term debt $ 133,609 $ 133,590 $ 133,571
Accounts payable 51,704 77,794 55,427
Accrued compensation 19,677 14,709 16,732
Deferred revenue 6,965 5,464 4,937
Accrued income taxes 32,580 -- 26,159
Other accrued liabilities 33,517 23,392 24,175
---------- ---------- ----------
Total current liabilities 278,052 254,949 261,001
Long-term debt - less
current maturities 311,528 293,139 288,937
Deferred taxes and other 56,753 50,246 52,134
---------- ---------- ----------
Total liabilities 646,333 598,334 602,072
---------- ---------- ----------
Commitments and
contingencies
Shareholders' equity:
Preferred stock, $0.001
par value per share,
1,000,000 shares
authorized; none
outstanding -- -- --
Common stock, $0.001 par
value per share,
150,000,000 authorized
and 23,589,151; 23,310,461
and 23,069,001 shares
issued, respectively 24 23 23
Capital paid-in excess of
par value 376,431 367,068 358,133
Treasury stock, at cost -
3,380,802; 2,126,121 and
1,068,121 shares,
respectively (121,419) (76,508) (36,526)
Accumulated other
comprehensive income 29,515 17,763 17,763
Retained earnings 280,574 204,199 252,222
---------- ---------- ----------
Total shareholders'
equity 565,125 512,545 591,615
---------- ---------- ----------
Total liabilities and
shareholders' equity $1,211,458 $1,110,879 $1,193,687
========== ========== ==========
SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Unaudited
Six Months Ended
-----------------------
Oct. 27, Oct. 28,
2007 2006
--------- ---------
Cash flows from operating activities:
Net income $ 76,875 $ 66,069
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and intangible asset
amortization expense 12,480 12,860
Amortization of development costs 5,748 3,695
Amortization of debt fees and other 1,016 495
Share-based compensation expense 2,844 2,355
Deferred taxes 5,659 4,199
(Gain) loss on disposal of property,
equipment and other (8) 274
Changes in current assets and liabilities
(net of assets acquired and liabilities
assumed in business combinations):
Accounts receivable (131,668) (107,518)
Inventories 35,382 33,578
Deferred catalog costs 2,180 8,503
Prepaid expenses and other current assets 959 8,547
Accounts payable (25,788) (19,412)
Accrued liabilities 50,446 36,781
--------- ---------
Net cash provided by operating
activities 36,125 50,426
--------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (7,530) (11,123)
Investment in intangible and other assets -- (102)
Investment in product development costs (5,443) (4,739)
Proceeds from disposal of property, plant
and equipment 33 932
--------- ---------
Net cash used in investing activities (12,940) (15,032)
--------- ---------
Cash flows from financing activities:
Proceeds from bank borrowings 405,700 679,400
Repayment of debt and capital leases (387,292) (674,099)
Purchase of treasury stock (44,911) (36,526)
Proceeds from exercise of stock options 4,840 2,525
Excess income tax benefit from exercise
of stock options 703 --
Payment of debt fees and other -- (20)
--------- ---------
Net cash used in financing activities (20,960) (28,720)
--------- ---------
Net increase in cash and cash equivalents 2,225 6,674
Cash and cash equivalents, beginning of
period 2,386 2,403
--------- ---------
Cash and cash equivalents, end of period $ 4,611 $ 9,077
========= =========
Free cash flow reconciliation:
Net cash used in operating activities $ 36,125 $ 50,426
Additions to property and equipment (7,530) (11,123)
Investment in development costs (5,443) (4,739)
Proceeds from disposal of property and
equipment 33 932
--------- ---------
Free cash flow $ 23,185 $ 35,496
========= =========
School Specialty, Inc.
Segment Analysis - Revenues and Gross Profit/Margin Analysis
2nd Quarter, Fiscal 2008
(In thousands)
Unaudited
Segment Revenues and Gross Profit/Margin Analysis-QTD
-----------------------------------------------------
% of Revenues
-------------
Change Change 2Q08- 2Q07-
2Q08-QTD 2Q07-QTD $ % QTD QTD
-------- -------- -------- ----- ----- -----
Revenues
Specialty $236,743 $203,211 $ 33,532 16.5% 60.3% 54.7%
Essentials 160,129 172,072 (11,943) -6.9% 40.8% 46.4%
Corporate and
Interco Elims (3,953) (4,058) 105 -1.1% -1.1%
-------- -------- -------- ----- -----
Total
Revenues $392,919 $371,225 $ 21,694 5.8% 100.0% 100.0%
======== ======== ======== ===== =====
% of
Gross Profit
-------------
Change Change 2Q08- 2Q07-
2Q08-QTD 2Q07-QTD $ % QTD QTD
-------- -------- -------- ----- ----- -----
Gross Profit
Specialty $118,916 $101,497 $ 17,419 17.2% 71.0% 65.6%
Essentials 48,820 53,113 (4,293) -8.1% 29.1% 34.3%
Corporate and
Interco Elims (195) 211 (406) -0.1% 0.1%
-------- -------- -------- ----- -----
Total Gross
Profit $167,541 $154,821 $ 12,720 8.2% 100.0% 100.0%
======== ======== ======== ===== =====
Segment Gross Margin Summary-QTD
--------------------------------
Gross Margin 2Q08-QTD 2Q07-QTD
-------- --------
Specialty 50.2% 49.9%
Essentials 30.5% 30.9%
Total Gross
Margin 42.6% 41.7%
Segment Revenues and Gross Profit/Margin Analysis-YTD
-----------------------------------------------------
% of Revenues
-------------
Change Change 2Q08- 2Q07-
2Q08-YTD 2Q07-YTD $ % YTD YTD
-------- -------- -------- ----- ----- -----
Revenues
Specialty $464,882 $412,679 $ 52,203 12.6% 59.6% 55.1%
Essentials 326,260 346,923 (20,663) -6.0% 41.9% 46.4%
Corporate and
Interco Elims (11,710) (11,306) (404) -1.5% -1.5%
-------- -------- -------- ----- -----
Total Revenues $779,432 $748,296 $ 31,136 4.2% 100.0% 100.0%
======== ======== ======== ===== =====
% of
Gross Profit
-------------
Change Change 2Q08- 2Q07-
2Q08-YTD 2Q07-YTD $ % YTD YTD
-------- -------- -------- ----- ----- -----
Gross Profit
Specialty $237,577 $211,079 $ 26,498 12.6% 69.7% 65.4%
Essentials 104,768 112,041 (7,273) -6.5% 30.7% 34.7%
Corporate and
Interco Elims (1,436) (388) (1,048) -0.4% -0.1%
-------- -------- -------- ----- -----
Total Gross
Profit $340,909 $322,732 $ 18,177 5.6% 100.0% 100.0%
======== ======== ======== ===== =====
Segment Gross Margin Summary-YTD
--------------------------------
Gross Margin 2Q08-YTD 2Q07-YTD
-------- --------
Specialty 51.1% 51.1%
Essentials 32.1% 32.3%
Total Gross
Margin 43.7% 43.1%