* Record third quarter revenue of $134.8 million, up 4.7 percent * Management maintains current fiscal 2008 revenue and diluted earnings per share guidance * Initial guidance for fiscal 2009 issued
GREENVILLE, Wis., Feb. 21, 2008 (PRIME NEWSWIRE) -- School Specialty (Nasdaq:SCHS), a leading education company providing supplemental learning products to the preK-12 market, today reported fiscal 2008 third quarter and fiscal year-to-date financial results. Revenue for the third quarter was $134.8 million, an all-time high for the period and 4.7 percent above the prior-year's third quarter. Loss per share from continuing operations was 95 cents, reflecting the seasonally low period for educational product sales and increased selling, general and administrative (SG&A) expense as compared to the prior year. For the prior-year third quarter, the company reported a loss per share from continuing operations of 79 cents. Revenue for the nine-month period of fiscal 2008 rose 4.2 percent to a record $914.3 million, compared to $877.1 million in the same period last year. Diluted earnings per share from continuing operations rose 25.2 percent in the first nine months to $2.78 compared to $2.22 in the prior year.
"Our associates performed exceptionally well throughout the first three quarters of our fiscal 2008," noted Chief Executive Officer David Vander Zanden. "Their dedication to serving customers and their efforts to advance our operational initiatives allowed us to report all-time highs in year-to-date revenue and earnings. In the third quarter, we achieved revenue growth in both our Specialty and Essentials segments. SG&A costs, while up in this year's third quarter, were in line with our expectations as we planned on an increase in the quarter in order to support our business system conversion, higher sales volume and increased performance-based compensation expense. Overall, we continue to be pleased with our execution and focus on managing our SG&A costs. As a result of our third quarter results and outlook for the fourth quarter, we are maintaining our previous revenue and earnings guidance for fiscal 2008."
Third Quarter Financial Results
Revenue for the third quarter of fiscal 2008 rose 4.7 percent from $128.8 million to $134.8 million. Specialty segment revenue grew $5.6 million, or 7.5 percent, from $74.9 million in the third quarter of fiscal 2007 to $80.5 million in the third quarter of fiscal 2008. The Specialty segment had incremental state adoption revenue of approximately $3 million in the third quarter related to the company's science curriculum offerings, which was offset by a comparable decline in mass-merchant retail sales. The remaining increase was attributable to approximately 8 percent revenue growth in the core Specialty businesses. Essentials segment revenue grew 1.5 percent in the quarter from $56.7 million in last year's third quarter to $57.5 million this year, primarily related to the furniture business with consumables flat to the prior year. Consolidated gross margin was 38.3 percent for the third quarter of fiscal 2008 as compared to 39.5 percent for the third quarter of fiscal 2007. Specialty gross margin declined 70 basis points from 45.3 percent to 44.6 percent. This decline was attributable to a $0.6 million inventory charge related to the company's decision to terminate an unfavorable distribution agreement. The Essentials gross margin was 28.7 percent in the third quarter of fiscal 2008 compared to 30.2 percent in fiscal 2007. The decrease in the Essentials gross margin was attributable to a shift in revenue mix toward furniture projects.
Operating loss for the quarter was $24.9 million compared to an operating loss of $20.7 million in the third quarter of fiscal 2007. SG&A expense increased from $71.6 million in the third quarter of fiscal 2007 to $76.6 million in the third quarter of fiscal 2008. This planned increase in SG&A expense was related to the additional variable SG&A costs to support the revenue increase, incremental costs to support the business system conversion and incremental variable compensation costs related to performance-based compensation plans.
The loss from continuing operations was $19.0 million in the third quarter of fiscal 2008 compared to an operating loss of $16.9 million in fiscal 2007. The loss per share from continuing operations was $0.95 in the third quarter of fiscal 2008 versus $0.79 in fiscal 2007. Approximately $0.05 of this decrease is related to the decreased share count in the third quarter of fiscal 2008 due to stock repurchases offset by shares issued upon the exercise of stock options. Net loss for the third quarter of fiscal 2008 was $20.3 million, which included a net of tax loss from the discontinued School Specialty Media (SSM) business of $1.2 million, compared to a net loss of $18.8 million in fiscal 2007, which included a net of tax loss of $1.9 million for SSM. The net loss per share in the third quarter of fiscal 2008 was $1.01 as compared to $0.88 in last year's third quarter.
During fiscal 2008's third quarter, the company repurchased $15.3 million of its outstanding common stock.
Nine Month Financial Results
Revenue for the first nine months of fiscal 2008 was a record $914.3 million, up $37.2 million or 4.2 percent from $877.1 million in the first nine months of fiscal 2007. Specialty segment revenue grew 11.9 percent in the first nine months of fiscal 2008 to $545.4 million from $487.6 million in the first nine months of fiscal 2007. The Specialty segment revenue growth in the first nine months was primarily due to science curriculum sales involving state adoptions, which increased approximately $46 million over the prior year. The remaining Specialty segment units, excluding the mass-merchant retail business, had revenue growth in the first nine months of approximately 5 percent. The Essentials segment revenue for the first nine months of fiscal 2008 was down 4.9 percent to $383.8 million from $403.6 million in the first nine months of fiscal 2007. 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 30 basis points in the first nine months from 42.6 percent to 42.9 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 nine months of fiscal 2008 as compared to approximately 54 percent in the first nine months of fiscal 2007.
SG&A expense as a percent of revenue decreased from 30.6 percent in the first nine months of fiscal 2007 to 30.2 percent in the first nine months of fiscal 2008. SG&A expense increased $8.1 million from $268.3 million in fiscal 2007 to $276.4 million this year. The increase in SG&A is attributable to the additional variable selling and distribution expenses associated with the revenue growth, incremental costs to support the business system conversion and increased variable performance-based compensation costs. Partially offsetting these increases were efficiencies realized in our supply chain and other cost-reduction efforts. Operating income in the first nine months was 12.7 percent of revenue as compared to 12.0 percent of revenue in the first nine months of fiscal 2007. Earnings from continuing operations increased 15.9 percent from $50.5 million in the first nine months of fiscal 2007 to $58.5 million in fiscal 2008.
Diluted earnings per share from continuing operations increased 25.2 percent from $2.22 in fiscal 2007 to $2.78 in fiscal 2008. Approximately $0.21 of this increase is related to the decreased share count. The reduction in the share count is due to stock repurchases offset by stock option activity.
Diluted earnings per share, which includes the discontinued SSM business, increased to $2.69 per share in the first nine months of fiscal 2008 from $2.07 in the first nine months of fiscal 2007, a 30.0 percent increase. Net income increased 19.9 percent to $56.6 million in the first nine months of fiscal 2008, which includes a net of tax loss of $1.9 million from SSM, compared with the prior year's $47.2 million, which includes a net of tax loss of $3.2 million from SSM.
During the first nine months of fiscal 2008, the company repurchased $60.3 million of its outstanding common stock. Since the beginning of fiscal 2007, the company has repurchased $136.8 million of its outstanding common stock.
Outlook
School Specialty is reaffirming its most recent fiscal 2008 revenue guidance of $1.08 billion to $1.10 billion and diluted earnings per share from continuing operations guidance for fiscal 2008 of $2.15 to $2.25. The company continues to expect free cash flow in fiscal 2008 to be in the range of $70 million to $80 million, or $3.33 to $3.81 of free cash flow per diluted share using the average diluted share count for the first nine months of fiscal 2008.
For fiscal 2009, the company is expecting revenue growth of 3 percent to 5 percent, excluding the impact of state adoption revenues of the company's science curriculum. State adoption revenue, which was up approximately $46 million in fiscal 2008, primarily related to California, is expected to decline by approximately $35 million in fiscal 2009. Thus, total revenue for fiscal 2009 compared to fiscal 2008, including adoptions in both years, is expected to be in the range of a 1 percent decline to a 2 percent increase. The company is expecting an increase in fiscal 2009 diluted earnings per share of 3 percent to 10 percent. Fiscal 2009 free cash flow is expected to be between $75 million and $85 million.
Conference Call
Investors have the opportunity to listen to School Specialty's fiscal 2008 third quarter conference call live over the Internet through Vcall at www.vcall.com. The conference call begins today, February 21, 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 or any guidance put forth in the "Outlook" section 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 Nine Months Ended
------------------ ------------------
Jan. 26, Jan. 27, Jan. 26, Jan. 27,
2008 2007 2008 2007
-------- -------- -------- --------
Revenues $134,839 $128,816 $914,271 $877,112
Cost of revenues 83,151 77,960 521,674 503,524
-------- -------- -------- --------
Gross profit 51,688 50,856 392,597 373,588
Selling, general and
administrative expenses 76,559 71,581 276,415 268,310
-------- -------- -------- --------
Operating income (loss) (24,871) (20,725) 116,182 105,278
Other (income) expense:
Interest expense 4,524 5,024 14,811 16,800
Interest income (9) (14) (23) (72)
Other 1,629 1,688 5,345 5,248
-------- -------- -------- --------
Income (loss) before provision
for income taxes (31,015) (27,423) 96,049 83,302
Provision for (benefit from)
income taxes (11,973) (10,517) 37,555 32,819
-------- -------- -------- --------
Earnings (loss) from
continuing operations (19,042) (16,906) 58,494 50,483
Earnings (loss) from
operations of discontinued
School Specialty Media
business unit, net of income
taxes (1,220) (1,917) (1,881) (3,237)
-------- -------- -------- --------
Net income (loss) $(20,262) $(18,823) $ 56,613 $ 47,246
======== ======== ======== ========
Weighted average shares
outstanding:
Basic 20,010 21,274 20,526 22,105
Diluted 20,010 21,274 21,055 22,787
Basic earnings (loss) per
share of common stock:
Earnings (loss) from
continuing operations $ (0.95) $ (0.79) $ 2.85 $ 2.28
Earnings (loss) from
discontinued operations (0.06) (0.09) (0.09) (0.14)
-------- -------- -------- --------
Total $ (1.01) $ (0.88) $ 2.76 $ 2.14
======== ======== ======== ========
Diluted earnings (loss) per
share of common stock:
Earnings (loss) from
continuing operations $ (0.95) $ (0.79) $ 2.78 $ 2.22
Earnings (loss) from
discontinued operations (0.06) (0.09) (0.09) (0.15)
-------- -------- -------- --------
Total $ (1.01) $ (0.88) $ 2.69 $ 2.07
======== ======== ======== ========
SCHOOL SPECIALTY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
January 26, April 28, January 27,
2008 2007 2007
---------- ---------- ----------
ASSETS (Unaudited) (Unaudited)
Current assets:
Cash and cash equivalents $ 1,684 $ 2,386 $ 1,541
Accounts receivable 93,770 65,900 70,831
Inventories 146,500 177,319 137,137
Deferred catalog costs 17,745 14,848 14,159
Prepaid expenses and other current
assets 20,907 18,398 24,832
Deferred taxes 10,457 10,201 7,126
---------- ---------- ----------
Total current assets 291,063 289,052 255,626
Property, plant and equipment, net 76,517 77,345 78,774
Goodwill 544,552 534,488 545,458
Intangible assets, net 179,001 183,660 196,326
Other 26,512 26,334 33,627
---------- ---------- ----------
Total assets $1,117,645 $1,110,879 $1,109,811
========== ========== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Current maturities -- long-term
debt $ 133,622 $ 133,590 $ 133,579
Accounts payable 47,920 77,794 50,086
Accrued compensation 17,288 14,709 16,734
Deferred revenue 5,774 5,464 5,216
Accrued income taxes 11,539 -- 8,593
Other accrued liabilities 31,670 23,392 24,044
---------- ---------- ----------
Total current liabilities 247,813 254,949 238,252
Long-term debt -- less current
maturities 281,767 293,139 279,590
Deferred taxes and other 59,355 50,246 56,549
---------- ---------- ----------
Total liabilities 588,935 598,334 574,391
---------- ---------- ----------
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
23,629,635; 23,310,461 and
23,266,961 shares issued,
respectively 24 23 23
Capital paid-in excess of par
value 378,794 367,068 364,408
Treasury stock, at cost --
3,814,902; 2,126,121 and
2,126,121 shares, respectively (136,761) (76,508) (76,508)
Accumulated other comprehensive
income 26,341 17,763 14,098
Retained earnings 260,312 204,199 233,399
---------- ---------- ----------
Total shareholders' equity 528,710 512,545 535,420
---------- ---------- ----------
Total liabilities and
shareholders' equity $1,117,645 $1,110,879 $1,109,811
========== ========== ==========
SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Unaudited
Nine Months Ended
------------------------
January 26, January 27,
2008 2007
----------- -----------
Cash flows from operating activities:
Net income $ 56,613 $ 47,246
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and intangible asset
amortization expense 18,892 19,262
Amortization of development costs 7,217 5,192
Amortization of debt fees and other 1,521 928
Share-based compensation expense 4,230 3,259
Deferred taxes 8,148 7,748
Loss on disposal of property, equipment
and other 31 290
Changes in current assets and liabilities
(net of assets acquired and liabilities
assumed in business combinations):
Accounts receivable (26,712) (10,415)
Inventories 31,271 19,689
Deferred catalog costs (2,897) 6,980
Prepaid expenses and other current assets (2,454) 2,970
Accounts payable (29,975) (24,353)
Accrued liabilities 24,186 19,793
----------- -----------
Net cash provided by operating activities 90,071 98,589
----------- -----------
Cash flows from investing activities:
Cash paid in acquisitions, net of cash
acquired (5,753) --
Additions to property, plant and equipment (12,218) (14,788)
Investment in intangible and other assets -- (202)
Investment in product development costs (7,955) (7,167)
Proceeds from disposal of property, plant
and equipment 375 1,011
----------- -----------
Net cash used in investing activities (25,551) (21,146)
----------- -----------
Cash flows from financing activities:
Proceeds from convertible debt offering -- 200,000
Proceeds from bank borrowings 533,000 964,900
Repayment of debt and capital leases (544,340) (1,168,938)
Purchase of treasury stock (60,253) (76,508)
Proceeds from exercise of stock options 5,519 6,502
Excess income tax benefit from exercise of
stock options 852 1,005
Payment of debt fees and other -- (5,266)
----------- -----------
Net cash used in financing activities (65,222) (78,305)
----------- -----------
Net increase in cash and cash equivalents (702) (862)
Cash and cash equivalents, beginning of
period 2,386 2,403
----------- -----------
Cash and cash equivalents, end of period $ 1,684 $ 1,541
=========== ===========
Free cash flow reconciliation:
Net cash used in operating activities $ 90,071 $ 98,589
Additions to property and equipment (12,218) (14,788)
Investment in development costs (7,955) (7,167)
Proceeds from disposal of property and
equipment 375 1,011
----------- -----------
Free cash flow $ 70,273 $ 77,645
=========== ===========
School Specialty, Inc.
Segment Analysis - Revenues and Gross Profit/Margin Analysis
3rd Quarter, Fiscal 2008
(In thousands)
Unaudited
Segment Revenues and Gross Profit/Margin Analysis-QTD
-----------------------------------------------------
% of Revenues
-------------
Change Change 3Q08- 3Q07-
3Q08-QTD 3Q07-QTD $ % QTD QTD
-------- -------- ------ ------ ----- -----
Revenues
Specialty $ 80,534 $ 74,938 $5,596 7.5% 59.7% 58.2%
Essentials 57,540 56,679 861 1.5% 42.7% 44.0%
Corporate and
Interco Elims (3,235) (2,801) (434) -2.4% -2.2%
-------- -------- ------ ----- -----
Total Revenues $134,839 $128,816 $6,023 4.7% 100.0% 100.0%
======== ======== ====== ===== =====
% of Gross
Profit
-------------
Change Change 3Q08- 3Q07
3Q08-QTD 3Q07-QTD $ % QTD QTD
-------- -------- ------ ------ ----- -----
Gross Profit
Specialty $ 35,888 $ 33,968 $1,920 5.7% 69.4% 66.8%
Essentials 16,495 17,115 (620) -3.6% 31.9% 33.7%
Corporate and
Interco Elims (695) (227) (468) -1.3% -0.5%
-------- -------- ------ ----- -----
Total Gross
Profit $ 51,688 $ 50,856 $ 832 1.6% 100.0% 100.0%
======== ======== ====== ====== ======
Segment Gross Margin Summary-QTD
--------------------------------
Gross Margin 3Q08-QTD 3Q07-QTD
-------- --------
Specialty 44.6% 45.3%
Essentials 28.7% 30.2%
Total Gross Margin 38.3% 39.5%
Segment Revenues and Gross Profit/Margin Analysis-YTD
-----------------------------------------------------
% of Revenue
-------------
Change 3Q08- 3Q07-
3Q08-YTD 3Q07-YTD Change $ % YTD YTD
-------- -------- -------- ------ ----- -----
Revenues
Specialty $545,416 $487,617 $ 57,799 11.9% 59.7% 55.6%
Essentials 383,800 403,602 (19,802) -4.9% 42.0% 46.0%
Corporate and
Interco Elims (14,945) (14,107) (838) -1.7% -1.6%
-------- -------- -------- ----- -----
Total Revenues $914,271 $877,112 $ 37,159 4.2% 100.0% 100.0%
======== ======== ======== ====== ======
% of Gross
Profit
-------------
Change 3Q08- 3Q07-
3Q08-YTD 3Q07-YTD Change $ % YTD YTD
-------- -------- -------- ------ ----- -----
Gross Profit
Specialty $273,465 $245,047 $ 28,418 11.6% 69.7% 65.6%
Essentials 121,263 129,156 (7,893) -6.1% 30.9% 34.6%
Corporate and
Interco Elims (2,131) (615) (1,516) -0.6% -0.2%
-------- -------- -------- ----- -----
Total Gross
Profit $392,597 $373,588 $ 19,009 5.1% 100.0% 100.0%
======== ======== ======== ====== ======
Segment Gross Margin Summary-YTD
--------------------------------
Gross Margin 3Q08-YTD 3Q07-YTD
-------- --------
Specialty 50.1% 50.3%
Essentials 31.6% 32.0%
Total Gross
Margin 42.9% 42.6%