Financials
Financials in One Page
Scholastic is a $1.6B-revenue children's publisher and educational-materials company whose economics are concentrated in one place: the Children's Book Publishing and Distribution segment (Book Fairs, Book Clubs, trade), which earned $130.7M of operating income in FY2025 at a 13.6% margin and effectively funded a barely-positive consolidated operating margin of 1.0%. Revenue has been flat for a decade ($1.55B in FY2013 vs $1.63B in FY2025) while operating margins have collapsed from a pre-COVID 4-5% to under 1% over FY2024-FY2025, dragged down by the underperforming Education Solutions segment and International losses. Earnings quality is better than it looks — free cash flow has averaged ~$85M over the past four years even as reported net income has bounced between -$44M and +$86M — but the balance sheet inflected from a long-time net-cash position to net debt in FY2025 after the $176M 9 Story Media Group acquisition (Q1 FY2025) lifted long-term debt back to $250M. The stock at $42.10 (June 2026) trades at 5.2x EV/EBITDA and 12.4% trailing FCF yield, a discount to publishing peers that reflects the operating-margin collapse and the suspicion that Education Solutions is structurally impaired. The financial metric that matters most right now is Education Solutions operating margin — it must climb back to a 5-8% range to justify anything close to the pre-COVID consolidated profile.
FY2025 Revenue ($M)
FY2025 Operating Margin
FY2025 Free Cash Flow ($M)
Net Debt post-Q3 FY26 ($M)
Market Cap ($M, June 2026)
Enterprise Value ($M)
FCF Margin
FY2025 ROE
The headline puzzle: consolidated revenue is roughly flat for a decade, but the Children's Book segment alone earns more operating income today ($130.7M, 13.6% margin) than the entire company did at peak. The other two segments (Education Solutions, International) collectively destroy ~$60M of segment-level economics versus their own pre-COVID baselines. The financials only make sense if you read them at the segment level.
Defining the scoreboard. Operating margin = operating income ÷ revenue (how much of every dollar of sales survives running the business). Free cash flow (FCF) = operating cash flow minus capital expenditures (cash left for shareholders after keeping the business running). Net debt = total debt minus cash (negative means the company has more cash than debt). Return on invested capital (ROIC) = after-tax operating profit ÷ debt-plus-equity capital deployed (whether each dollar of capital earns its keep).
Revenue, Margins, and Earnings Power
Scholastic's top line peaked in FY2008 at $2.16B, fell off a cliff after the company sold its direct-to-home Continuities business in FY2013 (revenue dropped ~$590M to $1.55B), partially recovered to ~$1.74B by FY2017, and has been range-bound between $1.30B and $1.71B for nine years. The most useful read is therefore not the revenue line but the gross-to-operating-margin gap: gross margin has held in a narrow 52-56% band for two decades, but selling, general, and administrative (SGA) expense has consumed a rising share of revenue, compressing operating margin from the 5-9% range in FY2017-FY2023 to roughly 1% in FY2024-FY2025.
The chart shows three distinct earnings regimes. (1) FY2008-FY2014: shrinking print business under educational-publishing consolidation, ending with the FY2013 divestiture of Continuities. (2) FY2015-FY2019: stable ~$1.65B revenue and 3-5% operating margin, modest gains as digital Book Fairs scaled. (3) FY2020 onward: COVID slammed Book Fairs (FY2020 revenue down $167M, operating income to -$88M); the post-COVID rebound peaked in FY2022-FY2023 (~$100M of operating income); then FY2024-FY2025 has been a sharp re-rating downward as Education Solutions stalled (post-ESSER federal funding cliff) and International stayed unprofitable. Net income has bounced around because of one-time items — most notably the FY2015 +$295M gain from selling the educational-technology business and the FY2008 -$151M charge from discontinued operations — making EPS a poor read on underlying profitability.
Gross margin has actually expanded from 52-54% to 55-56% over the last three years — supply-chain and product-mix discipline are visible. The damage is entirely below gross profit, in fixed-cost absorption: revenue is flat at ~$1.6B but SGA has risen from ~$757M (FY2023) to $822M (FY2025), an 8.7% increase. Until Scholastic either grows revenue past the SGA base or cuts costs, the operating line will stay at 1-2%.
Recent Quarterly Trajectory (Fiscal Year Ends May 31)
Because Scholastic's business is highly seasonal (Book Fairs concentrate in Q2 and Q4 around the school calendar), quarterly comparisons are only useful YoY, never sequentially.
The seasonality is severe: Q1 (June-August, summer school break) is reliably a loss quarter; Q2 (fall Book Fairs) is the largest profit quarter; Q3 (winter) is modestly loss-making; Q4 (spring Book Fairs) is the second profit quarter. The investor question is whether the trailing twelve months — $1,614M revenue and $17M operating income — represents a new lower-margin steady state, or a transitional bottom. Q2 FY2026 was encouraging (operating income $82.9M vs $74.7M prior year on +1% revenue), but Q1 FY2026 was modestly worse YoY. Earnings power is bottoming, not yet recovering.
Cash Flow and Earnings Quality
Free cash flow has been remarkably more stable than reported earnings. Over FY2022-FY2025, net income ranged from -$1.9M to +$86.3M (a $88M swing), but free cash flow ranged from $72.0M to $184.0M and averaged $109.8M. The reason: roughly $90M of annual depreciation and amortization (which depresses net income but is non-cash), modest stock-based compensation (~$10M), and capex of $42-62M — together producing a structural FCF-to-net-income ratio comfortably above 1x in most years.
Two cash-flow distortions deserve calling out. FY2016 OCF turned deeply negative (-$79M) despite positive net income, primarily working-capital absorption tied to a customer-receipts timing shift; this self-corrected the following year. FY2014 FCF was -$124M because of a one-time $280M capex spike (the FY2014 expansion of the warehouse/distribution platform). Excluding these two outlier years, free cash flow has converted at greater than 100% of net income in every fiscal year since FY2015, even as net income oscillated wildly.
The trailing four-year FCF margin of ~5.7% is a reasonable estimate of normalized cash generation. Against $1.6B of revenue, this implies a $90M normalized FCF run-rate — which is what the market is effectively pricing.
Cash-Flow Distortions to Watch
The earnings quality verdict: Scholastic's reported net income materially understates its cash-generating capacity because of depreciation on a heavy fixed-asset base (warehouses, distribution centers, the now-monetized NYC headquarters). Owners get paid in cash, not in GAAP earnings.
Balance Sheet and Financial Resilience
Scholastic spent most of the last decade in a net-cash position — at the end of FY2015 the company held $506.8M of cash against just $6M of debt, a $500M net-cash cushion that funded book reinvestment and buybacks. That cushion has now been substantially depleted by three forces: (1) cumulative share repurchases of ~$525M FY2018-FY2025, (2) the $176M 9 Story Media Group acquisition in Q1 FY2025, and (3) refinancing of the credit facility, lifting long-term debt to $250M at FY2025 year-end.
The FY2025 leap to $250M of net debt is the single biggest balance-sheet inflection in 15 years. However, in Q3 FY2026 (February 2026) Scholastic completed a sale-leaseback of its NYC headquarters and a Jefferson City, Missouri facility, generating over $400M of net proceeds and a $118M one-time pretax gain. Net debt of $189M at the prior-year quarter swung to net cash of $90.6M by Q3 FY2026 — so the balance-sheet stress shown in FY2025 reporting has largely been undone, with one structural cost: the company now pays incremental rent on what was previously owned real estate (-$7M to FY2026 operating income, -$14M to Adjusted EBITDA).
Interest coverage collapsed to 0.9x in FY2025 — operating income of $15.8M barely covered the $18.2M interest expense from the 9 Story acquisition financing. This is the cleanest single number that explains why the FY2025 income statement was unattractive and why management moved so aggressively to monetize real estate. Following the sale-leaseback and credit-facility paydown, FY2026 interest expense should fall sharply.
Liquidity Snapshot (Most Recent)
Management has now explicitly set a long-term net leverage target of 2.0-2.5x Adjusted EBITDA, signaling that the historical net-cash posture is over and the balance sheet will run at low-investment-grade leverage going forward. On ~$130M of run-rate EBITDA, the target implies $260-325M of net debt — exactly the territory FY2025 ended in before the sale-leaseback.
Balance-sheet verdict: Scholastic is no longer the cash-rich, debt-free publisher it was for most of the 2010s. After the sale-leaseback, immediate liquidity risk is gone, but the company has effectively re-levered its capital structure to enable larger shareholder returns. This is a deliberate strategic choice, not financial distress.
Returns, Reinvestment, and Capital Allocation
For a business whose operating margin is hovering at 1%, returns on capital are unsurprising: ROIC fell from 6.7-7.1% in FY2022-FY2023 to under 2% in FY2024-FY2025; ROE swung negative again in FY2025. The Children's Book segment in isolation almost certainly clears its cost of capital handily; the consolidated number is dragged down by Education Solutions losses and the goodwill weight of past acquisitions.
Why three return metrics? ROA (return on assets) is the broadest — how well the entire asset base generates profit. ROE (return on equity) shows how much the owners' invested capital earns, but is distorted by leverage. ROIC (return on invested capital) is the cleanest because it strips out financing decisions: it answers "does the business itself earn its keep?" SCHL's FY2025 ROIC of 1.7% is well below any reasonable cost of capital (8-10%), meaning that at current operating levels, every incremental dollar deployed destroys value.
Capital Allocation — Cash Returned and Reinvested
The story of the last three years is clear: buybacks have replaced dividends as the primary return mechanism. From FY2023-FY2025 the company returned $360M via repurchases versus only $73M in dividends. This is not subtle — management has explicitly framed buybacks as the highest-return capital deployment because the stock has traded near or below tangible book value for much of the period. The cost is that buybacks were partly debt-funded (the FY2025 debt build largely matches FY2023-FY2024 buyback intensity), and the FY2025 acquisition of 9 Story Media for $176M added the rest of the leverage. Buybacks at low prices were a good deal; buybacks funded with new debt at low prices are a calculated bet.
The share count has fallen from 35.0M (FY2018) to 25.0M at FY2025 year-end — a 28.6% reduction. Period-end shares fell further to ~24.5M after Q3 FY2026 repurchases. On 2026-03-19 the board authorized an additional $300M repurchase program, including a planned $200M modified Dutch Auction tender offer at $36-$40 per share starting 2026-03-23. With the stock now at $42.10, the tender appears to have priced into the upper end of that range and the company has effectively bought back roughly another 5M shares.
Capital allocation verdict: Management is running an unmistakably shareholder-return-focused program: buying back stock aggressively when valuations have been depressed, holding the dividend steady, and using the real-estate sale-leaseback to fund the largest single buyback in company history. The judgment call investors must make is whether buying back stock at $36-$42 while operating margins are at decade lows is value-additive — it is, if you believe FY2024-FY2025 represents a margin trough.
Per-Share Compounding View
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Book value per share has been flat at $33-37 for eight years — buybacks have offset retained losses, leaving the per-share equity base unchanged. FCF per share has climbed from $0.60 (FY2019) to $2.60-3.25 (FY2023-FY2025), the cleanest signal that the per-share compounding engine is working despite flat earnings. The current ~$0.82 dividend implies a yield of ~1.95% at the current price.
Segment and Unit Economics
This is the most important section in this report, because aggregate Scholastic financials hide the truth. The FY2025 10-K reports three segments:
The Children's Book segment is 59% of revenue but 105% of segment-level operating profit — even before allocating ~$120M of unallocated overhead/corporate expense, the other two segments earn nothing. This segment includes the U.S. Book Fairs business (the company's defining asset), Book Clubs, trade publishing (Harry Potter U.S. editions, Hunger Games, Dog Man), and from FY2025 the 9 Story Media animation studio. Its 13.6% operating margin is 8 points above the consolidated margin and is the single justification for the company's enterprise value.
The YoY pattern tells the right story:
- Children's Book: revenue +1.1%, operating income +6.0%. Book Fairs and trade lists are healthy; 9 Story is contributing.
- Education Solutions: revenue -11.8%, operating income -60%. This is the segment under pressure. The post-COVID ESSER federal funding cliff (~$190B that flowed into schools FY2021-FY2024) is now hitting reorders; the segment's transformation toward Magazines+, Ready4Reading phonics, and sponsored community literacy programs has not yet offset the structural decline.
- International: still loss-making but losses narrowing ($-6.9M → $-1.0M); UK and Canada are stable, Asia and Australia mixed.
The Education Solutions watch: This segment generated ~$15-25M of segment-level operating income in normal years pre-COVID and earned the right to its capital allocation. At $6.3M operating income on $309.8M revenue, its returns are well below cost of capital, and a continued decline would force a strategic review (sale, restructuring, or impairment). Investors should weight Q2 and Q4 FY2026 segment-margin disclosures heavily.
Valuation and Market Expectations
At a closing price of $42.10 (June 3, 2026) and ~24.5M shares outstanding, Scholastic's market capitalization is approximately $1.03B. After the sale-leaseback the company has roughly net cash, so enterprise value is near $0.94B. On trailing-twelve-month financials:
Multiples Through Time
At FY2025 year-end the stock traded at 0.46x book — the lowest in the dataset — and ~6x trailing FCF. The rally to $42.10 has lifted P/B to roughly 1.2x (in line with the long-run average) and trailing P/FCF to ~11.5x (still well below the publishing-peer average). The recovery has not yet erased the discount.
Bear / Base / Bull Valuation Range
- Bear case ($28): Education Solutions continues to deteriorate, International stays loss-making, Book Fairs see a discretionary-spending slowdown. Consolidated revenue settles at $1.5B with $60M operating income. The 5.2x EV/EBITDA the stock printed in May 2025 reappears.
- Base case ($41): Margin stabilization at current run-rate ($100M operating income, $90M FCF). Stock holds a 7-8x EV/EBITDA, broadly the company's long-run trading band.
- Bull case ($62): Education Solutions returns to 5-7% margins, International breaks even, 9 Story contributes a margin step-up. Consolidated operating income rebuilds to ~$150M and the market re-rates to 9-10x EV/EBITDA (mid-cycle publishing multiple).
The risk-reward is asymmetric to the upside if the segment-level Education Solutions recovery thesis is correct, and roughly symmetric if it is not. The Q3 FY2026 management commentary noted "performance trends improved sequentially and year-over-year declines again moderated" — encouraging but not yet decisive.
Peer Financial Comparison
The peer set is necessarily mixed: WLY and PSO are the cleanest publishing comparisons; NWSA is included for its HarperCollins children's-book exposure (but is dominated by Dow Jones); LRN represents the digital-learning side that has won at Scholastic's expense; HAS is a kids'-discretionary-spend proxy with its own balance-sheet challenges.
SCHL trades at a meaningful discount to WLY, PSO, and LRN on EV/EBITDA (5.2x vs 7-12x) and on P/B (1.1x vs 1.8-4.3x). The discount is partially earned: SCHL's operating margin (1%) is well below WLY's 5%, PSO's 14%, and LRN's 13%, and its ROIC of 1.7% is the weakest of the comparable group except HAS (which is in its own distress). FCF yield (8.7%) is the highest among the genuine publishing comparables — Scholastic generates more cash per dollar of stock than peers despite weaker GAAP earnings, which is the empirical case for ownership.
The peer that most flatters Scholastic is PSO (Pearson): same publishing core, similar print-to-digital transition, similar net-debt structure post-sale-leaseback, and Pearson trades at 7.2x EV/EBITDA. If Scholastic's Education Solutions stabilizes, a re-rate to PSO's multiple would imply ~$54-58 per share. The peer that most threatens Scholastic is LRN (Stride): their 25% ROIC and 13% operating margin show what a digital-native K-12 platform looks like, and they are taking share of the school-district wallet that Scholastic's Education Solutions used to fill.
What to Watch in the Financials
What the financials confirm: Scholastic generates real, durable free cash flow ($85-100M run-rate) from a defensible Book Fairs and trade-publishing franchise; gross margin discipline is intact; the balance sheet, while changed, is not stressed; capital allocation is aggressive and shareholder-aligned.
What the financials contradict: The thesis that Scholastic is a high-quality compounder. Consolidated returns on capital are below cost of capital, Education Solutions has lost its earnings power, GAAP earnings have been negligible or negative in three of the last six years, and the headline numbers fall apart segment-by-segment. The market is not wrong to price the stock at a publishing-sector discount.
The first financial metric to watch is Education Solutions operating margin. A return from 2.0% toward the pre-COVID 5-7% band would close roughly half the consolidated margin gap to peers and would likely re-rate the stock from 5x EV/EBITDA toward 7-8x; continued erosion below 2% would force a strategic review and confirm the bear case. Q2 FY2026 segment results (reported in late March 2026) are the next read on direction.