Scholastic Gets Ready To Hit The Books

Richard Robinson, chairman and chief executive of Scholastic Inc., was looking worried. It wasn't his company's stock price, which stumbled badly in the spring, or the educational publisher's yearend numbers, due out within days. Robinson was fretting about an article gn education reform he was supposed to write for one of his company's publications. He had missed the deadline--again. "Oh, my editor's going to come in the door any minute," he said. "And I haven't even written my first word yet."

Juggling roles as writer and CEO is no easy trick, but Robinson, 55, has been pulling it off for 17 years. The son of Scholastic founder Maurice R. Robinson, he has helped the 72-year-old company build a major presence in educational publishing. Scholastic offerings include 34 children's magazines, best-selling juvenile fiction titles such as the hugely successful Baby-sitters Club series, book clubs and fairs, educational software, and television and home video productions. Today, Scholastic figures that 80% of U.S. schools are using its materials. For the year ended May 31, the company's net income excluding one-time charges was $19.1 million, up 33%, on revenues of $489 million, up 16%.

SECOND TRY. In February, Scholastic, which Robinson took private in a 1987 leveraged buyout, went public again in a $90 million stock offering. Now, with the company cash-flush and almost debt-free, Robinson is aiming higher. Hisboldest move is a foray into the competitive $2 billion textbook market, where Scholastic has had little presence. The company is selling kits with a series of colorful new books for kindergarten through the eighth grade, along with audio and video cassettes and teachers' guides. It's investing some $20 million a year in the business, hoping that it will be worth $100 million in annual revenues by mid-decade.

There are big obstacles in Scholastic's path, though. Its chief competitors in textbooks are bigger and better established. They include Macmillan/McGraw-Hill (50%-owned by BUSINESS WEEK's publisher), Simon & Schuster, and Harcourt Brace Jovanovich. And Scholastic has struggled with this market before: In the late 1970s, it lost $1 million on its first try at textbook publishing.

The company had barely recovered from that debacle when, in 1984, it reported its first loss ever--$13.8 million on sales of $157.5 million. Robinson says the company had become complacent and allowed competitors to eat into its core kids' book business, while it fumbled an effort to computerize all its operations at once. "Almost everything seemed to go wrong," recalls Robinson. He brought in a new management team and revamped the entire book operation, from customer service to finances.

Robinson insists the latest foray into textbooks will be different. Because they include software, videos, and other high-tech teaching aids, Scholastic's new multimedia kits are designed to be more flexible for teachers and more attractive to students. For example, a science kit includes a unit titled Garbage. It has a chapter on recycling, a video segment showing what happens to garbage--and samples of types of trash. "It's not the traditional kind of textbook," says Barbara Ann Hawkins, a teacher at East Elementary School in Dillon, S.C.

Scholastic has a fast-growing market. Births are running at 4.1 million a year, vs. 3.2 million in the late 1970s. "The company is riding an excellent demographic wave," says Kenneth T. Berents, an analyst at Alex. Brown & Sons Inc., which took Scholastic public the second time.

MOVIE MISSTEP. It's all a far cry from 1920, when Maurice Robinson launched The Scholastic newsletter to bring contemporary literature and current affairs into classrooms. The magazine has been joined by 34 other titles, such as Junior Scholastic, Update, Scholastic News, and Scholastic Search, read by some 23 million students. The elder Robinson also introduced a series of book clubs for kids, now its most profitable unit.

To keep the profits coming, Scholastic is building a new distribution center in Jefferson City, Mo., which should help it move orders along. To fight the competition in book clubs, the company is stepping up its marketing: It gives away stuffed animals with subscriptions and offers free books to teachers. And it has made an aggressive move into cable and syndicated TV with shows based on The Baby-sitters Club, its fiction series featuring seven adolescent girls, and other properties. But it has pulled back on plans for theatrical movies, taking a $6.7 million write-down on several scripts that have been shelved. With all the other projects Robinson is juggling these days--not to mention that article he has to write--it's probably just as well.

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