Scholastic's seasonal summer operating loss held flat at $92.2M on 4% lower revenue as a 24% Education decline and new sale-leaseback rent offset Entertainment growth; loss per share widened to $3.77 on a smaller share count and full-year guidance was affirmed.
Revenue
$217M
-3.9% YoY
Net income
-$71M
-0.1% YoY
Diluted EPS
$-3.77
-33.2% YoY
Operating margin
-42.5%
Overview
Scholastic's fiscal 2027 first quarter covers June through August 2026 and ended August 31, 2026. The company's fiscal year ends May 31, so this is fiscal 2027 Q1, not a calendar-2027 period. Over the summer, schools are closed, so Book Fairs, Book Clubs and classroom magazines barely sell anything. Scholastic loses money in this quarter every year. The useful questions are whether the loss got better or worse, and why.
On the surface, not much changed. Revenue fell 4% to $216.8 million, the operating loss was exactly the same as a year earlier at $92.2 million, and the net loss was essentially flat at $71.2 million. Underneath that, four things moved:
Education revenue fell by almost a quarter.
Selling the headquarters and main warehouse and leasing them back (a sale-leaseback, completed in December 2025) now costs about $4.8 million a quarter in rent and lost rental income.
Much smaller severance charges and one-off tariff refunds made the quarter look better than the underlying business.
The loss per share got much larger, because a roughly unchanged loss is now spread over about 25% fewer shares.
Key figures
Metric
Q1 FY2027 (3 months to Aug 31, 2026)
Q1 FY2026 (3 months to Aug 31, 2025)
YoY Change
Revenue
$216.8M
$225.6M
-3.9%
Cost of goods sold, % of revenue
54.5%
54.7%
-0.2 pts
Operating income (loss)
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$(92.2)M
$(92.2)M
flat
Operating margin
-42.5%
-40.9%
-1.6 pts
Net income (loss)
$(71.2)M
$(71.1)M
$0.1M wider
Diluted EPS
$(3.77)
$(2.83)
-33% (loss per share wider)
Adjusted operating loss (excl. one-time items)
$(88.7)M
$(81.9)M
$6.8M wider
Adjusted EBITDA
$(63.6)M
$(55.7)M
$7.9M wider
Adjusted EBITDA, comparable basis*
$(63.6)M
$(64.2)M
$0.6M better
Book Fairs revenue
$33.2M
$34.1M
-3%
Free cash flow (use)
$(110.8)M
$(100.2)M
$10.6M more cash used
Net debt (period-end)
$86.8M
$242.8M
$156.0M lower
*"Comparable basis" is the company's own restatement. It adjusts the prior-year quarter as if the sale-leaseback had already happened, so both periods carry the same rent. Adjusted EBITDA is a non-GAAP measure: earnings before interest, taxes, depreciation and amortization, excluding one-time items. It gives a rough read on cash profit from operations.
What drove the numbers
Revenue: Education was the main drag. Education revenue fell $9.7 million (-24%) to $30.4 million. The 10-Q attributes this to "lower sales of supplemental curriculum products related to continued pressure on school and district spending." Children's Book Publishing and Distribution slipped $3.6 million (-3%) to $105.8 million, mostly because of a large international co-edition sale in the trade channel a year ago that didn't repeat. A co-edition sale is a deal where a foreign publisher buys printed copies of a Scholastic title. The trade channel (books sold through bookstores and online retailers) fell 4% to $70.5 million. Overhead lost the $3.1 million of rental income Scholastic used to earn from renting out space in its New York headquarters, which it no longer owns. The offset came from Entertainment, where revenue rose $6.5 million (+48%) to $20.1 million on higher production revenue from episodic deliveries and services. International was up $1.1 million to $60.5 million, but all of that came from favorable exchange rates ($1.2 million). In local currencies it was flat.
Operating loss: flat on paper, slightly worse underneath. The GAAP operating loss didn't move ($92.2 million both years). However, one-time charges fell from $10.3 million to $3.5 million, mainly because severance in overhead dropped from $8.7 million to $2.3 million. Excluding those charges, the adjusted operating loss widened by $6.8 million. The sale-leaseback explains $4.8 million of that: Scholastic now pays rent on buildings it used to own and no longer collects rent from tenants. Depreciation is lower now that it no longer owns the buildings, but that saving is smaller than the new rent. On the company's comparable basis, the adjusted operating loss was only $2.0 million worse, and Adjusted EBITDA was $0.6 million better.
Segment results, excluding one-time items:
Segment
Revenue
YoY
Adj. operating loss
Prior year
Change
Children's Book Publishing & Distribution
$105.8M
-3%
$(37.8)M
$(34.3)M
$3.5M worse
Education
$30.4M
-24%
$(23.3)M
$(21.2)M
$2.1M worse
Entertainment
$20.1M
+48%
$(1.6)M
$(4.0)M
$2.4M better
International
$60.5M
+2%
$(2.7)M
$(4.1)M
$1.4M better
Overhead
—
—
$(23.3)M
$(18.3)M
$5.0M worse
Entertainment was the one clear improvement. Its Adjusted EBITDA went from $0.8 million to $5.7 million. Overhead was the biggest drag: adjusted overhead costs rose $5.0 million. Even after taking out the sale-leaseback effect, they rose $3.9 million, which the company attributes to "higher costs related to corporate initiatives and the timing of employee-related expenses."
A cost tailwind that may not repeat. In the children's book segment, cost of goods sold fell to 52.4% of revenue from 56.9%. The 10-Q says this was "driven by tariff refunds received during the quarter," mainly in Book Fairs. The filing does not say how large the refunds were, and it does not treat them as a one-time item, so they are included in the adjusted figures above. Without them, the segment's $3.5 million adjusted loss increase would probably have been larger. Refunds of previously paid tariffs are not a recurring source of margin. Higher postage costs from rising fuel prices partly offset the benefit, in both the trade channel and International.
Why the loss per share jumped 33%
Net loss was flat, yet the diluted loss per share went from $(2.83) to $(3.77). The reason is the share count, not the business. Weighted average basic shares fell from 25.2 million to 18.9 million after heavy buybacks. The company has spent $139.6 million under the $297 million authorization it announced in March 2026, including $25.8 million this quarter. Buybacks raise earnings per share in profitable quarters, but they also make each seasonal loss look bigger per share. Two other effects roughly cancelled out. Lower interest expense ($2.3 million vs. $5.0 million) helped, because sale-leaseback proceeds were used to repay borrowings. A lower tax benefit rate (24.0% vs. 26.7%) hurt, because it shrank the tax credit on the loss.
One of this quarter's repurchases was a related-party deal. On August 26, Scholastic bought 289,624 shares for $11.5 million ($39.76 each, a 3% discount to the closing price on the day the agreement was signed) from the Estate of M. Richard Robinson, Jr. The estate's preliminary executor is Scholastic's Board Chair and an executive officer. The board approved the purchase on the Audit Committee's recommendation, without that person taking part.
Cash and balance sheet
The first quarter always uses cash, because inventory is built ahead of the fall school season. This year it used more. Operating cash outflow was $94.6 million versus $81.8 million, which management attributes to lower cash collections, higher rent payments and the lost rental income, partly offset by lower royalty advances and lower inventory purchases. Free cash use (operating cash flow minus capital spending, adjusted for film financing) was $110.8 million. The balance sheet is much lighter than a year ago: debt of $184.8 million versus $331.2 million and net debt of $86.8 million versus $242.8 million, both reflecting the sale-leaseback proceeds. Shareholders' equity fell to $656.5 million from $878.0 million, largely because of the buybacks. Scholastic returned $29.6 million to shareholders this quarter ($25.8 million of repurchases and $3.8 million of dividends).
Takeaway: Stripped of lower severance charges, the new rent from the sale-leaseback and an unquantified tariff refund, Scholastic's summer quarter was roughly where it was a year ago: Adjusted EBITDA was $0.6 million better on a comparable basis. That hides a real split. Entertainment is growing fast while Education revenue fell 24%. The 33% jump in loss per share comes from the smaller share count, not a worse business.
Outlook
Management affirmed its fiscal 2027 guidance: revenue growth of about 2%–4%, Adjusted EBITDA of about $135–145 million, and free cash flow of about $35–40 million. It said the Adjusted EBITDA range represents growth over fiscal 2026 on a comparable basis. The full year depends on the November and May quarters, not this one. The company says Book Fair bookings for the fall are ahead of last year, and the trade list includes a new Dog Man title (Sprinkle in Time), tie-in publishing for the new Harry Potter HBO series, and the film adaptation of Sunrise on the Reaping.
Our read: the guidance looks achievable for Children's Books and Entertainment, given early bookings and a heavy fall release slate. Education is the risk. A 24% drop in its smallest quarter doesn't set the full-year trend, because Education revenue is concentrated in the fourth quarter. Still, management again pointed to tighter school and district budgets, and cost cuts can only partly offset lower sales. The fiscal Q2 report (quarter ending November 30, 2026), expected in mid-to-late December, will show whether Book Fair revenue follows the stronger bookings and whether Education's decline narrows. It will also show whether overhead cost growth slows once the "timing" effects cited this quarter reverse.