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ED

EDUCATIONAL DEVELOPMENT CORP (EDUC)·Q1 2026 Earnings Summary

Executive Summary

  • Q1 FY2026 net revenues were $7.11M, with net loss of $(1.08)M and diluted EPS of $(0.13); management ran discount promotions to boost cash, compressing gross margins near term .
  • Sequentially, revenue improved vs Q4 FY2025 ($6.64M), and losses narrowed YoY (EPS $(0.15) in Q1 FY2025), reflecting ongoing cost reductions despite lower sales .
  • Brand partner activity declined further to 7,700 (from 9,400 in Q4), with management emphasizing new title introductions, IT upgrades (Guest Checkout), and incentives to re-energize recruiting and sales .
  • Building sale/leaseback of the Hilti Complex remains the key catalyst; due diligence was extended to July 28 with close expected by end of September, and a “Plan B” exists to eliminate bank debt if Plan A fails .

What Went Well and What Went Wrong

What Went Well

  • Loss metrics improved YoY despite lower revenue: loss before taxes shrank to $(1.45)M (vs $(1.75)M), net loss to $(1.08)M (vs $(1.28)M), and EPS to $(0.13) (vs $(0.15)) .
  • Cost discipline and working capital progress: inventories fell to $42.0M (from $44.7M), and revolver borrowings were reduced to $4.2M, meeting the bank step-down requirement .
  • Strategic initiatives: “Guest Checkout” rollout, incentive challenges, and regional summits boosted engagement; CEO: “The Guest Checkout process has been received very, very well” .

What Went Wrong

  • Continued top-line pressure and gross margin compression due to discount promotions; management acknowledges near-term margin impact to accelerate cash generation and inventory turns .
  • Brand partner count decline and recruiting challenges; direct selling environment remains tough amid high inflation and lower disposable income among target families .
  • Transaction timing risk: Hilti Complex sale due diligence extended; closing is still pending, making debt reduction and liquidity improvements dependent on execution in the coming months .

Financial Results

Headline Financials vs Prior Periods and Prior Year

MetricQ3 2025Q4 2025Q1 2026
Net Revenues ($USD Millions)$11.05 $6.64 $7.11
Diluted EPS ($USD)$(0.10) $(0.16) $(0.13)
Gross Profit Margin (%)N/A60.54%*58.22%*
Net Income Margin (%)N/A-20.27%*-15.13%*
Average Active Brand Partners (units)12,400 9,400 7,700

Values with asterisk (*) retrieved from S&P Global.

KPIs and Operating Metrics

KPIQ3 2025Q4 2025Q1 2026
Inventories ($USD Millions)N/A$44.7 $42.0
Revolver Borrowings ($USD Millions)N/AN/A$4.2
Weighted Avg Diluted Shares (units)8,273,402 8,583,494 8,583,201
Dividends per Share ($USD)N/A$0.00 $0.00

Segment Breakdown

  • Not disclosed in the Q1 FY2026 press release or call; company highlighted PaperPie (direct sales) activity and retail presence but did not provide segment revenue splits .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Hilti Complex sale closing timelineBuilding saleQ3 FY2025: expected before Mar 31, 2025 Q4 FY2025: early Sept 2025; Q1 FY2026: due diligence extended to Jul 28; expected close by end Sept 2025 Delayed but maintained trajectory
Bank borrowings elimination via sale proceedsPost-closingPlan to fully retire bank debts upon sale Reaffirmed; proceeds expected to fully retire outstanding debt and limit future borrowing needs Maintained
Working capital line step-down requirementJun 1, 2025Target < $4.5M (per bank agreement) Achieved $4.2M at May 31, 2025 Achieved
DividendsQuarterlyNo dividends declared No dividends declared Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 FY2025)Previous Mentions (Q4 FY2025)Current Period (Q1 FY2026)Trend
Building sale/leaseback (Hilti Complex)LOI signed; due diligence initiated; close expected by Mar 31, 2025 Purchase agreement executed with TG OTC; close expected by early Sept Due diligence extended to Jul 28; close targeted by end Sept; Plan B in place Progressing with delays; backstop established
Cost reductions and efficiencyFreight carrier switch (-20% cost/shipment), Utah consolidation, footprint reductions Continued focus on cost reduction; lower losses on lower revenue Further cost reductions; losses narrower YoY despite lower sales Sustained execution
Sales promotions and marginN/APromotions prioritized cash over profitability Discounts boosted cash; acknowledged gross margin compression Near-term margin headwind
Brand partner recruiting/engagementActivity drops YoY; initiatives in progress Continued pressure; 9,400 active 7,700 active; Guest Checkout, incentives, summits to reenergize Under pressure; rebuilding efforts
GovernanceN/ABoard changes and additions (IR advisor to board) Discussion of ownership alignment; small stock grants; board refresh over 9–12 months Incremental changes
Bank relationship/liquidityCredit agreement extended N/AConstructive dialogue; urgency to repay; expect limited borrowing post-sale Improving post-transaction

Management Commentary

  • “During the quarter we ran several product discount promotions to increase cash which reduced our gross margins...turning excess inventory faster to pay down our debts and meet the requirements of our lender.” — Craig White, CEO .
  • “Net inventories decreased $2.7 million...Borrowings on our working capital line...$4.2 million...meeting the step-down required by our bank agreement.” — Dan O’Keefe, CFO .
  • “We continue to expect the sale to be completed before the end of September...The proceeds from the sale are expected to fully pay back the bank, leaving us with no debt.” — Craig White .
  • “We have a Plan B...other offers with a quick close contingency...not quite as good as Plan A, but...would get us out [of bank debt].” — Craig White .

Q&A Highlights

  • Strategic alternatives and contingency planning: Investor pressed on sale timing risk; management detailed “Plan B” financing paths to retire debt if current buyer fails .
  • Governance alignment: Question on board ownership requirements; management noted small stock grants and expected refresh/compensation changes over 9–12 months .
  • New titles strategy vs inventory: Management emphasized that new titles are essential to energize salesforce; phased, conservative purchasing to avoid re-accumulating excess inventory .
  • Banking relationship: Constructive but focused on repayment; post-sale expectation of minimal borrowing needs .

Estimates Context

  • Wall Street consensus (S&P Global) for Q1 FY2026 EPS and revenue was unavailable; our attempt returned no consensus values for EPS or revenue counts. As a result, we cannot classify beats/misses vs consensus. Values retrieved from S&P Global.
  • Actual revenue reported: $7.11M ; EPS: $(0.13) . Without published consensus, near-term estimate revisions will likely focus on margin trajectory (given discounts) and liquidity events tied to the building sale.

Key Takeaways for Investors

  • Liquidity and leverage inflection hinges on Hilti Complex sale; execution by end of September (or Plan B) is the primary catalyst to de-risk the balance sheet .
  • Near-term gross margins are pressured by deliberate discounting to accelerate cash/inventory turns; margins should normalize post-sale and after discount cadence moderates .
  • Sequential revenue uptick vs Q4 and narrower YoY losses indicate cost actions are flowing through, despite weaker brand partner activity .
  • Rebuilding the sales engine will require phased new title introductions plus continued IT/process simplifications (Guest Checkout), which management is prioritizing .
  • Governance and board alignment are being addressed incrementally; not an immediate catalyst, but supportive of longer-term shareholder alignment .
  • Monitor 8-Ks for transaction milestones (due diligence hard deposit by Jul 28, closing timeline) and October call timing; stock reaction likely tied to certainty of debt elimination and clarity on growth normalization .

Values with asterisk (*) retrieved from S&P Global.