Executive Summary

Q1 FY26 delivered seasonal losses with revenue down 5% year-over-year to $225.6M and diluted EPS of $(2.83), while adjusted operating loss improved and adjusted EBITDA loss narrowed to $(55.7)M; management affirmed FY26 guidance (revenue +2–4%, adjusted EBITDA $160–$170M, FCF $30–$40M) .
Results missed Wall Street consensus: revenue of $225.6M vs $238.9M estimate and adjusted/normalized EPS of $(2.52) vs $(2.41) estimate; the company pointed to Education funding volatility and anticipated production delays in Entertainment as key drivers [- S&P Global estimates*].
Positives: Children’s Book Publishing & Distribution revenue +4% to $109.4M with Book Fairs +18% and strong franchises (Hunger Games, Harry Potter); International improved margins with higher revenues in Australia, U.K., and Asia .
Negatives: Education Solutions revenue −28% to $40.1M with a wider operating loss; cash from operations more negative on working capital seasonality and tariff charges, pushing net debt to $242.8M .
Near-term stock catalysts: affirmation of FY26 guide, “big” Q2 expected with Dog Man: Big Jim Believes, and potential sale-leaseback monetization of NYC HQ and Missouri distribution centers (debt reduction and buybacks) .

What Went Well and What Went Wrong

What Went Well

Children’s Book Publishing & Distribution delivered revenue growth (+4% to $109.4M) with Book Fairs +18% to $34.1M; management noted “encouraging” fall bookings and engagement as seen in Scholastic Dollars redemptions .
Franchises held up: “continued success in the Hunger Games® and Harry Potter® franchises,” with management highlighting strong trade sales and upcoming Dog Man: Big Jim Believes .
International improved: revenues +5% to $59.4M (ex-FX +4%) and adjusted operating loss improved by $4.2M due to higher revenues and operational efficiencies .

Quote: “Fall book fair bookings are encouraging and exceed prior year bookings, with signs of strong engagement with our book fair hosts.” — Peter Warwick, CEO .

What Went Wrong

Education Solutions: revenue fell 28% to $40.1M; operating loss widened to $(21.2)M on lower spending amid volatile federal/state funding and delayed/canceled grants .
Entertainment: revenue −18% to $13.6M; operating loss $(4.0)M with incremental amortization from 9 Story and fewer episodic deliveries as greenlights lagged .
Cash flow and leverage: net cash used in operations $(81.8)M vs $(41.9)M prior year; free cash flow use $(100.2)M; net debt rose to $242.8M, reflecting working capital needs, dividends, and buybacks .

Financial Results

Metric	Q3 2025	Q4 2025	Q1 2026	Q1 2026 Consensus
Revenue ($USD Millions)	$335.4	$508.3	$225.6	$238.9*
GAAP Diluted EPS ($)	$(0.13)*	$0.58*	$(2.83)	$(2.44)*
Adjusted EPS ex one-time ($)	—	—	$(2.52)	$(2.41)*
Adjusted EBITDA ($USD Millions)	$6.0	$91.2	$(55.7)	—

Notes: Values with asterisks are retrieved from S&P Global.

Segment revenue and operating results (Q1 FY26 vs Q1 FY25):

Segment	Q1 2025 Revenue ($M)	Q1 2026 Revenue ($M)	YoY %	Q1 2025 Op Inc/Loss ($M)	Q1 2026 Op Inc/Loss ($M)
Children’s Book Publishing & Distribution (Total)	$105.4	$109.4	+4%	$(36.6)	$(35.1)
• Book Fairs	$28.8	$34.1	+18%	—	—
• Book Clubs	$2.7	$1.8	−33%	—	—
• Consolidated Trade	$73.9	$73.5	−1%	—	—
Education Solutions	$55.7	$40.1	−28%	$(17.0)	$(21.2)
Entertainment	$16.6	$13.6	−18%	$(0.5)	$(4.0)
International	$56.8	$59.4	+5%	$(8.3)	$(4.2)
Overhead	$2.7	$3.1	+15%	$(26.1)	$(27.7)

Selected KPIs and balance sheet (Q1 FY26 vs Q1 FY25):

KPI	Q1 2025	Q1 2026	Change
Net cash (used) provided by operating activities ($M)	$(41.9)	$(81.8)	$(39.9)
Free cash flow (use) ($M)	$(68.7)	$(100.2)	$(31.5)
Net debt ($M)	$152.1	$242.8	+$90.7
Cash and equivalents ($M)	$84.1	$94.3	+$10.2
Lines of credit and long-term debt ($M)	$231.1	$331.2	+$100.1

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue Growth (%)	FY 2026	+2% to +4%	+2% to +4%	Maintained
Adjusted EBITDA ($M)	FY 2026	$160–$170	$160–$170	Maintained
Free Cash Flow ($M)	FY 2026	$30–$40	$30–$40	Maintained
Incremental Tariff Expense ($M)	FY 2026	≈$10	≈$10	Maintained
Share Repurchase Authorization ($M)	Ongoing	$70 remaining at FY25 end	$70 remaining at Q1 FY26 end	Maintained
Dividend per Share ($)	Q2 FY26	—	$0.20 declared, payable Dec 15, 2025	New for Q2 timing

Earnings Call Themes & Trends

Topic	Q3 FY25 (Mar 2025)	Q4 FY25 (Jul 2025)	Q1 FY26 (Sep 2025)	Trend
Education funding & demand	Highlighted consumer/school spending headwinds; schools delaying supplemental purchases	Targeting flat FY26 revenue; repositioning under new leadership; 12–24 month improvement expected	Volatile funding; delayed/canceled grants; back-end-loaded pipeline; cost controls	Still pressured near term; building pipeline, cost discipline
Book Fairs	Fair count on track; revenue per fair near prior year; Share the Fair engagement	Higher fair counts; merchandising/pricing initiatives	Fall bookings ahead of prior year; high Scholastic Dollars redemptions	Improving bookings, engagement
Franchises/Product	Dog Man Big Jim Begins and Sunrise on the Reaping driving frontlist and backlist	Strong global launches; FY26 calendar (Dog Man Big Jim Believes, Wings of Fire)	Strong trade performance in Hunger Games/Harry Potter; Dog Man Big Jim Believes in Nov	Sustained franchise strength; major Q2 tailwinds
Entertainment/Streaming	9 Story acquisition expanded YouTube reach; AVOD growth	Expect greenlights to pick up; Disney/PBS projects; YouTube pipeline	Streaming app launch; Paris & Pups on YouTube; high-margin digital revenue; monetization ramps toward FY27	Building digital revenue streams; monetization more visible in FY27
Tariffs/Supply Chain	Minimal exposure into H1 FY26; mid-single-digit $ impact thereafter	Guidance includes ~$10M incremental tariff in FY26	Expect ~$10M incremental tariffs in cost of product; monitoring DC developments	Managed via sourcing/pricing; cost headwind embedded
Capital allocation/real estate	Upsized revolver; buybacks; detailed real estate asset base	Exploring sale-leasebacks; optimistic 90–120 days timeline	Processes “progressing,” expected to conclude this fall; priority debt reduction and buybacks	Monetization optionality near-term

Management Commentary

Strategic focus: “Affirming our fiscal 2026 guidance, confident in our ability to deliver long-term growth and impact.” — Peter Warwick .
Children’s segment: “The newly integrated Children’s Book Group strengthens our ability to connect publishing, marketing, merchandising and distribution.” — Peter Warwick .
Entertainment: “Digital income…is high margin, and it’s going to grow…part of this 360-degree IP strategy.” — Peter Warwick .
Education: “Results were pressured by a difficult and volatile funding environment…refining our product portfolio and better aligning our marketing and sales.” — Peter Warwick .
Cost discipline: “Our goal…is to sustainably lower our cost structure, especially…non-revenue-generating and consulting expenses.” — Haji Glover .

Q&A Highlights

Education Outlook: Sales cycles and funding clarity suggest back-end loaded year; pipeline alignment to FY (Q4) with Knowledge Library and core offerings; frugality emphasized .
Entertainment Monetization: YouTube/digital revenue is high margin; scale expected across more platforms; material upside more visible in FY27 .
SG&A/Cost Reductions: Company targeting $15–$20M incremental cost reductions; continued focus on non-revenue-generating spend .
Q2 Setup: Bigger quarter anticipated with Dog Man launch; higher fair count; strong bookings; cost savings aiding margins .
Cash Flow Drivers: Stronger receipts in H2; lower capex profile vs FY25; royalty payment timing differences (Pilkey, Collins) .

Estimates Context

Q1 FY26 vs Consensus: Revenue $225.6M vs $238.9M estimate*; adjusted/normalized EPS $(2.52) vs $(2.41) estimate* — both misses, driven by Education weakness and Entertainment greenlight timing .
Forward quarters: Consensus implies a “big” Q2 with revenue ~$556.7M* and EPS ~$2.07*, followed by seasonal Q3 loss and profitable Q4*; management’s affirmed FY guide supports this trajectory [- S&P Global estimates*].

Notes: Values marked with asterisks are retrieved from S&P Global.

Key Takeaways for Investors

Q1 was seasonally weak and missed estimates, but the underlying cost actions improved adjusted operating loss and adjusted EBITDA; FY26 guidance is intact .
Children’s segment is the bright spot: Book Fairs engagement indicators are strong and franchises are set to drive Q2 profitability; watch Dog Man: Big Jim Believes release .
Education remains the swing factor; monitoring federal/state funding clarity and back-end loaded pipeline is critical for the FY26 outcome .
Digital/media strategy is gaining momentum (YouTube, streaming app), but revenue contribution is gradual with larger upside skewed to FY27; not a near-term earnings driver .
Balance sheet optionality via real estate sale-leaseback could catalyze debt reduction and buybacks; conclusion targeted for fall — a potential stock sentiment tailwind .
Tariff headwinds (~$10M) are incorporated; pricing/sourcing actions and SG&A optimization should mitigate margin impact .
Trading setup: Into Q2, positive catalyst stack (frontlist, fairs, bookings) vs lingering education macro; skew exposure to execution on Q2 and sale-leaseback milestones for near-term performance .

Bolded beats/misses in tables indicate significance.

SCHOLASTIC CORP (SCHL)·Q1 2026 Earnings Summary