Scholastic (SCHL)

Educational publishing and media company Scholastic (NASDAQ:SCHL) fell short of the market’s revenue expectations in Q3 CY2025, with sales falling 4.9% year on year to $225.6 million. Its non-GAAP loss of $2.52 per share was 4.6% below analysts’ consensus estimates.

Company Overview

Creator of the legendary Scholastic Book Fair, Scholastic (NASDAQ:SCHL) is an international company specializing in children's publishing, education, and media services.

The advent of the internet changed how shows, films, music, and overall information flow. As a result, many media companies now face secular headwinds as attention shifts online. Some have made concerted efforts to adapt by introducing digital subscriptions, podcasts, and streaming platforms. Time will tell if their strategies succeed and which companies will emerge as the long-term winners.

Competitors in the publishing industry include John Wiley & Sons (NYSE:JW.A), Disney (NYSE:DIS), and The New York Times (NYSE:NYT).

A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Scholastic grew its sales at a weak 1.9% compounded annual growth rate. This was below our standards and is a rough starting point for our analysis.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Scholastic’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 1.7% annually.

This quarter, Scholastic missed Wall Street’s estimates and reported a rather uninspiring 4.9% year-on-year revenue decline, generating $225.6 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 2.4% over the next 12 months. While this projection suggests its newer products and services will spur better top-line performance, it is still below average for the sector.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Scholastic’s operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging 2% over the last two years. This profitability was lousy for a consumer discretionary business and caused by its suboptimal cost structure.

In Q3, Scholastic generated an operating margin profit margin of negative 40.9%, down 4.7 percentage points year on year. This contraction shows it was less efficient because its expenses increased relative to its revenue.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Scholastic’s EPS grew at an unimpressive 8% compounded annual growth rate over the last five years. This performance was better than its flat revenue but doesn’t tell us much about its business quality because its operating margin didn’t improve.

In Q3, Scholastic reported adjusted EPS of negative $2.52, down from negative $2.13 in the same quarter last year. This print missed analysts’ estimates. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Scholastic has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.9%, lousy for a consumer discretionary business.

Scholastic burned through $100.2 million of cash in Q3, equivalent to a negative 44.4% margin. The company’s cash burn increased from $68.7 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Scholastic historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.2%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, Scholastic’s ROIC decreased by 4.6 percentage points annually over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Scholastic reported $94.3 million of cash and $331.2 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $150.2 million of EBITDA over the last 12 months, we view Scholastic’s 1.6× net-debt-to-EBITDA ratio as safe. We also see its $17.5 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see Scholastic beat analysts’ EBITDA expectations this quarter. We were also glad its full-year EBITDA guidance slightly exceeded Wall Street’s estimates. On the other hand, its revenue missed and its EPS fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 12.2% to $24.29 immediately after reporting.

Updated: December 4, 2025 at 9:11 PM EST

Before making an investment decision, investors should account for Scholastic’s business fundamentals and valuation in addition to what happened in the latest quarter.

Scholastic falls short of our quality standards. To begin with, its revenue growth was weak over the last five years. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its weak EPS growth over the last five years shows it’s failed to produce meaningful profits for shareholders. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Scholastic’s P/E ratio based on the next 12 months is 18.8x. While this valuation is fair, the upside isn’t great compared to the potential downside. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $36 on the company (compared to the current share price of $28.24).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.