Scholastic SCHL FY2026 Earnings: The $99.7M Headquarters Sale Behind a $56.7M Profit
Listen to this report
Scholastic $SCHL reported net income of $56.7 million for fiscal 2026, against a $1.9 million net loss the year before. On the surface that is a $58.6 million turnaround. It is not one. Operating income for the year was $15.2 million, versus $15.8 million in fiscal 2025. The business did not improve. It sold a building.
On December 17, 2025, Scholastic sold its headquarters at 555-557 Broadway in SoHo and its primary distribution facility in Jefferson City, Missouri, and leased both back. The transaction produced a pre-tax gain of $99.7 million. Strip that single line out and pre-tax income of $85.2 million becomes a pre-tax loss of roughly $14.5 million. The headline profit and the underlying business are two different stories, and only one of them repeats.
Company Snapshot
Scholastic Corporation publishes and distributes children's books and educational materials. Its largest business is school-based reading events: book fairs and book clubs run inside schools, alongside a trade publishing arm whose backlist includes The Hunger Games, Dog Man, The Baby-Sitters Club, Wings of Fire and I Survived, with new publishing tied to the HBO Harry Potter series ahead. It also sells supplemental curriculum to school districts, produces film and television through 9 Story Media Group, and operates in Canada, the UK, Australia, New Zealand and Asia.
This analysis covers the Form 10-K for the fiscal year ended May 31, 2026, filed July 24, 2026. Every figure comes from that filing unless attributed otherwise.
The Financial Story
The cleanest way to see fiscal 2026 is to read the path from operating income to pre-tax income. It takes six lines, and the whole year lives in one of them.
| Line item | FY2026 | FY2025 |
|---|---|---|
| Operating income | $15.2M | $15.8M |
| Interest income (expense), net | -$11.2M | -$16.0M |
| Other components of net periodic benefit cost | -$1.3M | -$1.1M |
| Loss on sale of investments | -$17.2M | $0 |
| Gain on sale and leaseback transactions | $99.7M | $0 |
| Earnings (loss) before income taxes | $85.2M | -$1.3M |
Revenue fell 2.7% to $1,581.9 million from $1,625.5 million. Costs fell in step: cost of goods sold dropped to 43.6% of revenue from 44.2%, helped by lower royalty rates in the trade channel and by tariff mitigation and tariff refunds; selling, general and administrative expense fell $15.1 million. That cost discipline is real, and it is why operating income held roughly flat on lower revenue. But holding flat means holding at $15.2 million on $1.58 billion of sales, an operating margin of 1.0%. Scholastic earns about one cent of operating profit per dollar of revenue, and has for three straight years: $14.5 million in fiscal 2024, $15.8 million in 2025, $15.2 million in 2026.
The segment table explains why. One business earns everything, and corporate overhead consumes most of it.
| Segment | FY2026 revenue | FY2026 operating income | Operating margin |
|---|---|---|---|
| Children's Book Publishing and Distribution | $964.2M | $142.9M | 14.8% |
| International | $277.2M | $6.4M | 2.3% |
| Education | $267.6M | -$4.1M | negative |
| Entertainment | $65.7M | -$16.1M | negative |
| Overhead (unallocated) | $7.2M | -$113.9M | n/a |
| Total | $1,581.9M | $15.2M | 1.0% |
Children's Book Publishing and Distribution earned $142.9 million, up from $130.7 million, with margin improving to 14.8% from 13.6%. Unallocated overhead cost $113.9 million, up from $108.1 million. Overhead absorbs 80% of what the core business produces, and the other three segments together lose $13.8 million. That is the entire arithmetic of a 1% operating margin.
The second surprise is where the revenue actually went. The consensus assumption about Scholastic is that school book fairs are a dying format. The filing says the opposite. Book fairs channel revenue grew $27.7 million on higher fair count and higher revenue per fair. Book clubs fell $7.1 million on lower sponsor participation, and trade fell $20.3 million because fiscal 2025 carried the release of Suzanne Collins' Sunrise on the Reaping. Net, the whole segment was flat, up $0.3 million.
The decline came from Education. That segment fell $42.2 million, or 13.6%, to $267.6 million, and flipped from $6.3 million of operating income to a $4.1 million loss. Education alone accounts for 97% of the company's entire $43.6 million revenue decline. The filing attributes it to "the continued challenging funding environment for schools and school districts," and the outlook section says district funding conditions are expected to remain volatile in fiscal 2027, particularly in supplemental curriculum. Education has now fallen from $351.2 million in fiscal 2024 to $267.6 million, a 24% decline in two years. This is the structural problem, not the book fairs.
Cash tells the story faster than earnings. Operating cash flow fell 59%, from $124.2 million to $50.9 million. Part of that is one-time: the company paid $41.4 million more in taxes, largely on the gain from the property sale. But against $48.4 million of capital expenditures and $17.9 million of prepublication spending, free cash flow for the year was negative by roughly $15 million. A business that reinvests $66.3 million to generate $50.9 million of operating cash is not throwing off the surplus its P&L profit implies.
What Scholastic Did With $452.4 Million
The sale-leaseback is more interesting as a capital allocation decision than as an accounting event. The two properties had a combined net carrying value of $352.7 million and sold for $481.0 million ($386.0 million for SoHo, $95.0 million for Jefferson City), producing $452.4 million of pre-tax net proceeds. Scholastic then did three things with it:
- Repurchased $265.9 million of stock per the cash flow statement: $150.6 million through open-market transactions and $113.4 million through a modified Dutch auction tender, each excluding taxes and fees. The tender took in 2,834,018 shares at $40.00 per share and cost $115.6 million including fees. Shares outstanding fell 25%, from 25.0 million to 18.7 million. Weighted average diluted shares were 24.2 million for the year, so the full benefit lands in fiscal 2027.
- Repaid $175.0 million net under the U.S. Credit Agreement, cutting interest expense to $14.1 million from $18.2 million and leaving $75.0 million drawn against a $400 million facility that matures in November 2029.
- Raised the dividend. On July 22, 2026 the board declared $0.25 per share for the first quarter of fiscal 2027, a 25% increase from $0.20, payable September 15.
That is a coherent, shareholder-friendly use of the money, and it converted roughly a quarter of the company's equity into retired stock at $40 per share. But there is a cost on the other side of the ledger that the income statement records only slowly. Scholastic now owes $547.3 million in contractual operating lease payments, $335.5 million of which falls after year five. Operating lease right-of-use assets jumped from $103.9 million to $291.2 million. Rent expense already rose $8.4 million in fiscal 2026, and the filing warns it will rise again in fiscal 2027 because this year only carried a partial year of the new leases. The company converted an owned asset into cash plus a 15-year and a 20-year obligation. Property, plant and equipment fell from $516.3 million to $201.6 million; land fell from $81.4 million to $5.7 million.
One smaller item deserves a mention because it went the other way: Scholastic sold its 26.2% equity interest in a UK children's book publisher for $19.4 million and booked a $17.2 million loss on the sale. That stake was carried at roughly twice what a buyer would pay for it.
Valuation
Scholastic trades at $40.76 per share as of July 27, 2026, a market capitalization of about $769 million on 18.86 million shares (stockanalysis.com, July 27, 2026). Against $134.9 million of cash and $97.6 million of debt (a $75.0 million term draw, $5.5 million of credit lines, and $17.1 million of film obligations), the company holds roughly $37 million of net cash before capitalized leases. Include the $307.0 million operating lease liability and net debt is about $270 million.
The trailing P/E of roughly 17x is meaningless here, because the pre-tax income it rests on is entirely a property sale: the $99.7 million gain is larger than the full $85.2 million of pre-tax income. The honest way to value Scholastic is to ask what operating margin the business can sustain now that the real estate is gone and the rent is permanent.
The scenarios below hold revenue at roughly $1.55 billion, assume depreciation and amortization settles near $55 million (down from $58.8 million as the owned buildings leave the base), and value the enterprise on EBITDA defined as operating income plus that D&A, with the $37 million of net cash added back. Leases are excluded from both enterprise value and EBITDA, so rent stays inside operating income where the filing puts it.
| Scenario | Operating margin | Operating income | EBITDA | EV/EBITDA | Implied per share |
|---|---|---|---|---|---|
| Bear | 1.0% (no change) | $15M | $70M | 6.0x | ~$24 |
| Base | 2.5% | $39M | $94M | 7.5x | ~$39 |
| Bull | 4.5% | $70M | $125M | 9.0x | ~$62 |
That is an implied range of roughly $24 to $62 under the stated assumptions. These are illustrative values, not price targets and not investment advice.
At $40.76 the market is paying a little above the base case, which means it is paying for an operating margin that more than doubles from where it has sat for three consecutive years. Two things could deliver that: overhead falling from $113.9 million, and Education stabilizing. Neither has happened yet, and rent is a known headwind in fiscal 2027.
A discounted cash flow cross-check is worth running precisely because it fails. At the base case, unlevered free cash flow is roughly $28 million of after-tax operating profit plus $55 million of D&A less about $78 million of capital, prepublication and film investment, which leaves single-digit millions. Discounted at a 9.5% cost of capital with 1% terminal growth, that produces an enterprise value a fraction of today's. The multiple approach and the cash flow approach disagree wildly, and the reason is the reinvestment: Scholastic spends nearly everything it earns to stay where it is. Any valuation that works requires either the margin to rise or the reinvestment to fall. Investors should be explicit about which one they are underwriting.
The most useful outside marker is the company's own. Management put $115.6 million behind a $40.00 tender price in April 2026. The stock sits at $40.76 today. Whatever else is true, insiders and the market currently agree on the number.
Risks
The Education segment is the clearest one. It has fallen 24% in two years on district funding pressure, and the 10-K's risk factors flag that the educational publishing business "may be adversely affected by budgetary restraints and other changes in educational funding as a result of new policies which could be implemented at the federal level." The company does not control the buyer's budget.
Concentration is the second. The risk factors state plainly that book fairs and book clubs "produce a substantial amount of the Company's revenues," and the segment table confirms it: one segment generates 100% of consolidated operating income and then some. The same section flags a specific and uncomfortable dependency, that increases in school security following school shootings "could impact the accessibility to schools" for the book fairs business, and that book clubs depend on recruiting younger sponsor-teachers.
Third, the lease is now permanent and the flexibility is gone. Fixed rent of $547.3 million sits against a business earning $15.2 million a year at the operating line. A company with a 1% operating margin has very little room for a fixed cost to surprise it.
Fourth, Entertainment. It lost $16.1 million on $65.7 million of revenue, worse than last year's $12.1 million loss, and carries $246.4 million of segment assets and $4.9 million of impairments on programs in development. The 9 Story acquisition cost $176.2 million of cash in fiscal 2025 and has yet to earn an operating dollar.
Finally, control. Class A stock, which carries the voting power, sits with the Estate of the former chairman. Common holders generally have no vote on transactions requiring stockholder approval.
The Bottom Line
Scholastic did something rational in fiscal 2026: it turned a Manhattan building it did not need into $452.4 million of cash and used the cash to retire a quarter of its own stock and most of its debt. That is real value creation for the shares that remain, and it is why the share count now sits at 18.7 million.
What it did not do is fix the operating business. Operating income has been $14.5 million, $15.8 million and $15.2 million for three years. The crown jewel, book fairs, is growing. The problem is that corporate overhead eats 80% of what it earns and Education is shrinking faster than the cost cuts can offset. The one-time gain is spent. The rent is not.
The number to watch in fiscal 2027 is not earnings per share, which will look better purely because there are fewer shares. It is operating income. If it moves off $15 million, the base case is live. If it does not, the market is paying $40 for a business that generates one cent of operating profit per revenue dollar and now leases its own front door.
Every figure in this analysis was pulled directly from Scholastic's SEC filings via the RoboSystems shared data repository. Run your own queries on any public company at robosystems.ai.
This is not investment advice. No price targets. Implied values are illustrative under the stated assumptions. Market price and market capitalization are attributed to stockanalysis.com as of July 27, 2026; all other figures come from the Form 10-K for the fiscal year ended May 31, 2026.