AALBC .com Platinum Poster
Post Number: 711
|Posted on Sunday, December 21, 2008 - 10:55 am: |
Troy, I stayed up a good portion of the night putting this together. You owe me lots of coffee.
RANDOM HOUSE INC.
We soon conclude an evolutionary 2008 for Random House: a year of many publishing triumphs, and a year in which we have begun implementing a strategy and vision for our company that will enable us to come out ahead and build our business profitably amid an almost unprecedented economic downturn. Each of our divisions worldwide has been rethinking, and in some cases reformulating, what we must do to adapt to the changing ways our books are being ordered and sold by our retailers and distributors and purchased and read by consumers. We have faced and will continue to approach these and other challenges directly, confidently, and creatively.
Let’s look forward. With the economic forecasts for 2009 growing more pessimistic each day, it is critical for us to have a clear plan for a successful future, focused on increasing creativity, efficiency, and effectiveness.
It is hardly a secret that many of our booksellers around the world are struggling. Some have implemented tighter inventory controls, which has a tremendous impact on every publisher’s frontlist and backlist orders.
The biggest challenge to our bottom line in the coming year will continue to be rising costs. For some, it is a tough message to be asked to consider reducing your spending as part of your daily decision-making, but cost saving is as much a mental as it is a financial discipline. The more we save in costs, the more we will have to invest in our publishing.
We cannot allow the economic crisis to overshadow or distract us from the enormous commercial potential of our imprints’ publishing programs for the coming twelve months.
The strength of our 2009 publishing programs clearly illustrates that with every crisis come opportunities. Let us share a commitment to become more resourceful, more accountable, more responsive, and more collaborative as we continue to acquire and publish the best books in the world. Let us take this opportunity to come out of these times stronger than ever as an international team in a global company. Our future has begun—and it starts with you.
Markus Dohle, Chairman and CEO, Random House Inc.
BOOK BUSINESS MAGAZINE
Random Freezes Pensions
We were forwarded an internal announcement that Random House is freezing all pensions at their current levels and will not give pensions to new employees hired as of January 1, 2009, and the news is the focus of an AP story as well. The article notes that "the company will continue to offer matching funds, up to 6 percent, for 401k plans."
NEW YORK--(BUSINESS WIRE)--Scholastic Corporation (NASDAQ: SCHL), the global children’s publishing, education and media company.
Scholastic CEO Dick Robinson has written to employees to explain a four-part workforce reduction "which we believe is balanced and respectful to employees, retains as many jobs as possible, and reflects the spirit of Scholastic while meeting our financial requirements in a difficult economy."
The measures include a voluntary resignation offer for employees over 50 who have been with the company at least 10 years and are "considering retirement or other career options"; a freeze on new hires (openings will be filled from within the company); the elimination of merit raises for employees above a certain wage level; and a broader "reduction of headcount and reduction of other costs" as they "re-engineer our processes with a view to finding new and fresh ways of operating."
Robinson says their goal is have the plan "accomplished by the end of 2008." He adds: "While these steps are difficult, they will result in a stronger, more efficient Scholastic in a world of consumer change, rising costs, and a tight economy. This in turn will help us to ensure our company's success and preserve the jobs of our staff going forward."
Earnings from continuing operations in the second quarter were $58.4 million or $1.55 per diluted share compared to $82.3 million or $2.10 per diluted share a year ago. Operating income from continuing operations was $107.8 million in the second quarter compared to $138.9 million in the prior year period. This reduction was largely attributable to severance and one-time expenses associated with the Company’s cost reduction plans of $10.9 million before tax ($0.17 per diluted share), as well as an unfavorable foreign exchange impact of $6.7 million. In addition, higher royalty reserves and increased allowances for doubtful accounts in domestic and international trade publishing operations impacted operating income by $6.3 million.
The Company reported consolidated earnings in the second quarter of $43.1 million or $1.15 per diluted share compared to a year ago when it reported consolidated earnings of $75.6 million or $1.93 per diluted share. These results included a loss from discontinued operations, net of tax, of $15.3 million or $0.40 per diluted share compared to a loss of $6.7 million or $0.17 per diluted share in the prior year.
Scholastic achieved the top end of its current cost savings goal, eliminating $35 million in annualized expenses, including $25 million in salary expense. In addition to these savings, the Company announced that it has reduced its spending plan for the second half of fiscal 2009 by a further $20 million by eliminating management bonuses and reducing all categories of discretionary spending. It also continues taking steps to make core businesses more efficient, further reduce staffing and exit unprofitable markets.
“We have revised our outlook for fiscal 2009 to reflect the current market environment, year-to-date results and these additional spending cuts. We remain confident that our strong products and direct channels will continue to grow in the long term, while we improve profitability and maintain a solid financial foundation.” Richard Robinson, Chairman, President and CEO, Scholastic Corporation
HOUGHTON MIFFLIN HARCOURT
Following the license of Greenwood Publishing Group's imprints and titles to ABC-CLIO, Houghton Mifflin Harcourt will close Greenwood's Connecticut office and layoff approximately 150 employees as a result; layoffs will begin in early December.
It was less than a month ago that Houghton Mifflin Harcourt held an "open house" at their New York offices to celebrate the first combined list of the once separate trade lines, but now that welcome is firmly closed as the trade and reference division has "temporarily stopped acquiring manuscripts," according to VP of Communications Josef Blumenfeld.
As first reported by PW and followed by the WSJ and NYT, Blumenfeld struggled for metaphors to explain the policy: "We have a temporary freeze on. We are working on what we already have." Or rather, "there is a freeze-lite" he said. "There is a way in so it is not a hard freeze but for right now, there is a temporary -- call it a freeze if you want." Or maybe they are keeping the pipes empty before they can freeze?: "We have turned off the spigot, but we have a very robust pipeline."
Blumenfeld explains further: "The climate is difficult. It's about cash outlays, and every outlay of cash in every industry is being scrutinized." But is it about expenditures, or symbols? "In this case, it's a symbol of doing things smarter; it's not an indicator of the end of literature."
They also suggest that the lite freeze on that spigot might leave room for a trickle, since, while saying they are not acquiring new projects, "there are still things being considered by the acquisition committee." But now that it's been made clear to agents they aren't acquiring, there won't be a lot of submissions coming in the door to consider. Which is the really scary part about saying out loud you aren't acquiring.
THE PUBLISHING TICKER
How Bad Is It?
How are publishing-related entities faring relative to the overall market as stock prices continue to fall? Fair warning: this story is not for the faint of heart.
Barnes & Noble is off 19 percent from their high on September 19 of 29.06, beginning their tumble after S&P cut their rating on the stock to "sell."
Scholastic had peaked on September 19, and is down 26 percent since then.
John Wiley is off 25 percent from its September 11 high of 43.64.
Borders is off 44 percent from their high on September 11 of 7.80; if their decline continues at this rate, financial analysts predict bankruptcy filing.
(from Brad’s Reader: all things literature and writing)
Borders offering 50% discounts amid financial troubles
Dec 11, 2008 8:03:28 PM
I'm usually not one to predict bad news, but things don't look good for Borders. Even with their 50% discount promotion, I'm not sure how much longer after the holidays the second largest retail bookstore chain will last.
My reasoning? The larger-than-usual discount Borders is offering is, as many people see, one final desperate attempt to drive customers to their stores in hopes of regaining even a little financial stability. Or maybe it's a discrete attempt to get rid of inventory before closing their doors for good. Maybe I just have too much time on my hands and think about this stuff too much and my prediction is way off base.
Regardless, the bad economy is really hitting most retailers in the gut. It will be interesting to see in 2009 just how many of the larger retail chains come out of this crisis alive....bruised maybe....but still alive.
Books-a-Million has fallen even further, giving up 49 percent since peaking at 7.20 on September 11.
Among book publishers with publicly-traded parent companies:
Pearson's London shares peaked on September 12 at 697.50 pence and have dropped 22 percent since then.
Hachette parent Lagardere is down 31.5 percent from its high of 38.22 on September 12.
Harper's owners News Corp. are down 36 percent since peaking on September 12.
Simon & Schuster parent CBS is down 40 percent since September 11. Simon & Schuster broke from three straight quarters of sales and profit declines with a strong third-quarter showing. Sales of $225 million were up 5 percent from $214 million a year ago (though they are still down 5 percent overall thus far in the fiscal year).
Bloomsbury has been quite resilient, losing just 3.5 percent.
A little further afield, Amazon peaked at $81 a share on September 19, losing 31 percent since then.
Lulu.com is laying off 24 employees, almost a quarter of their workforce of 100. The company plans to relocate its headquarters from Morrisville, NC to Raleigh within the next few months. CEO Bob Young tells NewMediaAge "with the credit and capital markets frozen solid Lulu couldn't continue burning through money at its previous pace. We're very disappointed... we were forced into a position of having to cut costs."
The company is cutting approximately 10 percent of its staff, comprising 111 employees in all. The Allentown Morning Call says that 73 of the cuts will come from their Emmaus headquarters; the remaining 38 are in New York and regional sales offices. Rodale says in a release it is "eliminating or consolidating positions in several of its divisions, including operations, IT, customer service and some publishing departments in order to shift resources toward its highest growth potential activities."
As the NY Post notes, "the job cuts come after the privately held company sought unsuccessfully to find a strategic partner to help expand its business and invest in Internet properties. Rodale hired JPMorgan Chase to assist in the quest, but its efforts faltered as the credit markets began tightening."
Big Library Cuts in Philadelphia
As municipalities across the country face large gaps in their budget, Philadelphia is taking "drastic new steps" to face the "economic storm" that include closing 11 of the 54 branch libraries that comprise the Free Library of Philadelphia. Three other branches will have Sunday hours eliminated. Mayor Michael Nutter said the branches were chosen "after careful review of building conditions, utilization and distance to other libraries in the Free Library system." Cutting 220 jobs throughout the city government, approximately one third of those layoffs will come from the library staff.
NY Considers Library Funding Cuts
One more story on the economy: New York's budget division has recommended to the governor a $20 million cut in library support as part of proposed statewide reductions of expenses. That represents about 20 percent of the currently allocated $99 million, a number already slimmed by $4 million from the 2007 allocation. The NY Library Association says the proposal "would bring library aid down to a level not seen since 1993." Executive director Michael Borges says in a statement that "no other educational institutions have been targeted for a 20 percent cut in state funding. There seems to be no recognition by state budget makers that library usage has skyrocketed over the last year as more people turn to libraries for finding jobs, improving their literacy skills and for free reading materials and programs for their families."
Associated Press: Barnes & Noble (11/2008 article)
BN: Even Worse Than Expected
Barnes & Noble reported sales of $1.1 billion for their third quarter, and a net loss of $18.4 million. Same-store BN store sales of $971 million were down a big 7.4 percent (and fell 4.4 percent overall), while sales at the online unit rose 2 percent, to $109 million. The loss includes a special after-tax impairment charge of $7 million "to reduce the asset carrying value of certain store locations."
The results are below the company's previous guidance and analysts' diminished expectations--the operating loss of .21 a share compares to analysts' prediction of .16 share. BN reduced their fourth quarter and full year guidance as a result, noting "it is difficult to forecast sales with any certainty in the current retail environment," now expecting another 6 to 9 percent same-store decline for the final quarter. That would leave full-year sales down 5 to 6 percent on a same-store basis, with earnings of $1.30 to $1.60 a share.
CEO Steve Riggio says "a significant drop off in customer traffic and consumer spending impacted our business." But he adds, "On a positive note, our gross margins continue to hold up well. We have scrupulously avoided driving unprofitable top line sales growth with additional coupon promotions and extra discounting. Additionally, the company remains focused on producing cash flow. We are managing our working capital efficiently, which is evident in the reduction of $107 million of inventory compared to last year." They will maintain their dividend of .25 a share.
In this morning's conference call, the company declared "traffic is the story for the quarter" and "was the big driver to the negative comp." They noted that "average ticket began to decline, albeit moderately, in mid-quarter."
Having cut planned new stores for 2009 early to a target of 20 to 25 stores, they are "now reducing that number to approximately 15 new stores," of which nine are relocations and upgrades.
Riggio said they were experiencing the "same type of decline reported by other major retailers" and cited in particular the "lack of coverage of books, both in the mainstream media and on talk-radio," due to the presidential election and the economic crisis. Riggio told analysts not to expect extra discounts this holiday to drive sales. "We don't believe that more aggressive discounting is profitable. We can drive traffic, but we don't think we can drive traffic profitably" that way.
Yesterday's trading had already sent shares down another 7.75 percent in advance of today's news, hitting an all-time low--but the stock was down as much as 15 percent this morning before rebounding with the general market.
THE WALL STREET JOURNAL: Books – Barnes & Noble
The WSJ reproduced an in-house memo to Barnes & Noble employees sent by Chairman Len Riggio:
"Never in all of the years I've been in business have I seen a worse outlook for the economy. And never in all my years as a bookseller have I seen a retail climate as poor as the one we are in. Nothing even close." He warns, "we are bracing for a terrible holiday season, and expect the trend to continue well into 2009, and perhaps beyond."
Riggio announces that "new store openings will be curtailed greatly, and discretionary expenditures will be cut to the bone."
The context for this communication is the financial crisis facing America and the world. Questions abound, including: to what extent is Barnes & Noble threatened by the bleak economic outlook, and to what extent do our great booksellers have cause to worry about their own futures? Also, what are the actions the company is taking to deal with these problems, and what do we expect our people to do in view of these extraordinary circumstances?
The bad news first (followed by the good, I promise):
Never in all of the years I've been in business have I seen a worse outlook for the economy. And never in all my years as a bookseller have I seen a retail climate as poor as the one we are in. Nothing even close. The latest bubble in our system has burst, this time taking with it the hopes and dreams of tens of millions of Americans, and leaving many more in fear of their now uncertain futures. Worse, the full extent of the potential damage is still not known as this confluence of financial disasters has no precedent in our nation's history. Moreover, uncertainty itself can lead to more damage in the system, and thereby help accelerate the downward slide. Alas, we live in a consumer-driven economy: the paradox being that if we don't spend, we go broke.
Barnes & Noble, too, has suffered from this crisis, albeit not as severely as most retailers, and certainly not as much as other booksellers. As you know, our comparable store sales have declined for the first time in our history. As a result, we are bracing for a terrible holiday season, and expect the trend to continue well into 2009, and perhaps beyond.
On the macro front, many millions of Americans will be laid off, money will be scarce nonetheless, and many once famous retailers will shut their doors. We will not be one of them. Still, the decline in retail traffic will affect our business as less people will pass our doors, and competition for the remaining business will become more intense. The result will be a "Darwinian" environment (only the fittest will survive), and the retail species will have to adapt or face extinction. We have and will continue to adapt, and we plan to be around for a long time.
The good news comes in many forms, not the least of which is our being the industry leader by all of the important metrics: sales, sales per square foot, store and company profitability, cash flow, free cash flow, etc. In fact, we still intend to pay out a $50 million dividend to our shareholders this year. In addition, we have a solid balance sheet, excellent standing with the banking community, and more importantly, a large line of unused credit to draw upon. And, even with this year's large sales shortfall, we will make a decent profit, and end the year without owing a penny to our banks. Therefore, we can all be thankful for the excellent job our financial people have done, and for the spectacular and steady leadership provided by our management team. This company has never been in better hands. And, we also need to be thankful for our superb store managers, hard working home office staff, and the thousands of great booksellers in all of our stores. We are blessed to have the very best people in all the world of bookselling.
However, being the best at what we do, and having the best financial metrics, will not alone see us through these troubled times. If anything, we have to be even more diligent with expense controls (lower sales mean lower productivity,) inventory management, and capital expenditures. No, we will not be making Draconian cuts in capital spending as we are committed to having our stores in good repair and condition, our systems ever improving, and to making appropriate investments to secure a better future. On the other hand, new store openings will be curtailed greatly, and discretionary expenditures will be cut to the bone. Finally, unlike some of our competitors, we will not drop our contributions to the 401K plan, not stop overtime pay for holidays, and will not change the composition of our excellent benefits package.
Speaking to some of our good people, I am saddened by the many stories of booksellers who have taken big hits in their 401K plans, including many who have a large percentage of their holdings in (BKS) stock. While it may be of small consolation to you, your losses mirror the losses nearly everyone in America has experienced, even more so those who were heavily into equities, especially stock in retail companies. Unfortunately, I am not in the position to offer you any investment advice, nor can I provide any guidance on what the future may bring. I do suggest, however, that you speak to whatever financial advisors may be available to you, and to be very cautious in your approach to investments.
I realize that some of the things I have noted above may be quite unsettling to you, just as I hope that you will have drawn some comfort in what I said. Surely you will agree that the news of this financial "Tsunami" is well known to all, and has long been on everyone's mind. The main purpose of this forthright and heartfelt communication is to assure everyone that the leaders of this great company remain committed to the common good.
Finally, customer service becomes ever more important in times like these. And, as Mitchell might say, "Put the book in our customers' hands and don't keep them waiting in line!"
Let's make the best of the season!
Barnes and Noble
Unfortunately, there are more gloomy to horrific stories on how the publishing industry has fallen on unprecedented difficult times in 2008, but I’ll end on that hopeful note. HAPPY HOLIDAYS EVERYONE! And if you can, give books as gifts this holiday season.