Scholastic leans into buybacks after a solid quarter, plans $150M repurchase tied to sale-leaseback

Quarter results catch investors’ eye; board links buyback to real-estate deal

Scholastic (SCHL) reported a quarter that showed clear earnings strength and enough cash flow to let management accelerate returns to shareholders. The company said adjusted earnings rose year‑over‑year and beat expectations, while revenue was roughly in line with — or slightly better than — forecasts. Most notable to investors was the board’s decision to expand the repurchase program by $150 million and explicitly tie that authorization to proceeds from a recent sale‑leaseback of property assets.

Where the quarter’s performance came from and what moved the numbers

The firm’s top line reflected steady demand in its trade publishing arm and a more mixed picture in its education business. Trade sales — the unit that includes children’s and juvenile books — benefited from a few strong titles and a steadier retail backdrop. Education revenues were shaped by timing: some school ordering came in earlier or later than usual, which made sequential comparisons lumpy.

On profits, Scholastic’s adjusted EPS climbed year‑over‑year after management trimmed costs and leaned into higher‑margin channels. Gross margins expanded modestly thanks to a better mix of trade and direct sales. The company also flagged one‑time items tied to the recent sale‑leaseback; management said those proceeds are non‑recurring and will be used for the buyback rather than to cover recurring operating costs.

Headline figures you’ll want to pin down in your model: total revenue, net income, adjusted EPS, and the contribution from each segment (Trade, Education, and any other smaller lines). Also watch the magnitude of the one‑offs from the sale‑leaseback, because they can inflate reported cash flow in the near term but won’t repeat.

How the $150M repurchase works and why it matters to shareholders

The board approved an expanded share repurchase program of $150 million, and management said it plans to deploy the cash coming from a sale‑leaseback of certain property assets to fund the buyback. That matters for two reasons.

First, using proceeds from a sale‑leaseback is a clear capital‑allocation choice: the company is converting real estate into cash and returning that cash to shareholders rather than holding it on the balance sheet or reinvesting in other long‑term projects. For investors, that raises the prospective pace of buybacks and the immediate impact on share count.

Second, the mechanics matter. Sale‑leasebacks remove ownership of the asset but leave the company with lease obligations. So the balance sheet will show higher lease liabilities and lower fixed assets, with a one‑time boost to cash. The key modeling items are the after‑tax cash from the sale, the schedule and interest rate on the new lease expense, and whether buybacks will be front‑loaded or spread over multiple quarters.

Market reaction and how the stock looks now

The stock jumped on the headlines about the buyback and the beat on earnings, trading with heavier volume as investors priced in a faster pace of cash return. The mood is cautiously positive: the buyback is a clean way to lift per‑share metrics and reward holders, but it’s funded by a non‑recurring asset sale rather than recurring operating cash.

Relative to peers in publishing and education services, Scholastic now looks like a company shifting toward shareholder returns. Valuation measures — whether P/E or EV/EBITDA — should be compared with smaller book publishers and education content providers, where multiples vary depending on growth and margin outlooks. For income‑oriented investors, the buyback narrows the gap between expected free cash flow and shareholder payouts.

What management said about the road ahead and the main risks

Management kept guidance cautious, noting seasonality in school ordering and the usual back‑to‑school cycle that can compress or expand revenue in particular quarters. They emphasized the buyback is tied to the one‑time sale proceeds and not to recurring operating cash.

Investors should watch several downside risks: a weak back‑to‑school season, slower adoption of certain education programs, and higher long‑term lease expenses after the sale‑leaseback. Interest rates and inflation also matter — higher financing costs raise the implicit cost of the sale‑leaseback and could make future capital returns harder to sustain. On the upside, a strong slate of trade titles and stable school budgets would keep margins healthy and make buybacks sustainable even without further asset sales.

A practical playbook for investors and traders

• Model the buyback impact: estimate the cash from the sale‑leaseback, subtract taxes and lease start‑up costs, and run a simple scenario for how many shares $150M would retire at current prices.
• Watch the quarterly update on operating cash flow after adjusting for the sale proceeds. That will tell you whether buybacks were a one‑time bump or part of a repeatable return plan.
• Track education ordering trends over the next two quarters — the back‑to‑school season is the main near‑term catalyst for revenue and margin direction.
• Monitor lease expense disclosures: the size and term of the new lease will affect adjusted EBITDA and free cash flow over time.

Bottom line: Scholastic (SCHL) used a real‑estate move to buy back stock and accelerate shareholder returns after a solid quarter. That’s a shareholder‑friendly step, but investors should be clear-eyed about the trade‑off: one‑time cash today in exchange for new recurring lease costs tomorrow. Whether this makes the stock a buy depends on how you value recurring free cash flow once lease payments are in the model.

Sources

• prnewswire.com