What happened
Shares of children's book publisher Scholastic (NASDAQ: SCHL) soared on Friday following the release of financial results for its fiscal fourth quarter of 2023. As of 10 a.m. ET, Scholastic stock is up about 13%.
So what
Scholastic's revenues in fiscal 2023 were up only 4% year over year (YOY), to $1.7 billion. But the company's shareholders are used to modest growth like this. The big surprise in the Q4 report was its operating income. Q4 operating income soared 40% to $92 million.
Scholastic's full-year operating income finished 9% higher for the year, outpacing revenue growth. For perspective, the company's operating income was down 55% YOY through the first three quarters of its fiscal 2023. Therefore, its Q4 results facilitated a massive comeback to end the year.
Scholastic's management gave several reasons for the Q4 comeback, including lower spend on marketing and a more favorable mix of products sold.
Now what
The profit story for Scholastic is an important one. The company offers little growth to investors. Indeed, management expects YOY growth of only 3% to 5% in its fiscal 2024. Therefore, the investment thesis hinges more on profits and capital allocation.
Scholastic's management returned $160 million to shareholders in fiscal 2023 with dividends and share repurchases -- an enormous amount for a company with a market capitalization under $1.5 billion. And management just approved another $100 million in share repurchases.
In short, Scholastic is giving all its profits back to shareholders. That's good for them for now. But the company needs to keep its profits up, or its capital-allocation strategy could be unsustainable.
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Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
