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TMCNet:  School Specialty Announces Fiscal 2015 First Quarter Results and Reaffirms Fiscal 2015 Full Year Guidance

[September 04, 2014]

School Specialty Announces Fiscal 2015 First Quarter Results and Reaffirms Fiscal 2015 Full Year Guidance

(GlobeNewswire Via Acquire Media NewsEdge) - Company reiterates fiscal 2015 Adjusted EBITDA guidance of $48-$54 million; reaffirms revenue guidance, projecting fiscal 2015 growth of 1.5% - 4.5% - Significant improvements in bookings in July and first part of fiscal 2015 second quarter as order patterns continue to shift to later in the summer - Process Improvement Programs generating anticipated cost savings and efficiencies; Corporate SG&A increases in the fiscal 2015 first half not expected to recur throughout the year GREENVILLE, Wis., Sept. 4, 2014 (GLOBE NEWSWIRE) --School Specialty, Inc. (OTCQB:SCOO) ("School Specialty" or "the Company"), a leading distributor of supplies, furniture and both supplemental and curriculum products to the education marketplace, today announced its fiscal 2015 first quarter results for the period ended July 26, 2014.


Joseph M. Yorio, President and Chief Executive Officer of School Specialty stated, "Historically our big ordering spikes have occurred during the months of May, June and July. Increasingly, back-to-school order patterns have shifted to later in the summer. As a result, we expect to realize a greater portion of expected sales in the coming months. Our top-line projections for growth of 1.5-4.5% remain intact, as we continue to build momentum across various product lines such as our e-tail/retail channel business, which should drive additional growth in the second half of the year." Mr. Yorio continued, "The Process Improvement Programs underway are also yielding the desired cost savings and creating greater efficiencies and synergies within our Company. During the first quarter, we incurred some additional transition-related expenses, most of which will not recur as we move forward.  We are looking at all aspects of our organization to lower costs further, while continuing to invest in our operations, infrastructure, product offering, and our people.  Given recent and expected market trends, and our outlook through the remainder of the year, we feel comfortable with both our top- and bottom-line guidance. We are maintaining focus on serving our customers, while also setting the foundation for longer-term growth in both existing and new markets.  We still have a lot of work ahead of us to get where we want to be, and at the same time, we've come a long way over the past year.  We look forward to providing further updates on our progress and remain committed to driving stockholder value."  First Quarter Financial Results The Company views a year-over-year comparison of the first six months of the fiscal year to be a more meaningful analysis than year-over-year comparative results for quarterly periods on an individual basis. This is due to the fact that the Company's largest shipping weeks historically straddle the end of the first quarter and the beginning of the second quarter, and quarterly results can significantly fluctuate due to variations in the timing of shipments within this season primarily as a result of changes or delays in the finalization of state education budgets.  Non-GAAP combined results for the three months ended July 27, 2013 include results of operations for the Successor Company for the seven weeks ended July 27, 2013 and the Predecessor Company for the six weeks ended June 11, 2013.

Revenues for the fiscal 2015 first quarter ended July 26, 2014 were $199.5 million, a decrease of 1.3% or $2.7 million as compared to $202.2 million reported for the combined three months ended July 27, 2013. Distribution segment revenues decreased by 3.9% or $6.7 million for the three months ended July 26, 2014 compared to the combined three months ended July 27, 2013. However, excluding the Company's student planner and agenda products, which declined by approximately $10 million as expected, other distribution product lines saw an overall increase. Furniture product line revenues increased approximately $4 million and excluding the revenue decline in student planner and agenda product lines, supplies revenues were generally in line with the prior year period. Curriculum segment revenues increased by 13.9% or $4.0 million for the three months ended July 26, 2014 compared to the combined three months ended July 27, 2013. Approximately $3 million of this increase was related to the adoption of state science curriculum in the Texas market with other increases spread out across the Company's Science Curriculum business.

  Gross profit margin for the three months ended July 26, 2014 was 39.4% as compared to 41.2% for the combined three months ended July 27, 2013. Distribution segment gross margin was 37.1% as compared to 39.2% for the three months ended July 26, 2014 and the combined three months ended July 27, 2013, respectively. The decline in Distribution segment gross margin was due primarily to product mix shift as agenda revenue historically has carried higher gross margins compared to other supplies and furniture product lines. Curriculum segment gross margin was 51.1% as compared to 53.3% for the three months ended July 26, 2014 and the combined three months ended July 27, 2013, respectively. The decline in Curriculum gross margin was primarily related to increased product development amortization of $1.2 million in the first quarter of fiscal 2015 which contributed to a decrease of 360 basis points of gross margin. This was partially offset by the mix of higher margin curriculum products within the segment.

  Selling, general and administrative (SG&A) expenses for the three months ended July 26, 2014 were $61.9 million as compared to $63.3 million for the combined three months ended July 27, 2013, a decrease of $1.4 million or 2.2%.  SG&A attributable to the combined Distribution and Curriculum segments decreased by $3.9 million and Corporate SG&A increased by $2.5 million, when comparing the fiscal 2015 and combined fiscal 2014 first quarter periods. The increase in Corporate SG&A is related to process improvement implementation costs such as consulting fees and warehouse implementation costs associated with transitioning the majority of fulfillment activities to the Company's Mansfield, OH distribution center and are not expected to be ongoing costs throughout the year.

  In the first quarter of fiscal 2015, the Company recorded $0.1 million of restructuring charges related primarily to severance as compared to $2.6 million of bankruptcy related restructuring charges in the combined first quarter of fiscal 2014. The prior year combined period included costs associated with warehouse closures, transportation costs resulting from bankruptcy related backorders and consulting fees.

  The Company reported operating income of $16.5 million for the three months ended July 26, 2014 as compared to operating income of $17.4 million for the combined three months ended July 27, 2013.    Net income for the first quarter of fiscal 2015 was $11.0 million compared with net income of $93.0 million for the combined first quarter of fiscal 2014. Net income for the combined comparable period last year included $83.5 million of reorganization gain, primarily related to cancellation of indebtedness associated with the emergence from bankruptcy. Net income per share was $11.01 for the three months ended July 26, 2014 as compared to net income per share of $20.96 for the combined three months ended July 27, 2013.    Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $27.2 million in the fiscal 2015 first quarter as compared to $28.3 million in the combined fiscal 2014 first quarter.

Mr. Yorio continued, "Delivering for our customers during this peak season was our primary focus and we have made improvements, but we still have work to do. We continue to invest in our infrastructure and will continue to do so as there are a number of areas we can strengthen to improve our time to market and to lower our costs. As we noted last quarter, we are taking a closer look at our Sales, Marketing and Merchandising alignment this year and we are now in the process of putting together a comprehensive multi-year sales and operations strategy. I am very proud of what we've accomplished over the past year and believe we have significant opportunities ahead to vastly improve our distribution network, open up new avenues for growth, and improve the customer experience."  Financial Outlook The Company today reaffirmed its prior guidance given its high order rates moving into the fiscal 2015 second quarter and its expectations for the remainder of the year. The Company anticipates that revenues will be approximately $640-$660 million, representing growth between 1.5 and 4.5 percent and that Adjusted EBITDA for fiscal 2015 will be approximately $48-$54 million. Capital expenditures are expected to be approximately $17-$19 million.

School Specialty intends to publish an accompanying presentation on its financial results shortly. The Company will not be hosting a teleconference, but management will be available to address questions after the filing of this supplemental information. This information will also be available on our website, www.schoolspecialty.com, in the Investor Relations section.

About School Specialty, Inc.

School Specialty is a leading distributor of innovative and proprietary products, programs and services to the education marketplace. The Company designs, develops, and provides educators with the latest and very best school supplies, furniture and both curriculum and supplemental learning resources. Working in collaboration with educators, School Specialty reaches beyond the scope of textbooks to help teachers, guidance counselors and school administrators ensure that every student reaches his or her full potential. For more information about School Specialty, visit www.schoolspecialty.com.

Statement Concerning Forward-Looking Information Any statements made in this press release about School Specialty's future financial conditions, results of operations, expectations, plans, or prospects, including the information under the heading "Financial Outlook", constitute forward-looking statements. Forward-looking statements also include those preceded or followed by the words "anticipates," "believes," "could," "estimates," "expects," "intends," "may," "plans," "projects," "should," "targets" and/or similar expressions. These forward-looking statements are based on School Specialty's current estimates and assumptions and, as such, involve uncertainty and risk. Forward-looking statements are not guarantees of future performance, and actual results may differ materially from those contemplated by the forward-looking statements because of a number of factors, including the factors described in Item 1A of School Specialty's Annual Report on Form 10-K for the fiscal year ended April 26, 2014, which factors are incorporated herein by reference. Any forward-looking statement in this release speaks only as of the date in which it is made. Except to the extent required under the federal securities laws, School Specialty does not intend to update or revise the forward-looking statements.

– Tables to Follow – SCHOOL SPECIALTY, INC.CONSOLIDATED COMBINED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Amounts) Unaudited / Non-GAAP                      Successor  CompanySuccessor  CompanyPredecessor  CompanyNon-GAAP Combined  Three Months Ended  July 26, 2014Seven Weeks Ended  July 27, 2013Six Weeks Ended  June 11, 2013Three Months Ended  July 27, 2013           Revenues  $ 199,469  $ 143,499  $ 58,697  $ 202,196 Cost of revenues 120,903 83,741 35,079 118,820 Gross profit 78,566 59,758 23,618 83,376 Selling, general and administrative expenses 61,942 35,867 27,473 63,340 Restructuring charges 133 2,595  --  2,595 Operating income (loss) 16,491 21,296 (3,855) 17,441 Other expense:         Interest expense  5,275  2,821  3,235  6,056 Change in fair value of interest rate swap  (13)  --   --   --  Reorganization items, net  271  1,280  (84,799)  (83,519) Income (loss) before provision for income taxes 10,958 17,195 77,709 94,904 Provision for (benefit from) income taxes (56) 252 1,641 1,893 Net income (loss)  $ 11,014  $ 16,943  $ 76,068  $ 93,011           Weighted average shares outstanding:         Basic  1,000  1,000  18,922   Diluted  1,000  1,000  18,922             Net Income per Share:         Basic  $ 11.01  $ 16.94  $ 4.02  $ 20.96 Diluted  $ 11.01  $ 16.94  $ 4.02  $ 20.96          Adjusted Earnings before interest, taxes, depreciation, amortization, bankruptcy-related costs, restructuring and impairment charges (EBITDA) reconciliation:  Net income (loss)  $ 11,014      $ 93,011  Provision for (benefit from) income taxes  (56)      1,893  Reorganization items, net  271      (83,519)  Restructuring costs  133      1,356  Restructuring-related costs incl in SG&A  2,542      1,239  Change in fair value of interest rate swap  (13)      --   Depreciation and amortization expense  4,369      5,849  Amortization of development costs  3,671      2,396  Net interest expense  5,275      6,056  Adjusted EBITDA  $ 27,206      $ 28,282  SCHOOL SPECIALTY, INC.CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In Thousands, except share and per share data)          July 26, 2014April 26, 2014July 27, 2013ASSETS       Current assets:       Cash and cash equivalents  $ 9,281  $ 9,008  $ 9,787 Restricted cash  --   --  25,820 Accounts receivable, less allowance for doubtful accounts of $984 and $926, respectively 136,338 62,631  138,879 Inventories, net 109,722 93,387  104,868 Deferred catalog costs 4,497 8,057  5,793 Prepaid expenses and other current assets 19,242 18,043  26,667 Refundable income taxes 7  --  5,334 Asset held for sale  2,200  2,200  -- Total current assets 281,287 193,326  317,148 Property, plant and equipment, net 38,557 39,045  46,309 Goodwill 21,588  21,588  23,661 Intangible assets, net 47,130 48,251  47,427 Development costs and other, net 34,132 36,646  38,042 Deferred taxes long-term 13 48  51 Investment in unconsolidated affiliate 715 715  715 Total assets  $ 423,422  $ 339,619  $ 473,353        LIABILITIES AND STOCKHOLDERS' EQUITY       Current liabilities:       Current maturities of long-term debt  $ 72,475  $ 12,388  $ 62,229 Accounts payable 53,443 42,977  49,124 Accrued compensation 7,376 8,966  7,597 Deferred revenue 3,423 2,613  2,605 Accrued fee for early termination of long-term debt  --   --  25,582 Other accrued liabilities 16,672 14,460  34,467 Total current liabilities 153,388 81,404 181,604 Long-term debt less current maturities 156,331  153,987  152,932 Other liabilities 998 1,171  925 Total liabilities 310,717 236,562 335,461         Stockholders' equity:       Successor preferred stock, $0.001 par value per share, 500,000 shares authorized; none outstanding  --   --  -- Successor common stock, $0.001 par value per share, 2,000,000 shares authorized; 1,000,004 shares outstanding 1  1  1 Successor capital in excess of par value 119,391  120,955  120,955 Accumulated other comprehensive income (loss) (216) (414)  (7) Retained earnings (accumulated deficit) (6,471) (17,485)  16,943 Total stockholders' equity 112,705 103,057  137,892 Total liabilities and stockholders' equity  $ 423,422  $ 339,619  $ 473,353CONTACT: Company Contact Kevin Baehler Kevin.baehler@SchoolSpecialty.com Tel: 920-882-5882 Company Contact Glenn Wiener IR@SchoolSpecialty.com Tel: 212-786-6011 Source: School Specialty, Inc.

2014 GlobeNewswire, Inc.

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