Harlequin Posts 2007 Results

Returning to work after a three-day absence is never fun. I dealt with the more urgent emails while I was in Bethesda, but still had 149 unopened messages waiting yesterday morning. On top of that, I had three personnel issues that cropped up while I was away. Rather than trying to deal with them over the phone, I called our Personnel Director to go to lunch. In ninety minutes, we resolved the potential resignation and the emergency FMLA leave issues, and had a plan of action for the third more knotty problem.

Even so, it was 9:00 PM before I left work last night. By the time I got home, I simply tumbled into bed. Today was just as aggravating so I'm late in posting.

On Wednesday, Torstar--the parent company of Harlequin--announced its fourth quarter and full year 2007 results.

First, the fourth quarter results. The picture was ugly. Quotes are from the Torstar press release. All dollar figures are in Canadian dollars.

Foreign exchange rates are always a problem for Harlequin. If we disregard the impact of currency exchange, the book publishing revenue was down $3.1 million (Canadian) for the fourth quarter.

That $3.1 million loss breaks down this way: North American retail was down $1.3, the Direct-to-Consumer (bookclubs and online downloads) revenues were down $0.1 million and Overseas sales were down $1.7 million.

Sales revenue is one thing; the profits derived from those sales are another. First, remember that Harlequin reduced its global workforce by 4% in the third quarter.

Ignoring the foreign exchange rate impact, in the fourth quarter, the book publishing operating profits were down $1.7 million. It breaks down this way: North American retail was down $1.0 million, Direct-to-Consumer was up $1.0 million and Overseas was down $1.7 million.

In actual dollars, this means fourth quarter sales were down 11% to $106.6 million dollars while operating profits were down 23% to $12.8 million dollars.

Note that--despite the division revenues being down $0.1 million, Direct-to-Consumer profits were up $1.0 million. Torstar attributed this "primarily to lower promotional spending. Slightly lower sales volumes were offset by the positive impact of the mid-year price increase."

In parsing the fourth quarter Overseas results, Torstar reported: "Higher results in the Nordic group and Japan were more than offset by lower results in the United Kingdom and Holland and increased investment spending in India."

Now, let's look at the entire year results for 2007.

Book publishing revenue was $462.7 million for 2007, down $9.1 million from $471.8 million in 2006. This includes an $8.1 million loss resulting from the stronger Canadian dollar.

If we disregard the exchange rate, book publishing revenues were down $1.0 million dollars for 2007. That breaks down this way: North American Retail was up $3.6 million, North American Direct-To-Consumer was down $5.0 million and Overseas was up $0.4 million.

As you can see, although sales were up in North American Retail and Overseas, that increase was not enough to offset the loss in North American Direct-To-Consumer.

Again, let's move from sales revenue to operating profit:

Book publishing operating profits were up $6.3 million in 2007 excluding the impact of foreign exchange.

That operating profit breaks down into: North America Retail was up $5.8 million, North America Direct-To-Consumer was up $2.2 million and Overseas was down $1.7 million.

Torstar says the North America Retail profits were up from "a combination of the positive impact from the mid-year price increase on series books, a more profitable mix of titles, reduced overhead and promotion costs and lower amortization expense. Overheads were lower due to savings realized from the restructuring undertaken in late 2006 . . . The number of books sold was stable for both series and single title product in 2007."

After that terrible fourth quarter, it will be interesting to take a look at the Harlequin first quarter results. Those should be announced in another two months--at the end of April or the first of May.