Happy 52 Week Low: Scholastic Corporation (SCHL)

Harry Potter and the Enchanted Margin Call

Back in middle school, it seemed as though my teachers were deliberately weighing me down with more text books than any 12 year old should really be responsible for carrying around.  Invariably, when checking the inside cover to see just who the manufacturer of these burdensome weights was, the answer was always Scholastic Corporation (SCHL).

Well the shoe is now on the other foot, as the object of my adolescent ire finds itself weighed down by it’s own burdens, including the waning of Harry Potter‘s popularity as well as an overcompensated staff with obscene, very expensive management bonuses that it will have to shed to maintain its earnings power.

When the stock posted a one-day drop of 13% to 14.50 per share on their latest earnings miss last December, the company probably thought they had seen the worst.  Despite the fact that they pledged to slash jobs, compensation and bonuses by between 20 and 30%, the stock’s pain was not yet at it’s end.  Last Friday, Scholastic shares made a new year low at 10.84 and all signs point toward at least a flirtation with the single digits.  It’ll have plenty of company.

Don’t feel bad for management, though, as officers and directors have been blowing out of stock like there’s no tomorrow.  Over the last 12 months, as SCHL shares have slid close to 70%, insiders have sold almost 900,000 shares net at a seemingly relentless pace.

CEO Richard Robinson, sold over $12 million worth of Scholastic stock last October alone (ya know, for estate planning purposes).  The stock is down roughly 80% from where he liquidated just 3 months ago and surprisingly, he hasn’t bought back a single share.  The name of the game seems to be award yourself stock options, exercise them and then dump your discounted shares at an instant profit, either through non-open market dispositions, automatic sale plans or outright market sell orders.  Don’t worry shareholders, unless he is awarded more stock, he only has 4.7 million shares left to sell.

You would think that someone who’s been at the head of Scholastic since 1975 would sense value as SCHL now sports a market cap of only $400 million with close to $2 billion in revenues last year.  Guess not.

So Happy 52 Week Low Scholastic stock!  May your officers and directors step up to the plate and show some confidence in you soon.

Full Disclosure:  I am not currently long or short shares of SCHL for either client or personal accounts.