Thursday, August 02, 2007

Harlequin Reports

Torstar the owner of Harlequin reported marginally higher revenues against the same period last year for the Harlequin operating unit. They expect full year revenues to continue to improve against a 'difficult' 2006. Torstar's main revenues are generated by newspaper advertising revenues which continue to fall (as is the case with most North American newspapers). Overall the newspaper group's revenues rose just less than 2% for the quarter versus the same period last year.

Harlequin has been under-going a reorganization which began earlier last year and in the quarter operating profit was up 20% from $10.2mm to $12.5; however, the company also stated that operating profits in 2006 were artificially low due to shipping problems. (Torstar Press Release). First quarter revenues were up $6.2mm but included $5.1mm in exchange rate benefit. Second quarter revenues were up $1.4 including a gain of $0.9mm in exchange rate fluctuation. For the first six months Harlequin revenues are up only $1.4mm at constant rates on total revenues for the six months of $240.4mm (less than 1%). Operating income, where it looks like efficiencies are having some impact is $31.6mm for the first half which represents a 25% increase and an operating margin improvement from 11% to 13%. (There was an $0.8mm exchange benefit in operating income).

Details on the company's operating issues is sparse but it does look like the company continues to have difficulty expanding their revenue base. The lack of revenue growth is clearly the story here with the company struggling over the past several quarters to burst out of the doldrums. They have commented that mass market continues to be a difficult market for them and it would be interesting to hear from the company how some of their new sources of revenue - particularly online - are doing. Some of the things they are doing with online community building and leveraging their brand online are truly exciting and innovative but strangely lacking in the company reports.

Everyone knows this is a company with a tremendous brand name and image: With many other trade publisher's (with far less brand strength) reporting good to strong growth in revenue and operating income in the last few weeks it seems Harlequin are not performing to expectations.


Anonymous said...

I'm puzzled by your reference to, "many other trade publisher's (with far less brand strength) reporting good to strong growth in revenue and operating income in the last few weeks".

Hachette's H1 adjusted revenues were up 1.7%. Penguin's Q2 FX neutral sales were up 1%. S&S revenues were up significantly, but I think their secret was The Secret.

It sounds to me like Harlequin's modest revenue growth is in line with the rest of the pack, save perhaps S&S. What am I missing here?

MC said...

Anonymous, I agree the comment requires some explanation. I also agree that the issue of revenue growth is not clear cut. If you look at RH in 2005 vs 2006 revenue grew 6.5%, S&S was up 5.6% and revenues are up 20% for H1 2007, H/C are down 1% and flat for H1 2007, Penguin were up 5.5% but down 5% for H1 2007. There are currency issues and Hot Books (Da Vinci, Purpose Driven Life, The Secret) that further complicate the issue. In additon, BISG published a 4% increase in Adult Trade for 2006. In this context the Harlequin numbers aren't flatering (to Harlequin). On the other hand the Harlequin numbers are an improvement and while I don't think they performed to potential I was frankly more biased by the revenue trend over the past four years: 2003-$585mm, $538mm, $521mm, 2006-$472mm. Thanks for raising the question.