Harlequin (Torstar) Reports

Things aren't going well for the Torstar Group publisher of The Toronto Star newspaper and owner of Harlequin Books. Reuters eloquently states that profit has slumped and attribute this to the decline in fortunes at The Star and also to restructuring charges. Things don't look too good at Harlequin either but results look worse than they may be because of exchange rate issues.

On full year revenue:

Book Publishing revenue was $471.8 million in 2006, down $49.3 million from $521.1 million in 2005. Underlying revenue growth of $9.4 million was more than offset by a $30.0 million decline from the strengthening of the Canadian dollar during the year and $28.7 million from lower gains on U.S. dollar hedges year over year.

and on Operating Profit:

Book Publishing reported operating profit was $56.3 million in 2006, down $39.1 million from $95.4 million in 2005. Underlying operating profit was down only $2.5 million in the year while the strengthening Canadian dollar decreased profits by $7.9 million and lower gains on the U.S. dollar hedges decreased profits by $28.7 million year over year. Underlying results were up for North America Retail and Overseas but were more than offset by lower North America Direct-To-Consumer results.

It is difficult to discern the true impact here as there may have been some currency impact in the operating profit in 2005. Nevertheless, taking the numbers at face value, underlying revenues were up $9.4mm versus 2005 but operating profit was down $2.5mm.

Here is the short version and the long version of the press releases.

Further detail on the publishing units performance is summarized as follows:

• North America Retail increased book sales in 2006 after stabilizing in 2005. Significant efficiency improvements were made to the series business in 2006 as fewer books were printed and distributed and more books were sold.
• The North America Direct-To-Consumer revenue decline in 2006 was due to both fewer shipments of a children’s direct-to-home continuity program and from shipping disruptions experienced early in the year associated with the bankruptcy of a key supplier. Improved sales through the Internet channel partially offset this decline.
• Overseas markets had mixed results in 2006 with improvements in the United Kingdom and the Nordic Group offset by lower results in Germany. Brazil, a joint venture launched in 2005, showed improvement in 2006 selling more books and making progress towards break-even.

As far as an outlook for the Harlequin business the company says the following:

• The outlook for 2007 is for stability. Harlequin has stabilized the total number of books sold over the past three years despite difficult trends in its direct-to-consumer operations.
• Investment will continue in innovation and new products including digital initiatives in 2007.
• Cost savings of approximately $3.0 million are expected from the restructuring undertaken in late 2006.
• Harlequin will continue to be subject to the impact of changes in the value of the Canadian dollar relative to the U.S. dollar and other currencies.

Regretably, that is hardly a glowing endorsement and one would hope that the business is able to do much better during 2007 than the above statement seems to indicate. I have said it before this brand, is so strong I can't understand why they are having so much difficulty: perhaps it's the owner