Harlequin Shows Disappointing Form

Torstar the owner of Harlequin published their first quarter results this morning showing Harlequin revenues fell $15mm versus the prior period. $11mm of the short fall was due to the decreased value of the US dollar versus the loonie. The company also suggested that the comparison favored a much stronger first quarter 2007 when Harlequin had a stronger publishing schedule. (I believe this is the same 'publishing schedule' that strategically they have looked to trim). Reported revenue was $109.7 million in the first quarter, down $14.8 million from $124.5 million in the same period last year. (In 2006, 1Q revenues were $116mm. Under lying revenue growth for the 2007 quarter was only up $1mm with forex delivering a $5mm gain on the 2006 level).

First quarter underlying revenues have been a mixed bag at Harlequin over the past four years: Up big in 2006, down big in 2008 and 2005 and it is hard to discern any real pattern.

The following is from their press release:

Book Publishing revenues were down $3.9 million in the first quarter of 2008 excluding the impact of foreign exchange. North America Retail was down $2.8 million, North America Direct-To-Consumer was down $1.2 million and Overseas was up $0.1 million. Book Publishing operating profits were down $0.6 million in the first quarter of 2008 excluding the impact of foreign exchange. North America Retail was flat, North America Direct-To-Consumer was up $0.3 million and Overseas was down $0.9 million.

Torstar stated that "Harlequin’s outlook is positive" except if there is a major economic down turn in the US. (Which I believe we are in). Any further decrease in the value of the dollar will continue to result in a material impact on results. As an aside, the company doesn't note any hedge against the US dollar fall which seems somewhat irresponsible given the US outlook although they have hedged in the past. The company went on to state that "Harlequin is also experiencing accelerating progress with its digital media strategy which will contribute to earnings growth in 2008 and beyond."

Operating profit was also impacted by the unfavorable impact of foreign exchange. Operating profit of $16.2 million in the first quarter of 2008, down $2.9 million from $19.1 million in 2007 including a decrease of $2.3 million from the unfavourable impact of foreign exchange rates.

Torstar announced a restructuring program earlier this month but Harlequin was not mentioned.