Harlequin Another Stable Performance

Robert Prichard, Torstar’s President and Chief Executive Officer called out the performance of Harlequin in an otherwise bleak performance for Torstar, “Harlequin had a solid quarter and remains on course for a good year of growth. We also enjoyed strong revenue growth in our digital businesses which are performing well." He went on to cite rising news print costs, pension costs and lower ad revenues which continue to impact their core newspaper business.

From the press release:

Book Publishing revenue was $118.1 million in the third quarter, up $2.4 million from $115.7 million in the same period last year. Higher revenues in North America Retail were offset by declines in North America Direct-To-Consumer and Overseas. Approximately one-half of the increase came from the favourable impact of foreign exchange rates in the quarter.

Book Publishing operating profit was $15.6 million in the third quarter of 2008, down $0.7 million from $16.3 million in 2007. The decrease was due to the unfavourable impact of foreign exchange rates as underlying results were flat. Year to date Book Publishing operating profit was $50.3 million in 2008, up $2.4 million from $47.9 million in 2007.

Further details from the management report:

Book Publishing revenues were up $1.2 billion in the third quarter of 2008 excluding the impact of foreign exchange. North America Retail was up $4.5 million, North America Direct-To-Consumer was down $2.2 million and Overseas was down $1.1 million. Year to date, Book Publishing revenues were up $3.6 million excluding the impact of foreign exchange. North America Retail was up $7.8 million, North America Direct-To-Consumer was down $4.8 million and Overseas was up $0.6 million.

Book Publishing operating profits were flat in the third quarter of 2008 excluding the impact of foreign exchange. North America Retail was up $0.4 million, North America Direct-To-Consumer was down $0.7 million and Overseas was up $0.3 million. Year to date Book Publishing operating profits were up $6.2 million excluding the impact of foreign exchange. North America Retail was up $5.6 million, North America Direct-To-Consumer was down $0.1 million and Overseas was up $0.7 million.

North America Retail operating profits were up $0.4 million in the third quarter with the continuation of the improved net sales rates and positive adjustments to returns provisions. The revenue growth in the quarter was offset by higher product costs and increased promotional spending.

North America Direct-To-Consumer operating profits were down $0.7 million in the third quarter from lower revenues. Revenue continued to be down in the quarter and year to date as the revenue growth from Internet book and digital sales was not sufficient to offset the decrease from fewer books sold in the traditional direct mail business. Lower costs, primarily reduced advertising and promotion spending in the traditional direct mail business offset some of the lower revenues in both the quarter and year to date.

Overseas operating profits were up $0.3 million in the third quarter of 2008 with the contribution from the sales of digital manga (comics) content to SoftBank Creative Corp., (a division of Softbank Corp., one of the largest providers of cell phone services in Japan) more than offsetting lower sales in other overseas markets. The lower sales are in part due to the direct-to-consumer businesses in certain overseas markets facing the same revenue challenges as the North America Direct-To-Consumer division.

Unfortunately, while you could argue that in the current environment these results reflect stability the issues noted are consistent with earnings reports for almost the past 24 months. There digital expansion shows a lot of promise but any potential 'break-out' seems unlikely given the pressure that the performance of Torstar implies for this operating unit. (The forex impact both negative and positive on Harlequins performance makes the picture a little murky).