Educational Development Corp (EDUC) 2019 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Educational Development Corporation Second Quarter 2019 Results Conference Call.

(Operator Instructions) As a reminder, this conference call may be recorded.

I would now like to introduce your host for today's conference, Mr. Randall White, CEO and President.

Sir, you may begin.

Thank you, Joelle.

Welcome, guys, to the conference call to discuss the second quarter results.

In the room here with us for any specific questions, we have Heather Cobb, our Chief Sales and Marketing Officer; we got Craig White, our Chief Operating Officer; we got Dan O’Keefe our Chief Financial Officer; as well as Trevor Morris, our Controller.

So let's get straight to the actual results.

So Dan, would you take over here?

Great.

Thanks, Randall.

Net revenues grew $494,100 or 2% from $24,186,900 reported in the second quarter of fiscal 2018 to $24,681,000 reported in the second quarter of fiscal 2019.

Earnings before income taxes grew approximately $352,900 or 21% from $1,682,700 in Q2 of fiscal 2018 to $2,035,600 in Q2 of fiscal 2019.

Net earnings after taxes grew approximately $453,800 or 44% from $1,036,900 to $1,490,700 over the common second quarter periods.

Earnings per share on a fully diluted basis increased $0.05 a share or 38% from $0.13 a share reported in the second quarter of fiscal 2018 to $0.18 per share reported in the second quarter of fiscal 2019.

This concludes the earnings results for the quarter, and so I'll pass the call back to Randall.

Okay.

The revenue was -- it was pretty flat.

The revenue in the second quarter has things in it that generally are not conducive to sales.

We have our annual convention where we have a few thousand of our top people in Tulsa for a week.

We also have our annual awardship during this period.

And then when you consider that most of our consultants are stay-at-home moms, in the summertime, they kind of enjoy time with their family.

But that's just this quarter.

We don't expect that to continue.

The net revenues for the quarter was pretty much with the reported last year.

Our active consultant count increased by 10.5% from 32.8% to 29.7% from the second quarter of last year.

So when we compare the same time last year, we're up a little bit.

The one thing you might look at is the gross sales, which we don't really talk about.

The gross sales are the amount of books that we ship at retail.

And the reason that's important this quarter is because those were up 5%.

Now the reason those were up higher than the same quarter last year has a lot to do with the type of sale it was.

And so, in this quarter, we had a lot of book fairs.

Book fairs are -- the net and gross vary.

So the top of sale can vary between gross and net.

I'm not trying to confuse you guys, but in the book fair, if these parents buy $10,000, the school gets $5,000 free so -- and free shipping.

So a lot of things that go into that.

But basically, the good things are that our Publishing Division has shown a lot, and it's because we've had some recent increases in our major accounts, and that's because of a little change in management here.

We -- our Vice President of that division resigned, and Heather and I kind of double-eamed it and have taken over that division.

We've seen a pretty nice growth.

[I don't think] we can tell them about that.

Barnes & Noble?

[Then economics] in the future.

Ah, yes.

Okay.

I've got an account with some.

Well, let me tell you, good stuff.

Look, we're very pleased about what happened in the last 60 days in the Publishing Division.

And it's also up in small amounts.

But we expect some good things to come from in the Publishing Division this year with kind of some low-hanging fruit with some of our major -- with our major accounts and then, also, with our individual accounts just because I think a change has been good for a lot of people.

In addition to the second quarter revenue growth, we really -- things have happened here.

I probably told you before, I think that our profit will grow faster than our sales for a while.

When we had $100 million, we were pretty much out of control, and I'm happy to tell you that you we are back under control and things are running smoothly and our profits are up significantly.

Now part of these are tax laws but also our increased profitability -- efficiency, I mean.

So that will continue.

There's still improvements in the warehouse, but today, we're shipping more volume, a little bit more volume than last year.

We've done it all in one shift.

Last year, at this time, we were running 2 shifts.

So we're seeing significant improvement in the technology that's been introduced in the warehouse, and those will be continuing to provide the additional profit.

So we're very happy with how well the efficiency in the warehouse is going.

And we can -- 2 years ago, we couldn't ship products.

We've got us some big problem.

We worked our way through that.

And today, we're back to shipping same or next day, and that will really help with the revenue.

A lot of stores, retail stores were pretty aggravated at us -- very aggravated, actually.

As well as consultants, we lost some of them, and now we're starting to get them back, and we're seeing that in the retail side as well as the UBAM side.

So we expect a good third quarter, and we've already seen part of it.

So I feel pretty comfortable to tell you that we're going to have a nice third quarter.

So I'm ready for questions.

What you got?

(Operator Instructions)

So I answered every question anybody possibly could ask.

Okay.

Paul, what you got?

Our first question comes from Paul Carter with Adaptable Capital.

So I know you don't like to give guidance, but your inventory ended August about 15% higher than it was last August.

Is that just sort of a general indication of your expectations for the fall selling season?

Or are there other reasons you felt you needed to increase inventories at these levels?

Well, there's several reasons there, Paul.

When we -- several years ago, we got a hit on inventory because of the sales we had and then we had to reduce inventories significantly to get back within the guidance of our borrowing agreement.

And then we were probably a little bit short.

So now, this inventory we have now is a buildup for what we think are our expected fall selling season requirements.

So we have enough -- I'll say we have enough inventory.

It's always a guess of what to bring in, and we've brought in one book called "Twinkly, Twinkly Little Star." Is that what it was?

Oh, "Twinkly, Twinkly Little Christmas Tree." Very cute, of course.

And so you spend -- how many you want?

Well, 5,000 per seasonal title because you don't want leftovers because it'd be a year to hold onto it.

So our best guess was 15,000.

So we've got 15,000 of these books selling for -- at a $20 retail price, what we thought was pretty pricey.

What was it, 10 days?

They were gone 10 days.

Wow, who would have thought that fast.

We're already out of that Christmas title.

So we -- fall selling season, going very well, so the increase in inventory is our prediction of what we expect to happen with the remainder of the fall selling season.

Okay, terrific.

And just another question.

Regarding your Spanish language initiative.

What kind of investments have you made so far to support that?

Like, have you had to add anybody in Tulsa to sort of lead that initiative?

Or are you going to do that with the existing team in place?

Well, the main sales from this are from the field and so it wouldn't help for us to speak Spanish.

But we do have Spanish-speaking people on the premise.

Actually, we have many Spanish-speaking people, some of those who don't speak English.

But now we're geared up for that.

And by the way, thanks for bringing that up because that could be a very significant growth area for the company.

We're bringing in somewhere around 200 titles, not all at January 1, but at some point in time.

And the titles we're bringing are ones from Usborne that have the same title in English.

So the Spanish title will be available in English also, but we're also bringing Kane Miller titles, and we're bringing in some of the more popular ones like the Shine-A-Light books.

So the benefit that we think can have -- one thing we think can have a lot of benefit in is the school and library division book fairs.

Oftentimes, we hear from schools that said, we want more Spanish titles.

So we are now bringing them in, and we'll see how that works.

But -- so we expect to see a little bump in the school and library market, which has been pretty well this year since we relaunched it.

So this will be a really nice push for the book fair market to have more Spanish titles.

I'm not showing any further questions at this time.

I would now like to turn the call back over to Randall White for any closing remarks.

Okay, guys.

One question.

Wow, okay.

We're pretty happy here with what's happened in the quarter.

We're working on sales, but to get our operations refined like we have has been very gratifying.

Dan and I, we were over in our old building that we were in less than 3 years ago last week.

And when you go from there to where we are today, it's kind of a miracle.

And when you see that 2 years ago, we were in the dumps, in the -- we were in the swamp.

It was taking us 3 or 4 weeks to deliver, to ship books.

And last week, we were contacted by a national material handling magazine who is running an article on how efficient our operations are.

So it was kind of a short trip from the outhouse to the throne, but I'm pretty happy with what's going on here and our ability to deliver at peak times of the season.

We can ship a lot more again.

We've not gone to 2 shifts, and so we're pretty happy about that.

So any questions?

If not...

I think we're done.

No more questions?

Okay.

Guys, thanks for being on here, and I look forward to talking to you next time.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude today's program, and you may all disconnect.

Everyone, have a great day.

Thank you, Joelle.