Educational Development Corporation (EDUC) Q2 2019 Earnings Report, Transcript and Summary

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, Joel. 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 have got Craig White, our Chief Operating Officer. We’ve 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 which 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 2000 of our top people in Tulsa per week. We also have our annual awards shipments period and then when you consider that most of our consultants are stay-at-home moms in summertime, they kind of enjoy the time with the 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 consulting count increased by 10.5% from 32.8 to 29.7 from the second quarter of last year. So, if we compare the same time last year, we’re up a little bit. The one thing you might look at is to 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. 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 trying not to confuse you guys, but in the book fair, if it's experienced about $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 is showing 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’ve kind of double teamed it and they've taken over that division and we've seen pretty nice growth. Okay. [indiscernible]. But very pleased about what’s happened in the last 60 days in the publishing division. And it’s also us and a small amount, but we expect some good things to come from the publishing division this year, kind of some low hanging fruit with some of the 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 second quarter revenue growth, we -- really things that 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 would have to tell you that we're back under control and things are running smoothly and our profits are up significantly. Part of it is due to the 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 and we've done all on one shift. Last year, at this time, we were running two shifts. And so we’re seeing significant improvement in the technology and that's been introduced in the warehouse and those will be continuing to provide additional profit. So we’re very happy with how well the efficiency in the warehouse is going and we can -- two years ago, we couldn’t ship products, we got some big problems. 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, that is 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 UVAM [ph] side. So we expect a good third quarter and we’ve already seen part of it. So, I am pretty comfortable to tell you that we’re going to have a nice third quarter. So, I’m ready for questions. What you’ve got?

[Operator Instructions]

So, I answered every question anybody possibly could ask. Okay. Paul, what you’ve got?

Our first question comes from Paul Carter with Adaptable Capital.

Good afternoon, everybody. 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 to these levels?

Well, there are several reasons there, Paul. When we – a couple of years ago, we got ahead of inventory because of the sales we had and then we had to reduce inventories significantly to get back within the guidelines for 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 expected fall selling season requirements. So we have enough, I say, we have enough inventory. It's always a guess of what to bring in and we brought in one book called twinkly, twinkly little star, what it was, oh twinkly, twinkly little Christmas tree, very cute of course. And so [indiscernible] how many you want, well, 5000 per seasonal title, because you don't want left over, because it would be a year to hold on to it. So, our best guess was 15,000. So, we’ve got 15,000 for these books at a $20 retail price, what we thought was pretty pricey. What was it, 10 days, it was gone, 10 days. Well, who would have thought that? So we're already out of that Christmas title. So, we – fall selling season is 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 other question, regarding your Spanish language initiative, what kind of investments have you made so far to support that, like, if 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 or from the field and so it wouldn’t help rest to speak Spanish, but we do have Spanish speaking people on the premise. Actually, we have many Spanish speaking people, so those speak English. But, we’re geared up for that and by the way, thanks for bringing out that, because that can be a very significant growth area for the company. We're bringing in somewhere around 200 titles, not all by January 1, but at some point in time. And the titles we’re bringing in 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 [indiscernible]. So, the benefit that we think can have, one thing that can get a lot of benefit is the school and library division book fairs. Oftentimes, we hear from schools that says, we want more Spanish titles. So, we're 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 is -- has done pretty well this year since we re-launched it. So this will be a really nice push for the book fair market to have more Spanish titles.

Okay. That’s great. We’re looking forward to seeing how that goes and yeah, that's it for me. Thanks very much.

Okay, Paul. Thanks.

Thank you. 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 to refine like we have has been very gratifying. Dan and I [indiscernible] that we’re in less than three 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, two years ago, we were in the dumps, in the -- we were in the swamp. It has taken us three or four weeks to deliver, to ship books and last week, we were contacted by a national material handling magazine who's writing an article on how efficient our operations are. So it was kind of a short trip [indiscernible], but 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 two shifts. And so we're pretty happy about that. So any questions? If not, okay, guys, thanks for being on here and 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, Joel.