We recently upgraded our recommendation on School Specialty Inc. (SCHS) to Neutral from Underperform, buoyed by its initiative to reduce overheads and boost profitability.
Operational consolidations, headcount reductions, improved supply chain management and other stringent cost-control measures helped lower SG&A expenses during the second quarter of fiscal 2010. The company recorded a 13.6% decline in SG&A expenses year over year during the quarter. Furthermore, management also raised its previously announced cost reduction program by $5 million to $25 million.
Lower capital expenditure, effective inventory management and improved accounts receivable boosted cash flow. School Specialty used much of the cash to strengthen its balance sheet, reducing total debt by 20.3% to $230.7 million at the end of second-quarter 2010.
However, the budgetary constraint faced by schools due to the prolonged recession continues to adversely impact the company’s top-line performance. School Specialty recorded an 11.3% decline in revenue during second-quarter 2010 due to sluggish sales registered across Educational Resources (down 9.9%) and Publishing (down 14.1%) segments.
School Specialty is an education company offering supplemental educational products and equipment to the pre-kindergarten to twelfth grade market in the U.S. and Canada. The company provides more than 75,000 items ranging from classroom supplies, furniture, playground equipment and supplemental curriculum solutions to approximately 91,000 schools in the U.S. under brands such as Premier Agendas, Delta Education, Frey Scientific and Education Essentials.
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