School Specialty won't carry your books to school, but it will deliver nearly everything else. A leading distributor of school supplies in the US and Canada to the pre-kindergarten through 12th grade education market, School Specialty offers more than 75,000 products through its catalogs and websites. The firm sells art supplies, instructional materials, playground equipment and furniture under its own brands, such as Educational Essentials, Childcraft and Sportime. School Specialty's 500-plus-person sales force and mailing of some 12.5 million catalogs annually, lends it a strong presence in the education market. Founded in 1959, the education company counts about 91,000 schools in the US among its customers.
School Specialty offers products and service through two operating groups: Accelerated Learning and Education Resources. The Accelerated Learning Group (ALG) supplies standards-based curriculum products, supplemental curriculum materials, instructional programs, and tools to assess student performance. The ALG supports subject areas including science, reading, and math, as well as planning and student development. The company's Educational Resources Group (ERG) provides everything from basic school and art supplies, to instructional materials, teacher resources, physical education equipment, and classroom furniture for the pre-K-12 market. The ALG and ERG accounted for 28% and 72% of School Specialty's fiscal 2012 (ends April) sales, respectively.
School Specialty operates principally in the US, with limited operations in Canada. The education company has little or no geographic or customer concentration, operating in nearly every US state.
Historically, the pre-k thru 12th grade education market has been a pretty stable one, posting healthy compound annual growth rates even during recessions. However, the latest (and deepest) recession to sweep the US and and ensuing state budget cuts have squeezed school budgets and School Specialty's sales and profits more severely than previous downturns. Indeed, School Specialty's sales have followed a steep downward trend. Revenues for fiscal 2012 (ends April) declined by 4% to $732 million vs. the prior year. (That's compared with a pre-recession sales high of more than $1 billion.) Sales by the Educational Resources segment decreased 1.6%, while the Accelerated Learning segment's sales fell more than 9%. School Specialty has lost money in each of the past two years.
Still, with the two primary drivers of education spending -- enrollments and spending per student -- expected to rise over the next nine years, School Specialty is cautiously optimistic about the future. To position itself for recovery, the education company has been focusing on becoming more efficient and cutting costs, while continuing to make acquisitions despite falling sales. Recent purchases include: the assets of headset and earphone maker Telex, a division of Bosch Security Systems; Canada-based AutoSkill International, an educational software developer that focuses on reading and math skills development; Sitton Spelling, a provider of word skills programs; and the rights to Houghton Mifflin Harcourt's Think Math! curriculum product to expand its math offerings. Following its reorganization to form the Accelerated Learning Group (ALG, formerly called Publishing) and the Educational Resources Group, the company is focusing on ALG, the faster growing and more profitable of the two and the company's focus for expansion.
New York-based MSD Capital -- the investment firm that handles Michael Dell's personal investments -- owns 15% of School Specialty's shares. Zazove Associates owns more than 11%, while Stadium Capital Management owns 10%.