Educational Development (NASDAQ:EDUC) reported a narrower year-over-year revenue decline in its fiscal 2027 second quarter, as the company replenished certain best-selling products, introduced new titles and expanded its active Brand Partner base from the beginning of the fiscal year.
Net revenue for the quarter totaled $4.1 million, down approximately 11% from $4.6 million in the prior-year period. The decline was materially less than the approximately 35% reduction management had projected entering the quarter, according to President and Chief Executive Officer Craig White and Chief Sales and Marketing Officer Heather Cobb.
Losses Continue Despite Lower Expenses
Educational Development posted a loss before income taxes of $1.6 million, compared with a $1.8 million loss in the same quarter a year earlier. Net loss was $1.6 million, versus $1.3 million in the prior-year quarter, while fully diluted loss per share widened to $0.19 from $0.15.
Chief Financial Officer Dan O’Keefe said lower revenue was partly offset by lower expenses. The company expects fiscal 2027 operating expenses to be approximately $1.2 million below the prior year’s level, reflecting immediate expense reductions, executive compensation reductions, staff reductions early in the fiscal year and savings expected later in the year.
One planned cost reduction involves vacating an outside warehouse facility in October. O’Keefe said that move is expected to reduce rent expense by approximately $15,000 per month beginning in November.
The company also continued to recognize a valuation allowance against its net deferred tax assets due to historical losses and expectations during its turnaround period. O’Keefe said the adjustment has no cash-flow effect, but affects tax expense, net income and earnings per share. The allowance could be reversed when the company demonstrates a return to profitability, also without a cash-flow impact.
Brand Partner Count Rises From Fiscal-Year Start
Average active Brand Partners totaled 5,100 at the end of August 2026, down from 5,800 at the end of August 2025. However, the figure increased about 19% from 4,300 at the end of February 2026.
Cobb said the company used a June activation opportunity and a targeted summer sales event to promote engagement during a traditionally slower period. She said management is focused not only on increasing the Brand Partner population, but also on helping participants become active and productive.
During the question-and-answer session, O’Keefe said Brand Partner levels have historically risen during the fall, the company’s strongest selling season. Some partners become inactive during the summer but return in the fall, he said.
The company is also conducting outreach to former Brand Partners, highlighting changes to its products, programs and technology. Cobb said Educational Development has added team members to support a renewed social-media and communications strategy intended to broaden PaperPie’s reach among consumers and prospective Brand Partners.
New Products and Technology Initiatives
Management attributed part of the quarter’s better-than-expected revenue performance to the return of new product introductions. The company released a full group of new titles in mid- to late June and replenished inventory of several best-selling titles and series.
Cobb said new titles represent a relatively small percentage of total sales directly, but tend to generate enthusiasm and encourage customers to purchase additional “backlist” titles. Educational Development plans to return to a consistent release schedule consisting of two main-season and two mid-season product introductions annually.
The company said retail partners have shown interest in sizable orders across Kane Miller Books, Learning Wrap-Ups and SmartLab Toys. Cobb added that the company has seen enthusiasm around additional Kane Miller and SmartLab Toys releases planned for January.
Educational Development also introduced e-commerce improvements, including a new AI-assisted book discovery and search tool called Read, enhanced mobile-shopping capabilities, and new wish-list and registry features. Cobb said the changes are designed to make shopping, sharing and business-building easier for customers and Brand Partners.
White said the company intends to use artificial intelligence to improve employee efficiency and decision-making rather than reduce headcount. He described using AI tools to identify Brand Partner achievements, support more timely communications and generate daily business updates from sales data. The company has also engaged a provider whose software allows employees to query company data using natural-language questions without IT involvement, according to White.
Inventory, Liquidity and Sales Outlook
Inventory declined to $34.9 million at the end of August from $37.7 million at the beginning of fiscal 2027, generating $2.8 million of cash flow from inventory reductions. Cash decreased slightly to $1.1 million from $1.3 million at the end of February. The company had no borrowings under its $2 million line of credit during the quarter.
O’Keefe said the inventory reduction was supported by inventory that had already been paid for. He said the company’s $2.8 million in cash generated through lower inventory was largely offset by a $2.9 million loss before taxes during the first six months of the fiscal year.
Management did not provide a specific full-year cash-flow forecast. O’Keefe said the end of the third fiscal quarter has historically represented the company’s highest cash position because of the fall selling season.
In response to questions about its inventory, management said it does not expect publisher Usborne to take back titles and intends to sell through products while replenishing best sellers. Cobb said the vast majority of the company’s Usborne titles remain actively sold and are generally focused on enduring educational subjects rather than short-lived trends.
White said the company continues to use discounting selectively to move inventory but intends to use promotions less frequently as it works to restore sales at full retail prices. He said Educational Development has more work ahead but views the second-quarter performance as a positive step in its turnaround effort.
About Educational Development (NASDAQ:EDUC)
Educational Development Corporation (NASDAQ: EDUC) is a U.S.-based publisher and distributor of children’s books and educational products. Headquartered in Tulsa, Oklahoma, the company serves families, educators and other customers through a combination of publishing, wholesale distribution and direct selling.
EDC’s business includes the Usborne Books & More direct-selling operation, which distributes children’s books through a network of independent consultants. Its product range includes picture books, early-learning titles, activity books, fiction and nonfiction for children, along with selected educational products, games and related items.
The company also operates Kane Miller, an imprint focused on publishing and distributing children’s books, including titles translated or licensed from international publishers.
