Goosebumps report chills blood of Scholastic investors

Journal Record, The (Oklahoma City), Feb 25, 1997 by David Pauly Bloomberg News

NEW YORK -- Peter Lynch, the former manager of the Fidelity Magellan mutual fund, says good investment ideas are right before your eyes.

Say, for instance, your three grandchildren begin devouring soft- cover books with titles like Say Cheese and Die! and The Scarecrow Walks at Midnight.

The books, scary stories for preteens, are sold under the general title of Goosebumps. They all have the same author, R.L. Stine. And you see them everywhere. The Lynch theory says you get the name of the publisher, do some research and buy the company's shares. Well, if I had bought stock in Scholastic Corp. when my older grandson put Goosebumps books on his Christmas list for 1995, I would have lost half my money. Scholastic said late Thursday that shipments of Goosebumps books, which now retail at $3.99, will decline in the quarter ending Feb. 28. "Goosebumps sales really hit a wall," said Alexander Paris, an analyst at Barrington Research. Worse still, booksellers are returning unsold Goosebumps in increasing numbers, the company said. Those problems, along with reduced sales in Scholastic's schoolbook club business, will put the company in the red for the quarter. There will be a loss of 70 cents to 80 cents a share, including the cost of a 50-cent reserve for returned books, Scholastic said. The average estimate for the quarter from four analysts surveyed by IBES International Inc. had the New York-based publisher earning 69 cents a share. Scholastic shares plummeted 24 3/4 to 36 3/4 on the news. If I had bought the stock on Dec. 15, 1995, I would have paid about 72. R.L. Stine has a Goosebumps title for the occasion: A Shocker on Shock Street. Newer Goosebumps titles are selling well, Scholastic said. This clearly didn't offset the decline in older titles, and it could be that the series' run is over. Where previous best-selling Scholastic series were sold for six and eight years, Goosebumps may have peaked after four years, Smith Barney analysts Gerald Odening and Brandt Sakakeeny said in a report. Analyst Paris said the company's children's book sales might not recover for three or four quarters. Scholastic also may have developed a credibility problem. "Either they didn't tell us everything they knew or they didn't have the information they needed," Paris said. The hit Scholastic took in the market today may have been excessive. The company sells other books; it might come up with another big series. It also sells readers and other educational materials to schools and publishes educational computer software. But for now, Scholastic is one case where the Peter Lynch method didn't work. I'd be out of my mind to knock Lynch. No other fund manager was right so many times for so long as he was. It's just that there's no more a sure thing in investing than there is in publishing. Anybody want an old Goosebumps copy of It Came From Beneath the Sink?