Educational Development Corp
CEO: Randall White
WSA: Good day from Wall Street. This is Juan Costello, Senior Analyst with the Wall Street Analyzer. Joining us today is Randall White, the CEO of Educational Development Corporation. The company trades on NASDAQ, ticker symbol EDUC. Thanks for joining us again today, Randall.
Randall White: Ah, thanks for letting me tell a story Juan. We got a good story going right now.
WSA: Certainly, yeah, last interview we conducted was back in December last year and for some of our listeners that are new to the story, can you give us a history and overview of EDUC?
Randall White: Yes, our company publishes children’s books and we have two separate divisions and we have few product lines. The traditional line that we have that we’ve published for over 30 years are the Usborne books from England and they’re lavishly beautiful color illustrated children’s books and we co-publish them here in the United States. We have around 1600-1700 titles from them. And about 6-8 years ago, we acquired Kane/Miller which is a line of fiction books and this has been a real nice addition because Usborne is basically nonfiction, Kane/Miller is basically fiction, so we now have a kind of – what we think is complete product line encompassing around 2,000 titles. So, the product line is outstanding. Usborne in the last couple of years has been named Publisher of the Year, so the products are unquestioned as the best – sort of an equal to the best in the world.
The way we market the products, we have two different divisions. One we sell to retail stores. We have about 6,000 retail stores we sell to, towards bookstores, museum stores, our largest customer being Barnes & Noble. And that division is doing very well. And then additionally we have a direct sales division called Usborne Books & More which encompasses the direct selling where we have independent consultants who conduct home parties, now Facebook parties, direct sales into schools. We also do fundraising for schools and book fairs and we have a program called Literacy for a Lifetime which is a matching grant program where if someone contributes or makes a grant to the school, they buy our products will match 50% which have been very successful for us. So, the history of the company is we were going along fairly well many years ago and then the sales started to decline and we had about 9 years in a row of decline in the home business division where it went from 23 million down to 14, and the retail side was hanging in and doing okay, not growing.
And I finally realized what it was – was Amazon was killing our business while we sold to Amazon and their business was increasing, all other pieces of the company were decreasing. The home party really was drawing away because of the competition of Amazon. So, well over three-and-a-half years ago, I realized that our future was not in – we had to change direction as the ball moved and no one in the publishing industry believed we could pull it off, but I actually stopped selling to Amazon and anyone who sold to them which means we had to cut out all our wholesalers. It’s well over 10 million dollars net sales out of an 11 million dollar division. So, it was pretty, pretty gutty move there at the time.
Randall White: However, it has proven very successful Juan. The first year that we did this, the retail division made up the entire shortfall themselves, primarily Barnes & Noble and they finished with a slightly up year. The home division, home business division still was in a bit of decline, but then second year of that the home business division picked up and about June two years ago, we had a slight increase and I thought well slight increase at least, a nine-year decline. And from that moment on, we have had nothing, but accelerated rate of sales, started out little bit, you know 3%, 8% and in the end of that year it got to 20%. And then we actually finished the year ahead a year ago and so all these things are very saddening when you had that decline for many years.
So, we, we finished out – our fiscal year is February 28th and we finished out fiscal year 2014 which was actually February 2015. So, we finished that with a slight increase and that was exciting. But in the next year that we finished which is February, that we just finished, February 28th 2015, we actually had a 36% increase in that division and so we’re very excited about that that we’ve seen that growth come back. Then this in the first quarter it’s continued with a sales increase in March and these are compared the same month the previous year, March over March we had a 58% increase and then April 47% increase and now May actually 75% increase. Pretty spectacular numbers for increase in the sales and by the way that trend is continuing in June. We’re just ecstatic with the sales increase.
Now we’ll see in the third quarter last year which was November 30th quarter, we had a significant increase in sales, but profits didn’t follow and the reason we got a little behind in some of our incentives and accruing the benefits of incentives had to catch up in that quarter. So, market reacted pretty severely I thought for that and dropped our stock about 25% in one day. But since that time we’ve come out with our yearend earnings and the sales increase started continuing and the profits have returned. So, the first quarter, we’re showing again a significant increase in sales and the profits which haven’t been all the year, but they will be going along with the sales increase, so we’re back with accelerated revenue and return of profits to this in short level. So, it’s going very well here and again one of the reasons is because the recruitment of new sales people, it was a double a year ago in the first quarter, more than double actually. So, we’re just ecstatic about the results are happening for our company at this point. That wasn’t exactly a brief overview, but it was an overview.
WSA: Yeah, definitely, very helpful and so what are some of the other trends that you’re focused on right now in this sector and how are you positioning the company to a capitalized now that you don’t have the Amazon distribution channel?
Randall White: Well the main thing we’re doing is trying to build our retail businesses, which are the retail stores, bookstores, museum stores and Barnes & Noble. We also sell to curriculum companies like Sonlight. So, that’s – Learning Express is a large customer for us. So, we’re trying to capitalize on that market and they really appreciate us and are promoting our products because it’s one of the few products you can’t go in with the Amazon, have and scan it and buy it from Amazon. It’s not to say there are no third party sellers on Amazon that you can buy from. A lot of people don’t want to do that. So, it’s not from Amazon because we don’t sell to them anymore.
So, the retail stores are really getting behind us and promoting our products and so that segment also had a record year this last year February 28th and the market that did not show growth by the way, the bookstore business did not show growth last year, but we were up like 5% with the largest year in our history in the retail side. And then we’re continuing our incentives in the direct sales division to get more and more people out selling our products and you may think well there can be a saturation of it, but absolutely not. We have about 8,000 people. We expect to have 10,000 by the end of the summer. And again you never heard of this. We’re a very small company. We’re doing – we did little over 30 million last year. We expect to do well over 40 this year, but the growth will continue. With 8,000, with 8,000 people and 40 million dollars in sales that is a percent of a 3 billion dollar children’s book market. No way are we even close to saturation.
So, we see other direct selling companies selling products who are doing 500 million. So, we feel like that, that new growth, there’s definitely room to double and triple our sales, because we sell a lot in the schools with book fairs and fundraising and the Literacy for a Lifetime matching grant program that the more people we have, they all live in a school district and they then can go into the local school after seeing our products and that’s, that’s showing – that’s one of the biggest increases we’re having right now is in the school book fair market and in the school market. So, we feel like that the incentives that we’re providing to grow the business are working and the momentum has really kicked in.
WSA: And what are some of the other key factors Randall that you feel make the company unique from the other players in the sector?
Randall White: Well in the direct selling division, we’re totally unique in that we have a very inexpensive product. There are a lot of expensive products out there. Mostly in the direct home division, mostly in that industry it’s the health and BDA’s, what we got potions and lotions, some which you swallow or rub on you and do more next month. That’s not what we do. We use the market segment, but we provide a kind of non-disposable books we hope last and they’re inexpensive. There’re marks on the back of the book or product. So when you go to a home party and buy a book for 9 dollars and that’s exactly the same price that you pay in Barnes & Noble because the price is on the book. So, we, we feel like we’re unique in that we don’t have an inflated price because we get in their home and try to sell them a book.
I will tell you one of those exciting things that’s happened to the company has been the Facebook parties, it has truly expanded our business. About a year ago, I was on an incentive trip and having lunch with one of our top people and she was telling me her business was exploding, I said, “Why is it?” She said, “Well, I’m hosting Facebook parties.” I said, “What is that?” She said, “Well, instead of having six people at your house to show them books; they’re all on the Internet and we have YouTube videos. If they want to see a book, they can click on and what’s inside the book, you may describe and so there can be 15-20 people all around the country, which are buying from this virtual home party.” And so I ask, “How does that work on shipping?” She said, “Oh, it’s great, we just ship them direct to the person.” By the way, that figured it all, I thought in my mind, wait a minute, this whole concept was setup to have a home party and somebody want to ship one to someone else, we charge them an extra 5 dollars, well that doesn’t cover shipping, we were paying about 9.
Randall White: So I thought “Wow” and so I got back from that trip with bit of a panic and went out and sure enough going down the line well all these boxes had 1, 2, 3 books in them. I’m thinking wow we’re losing money in maybe one of those. So, we started negotiation with UPS and also with post office because the post office was getting into the small package business. So, we negotiated a new contract with UPS to lower our rates a little bit to help compensate for this plus we incorporated the priority mail, post office would sent small boxes so our books will fit in, flat rate box, priority mail, around 5 dollars, plus they furnished the box which cost 52 cents. So, we now have a shipping rate that allows us to really be profitable in this space of business where our growth is coming from. So, that’s one of the things that you’ve seen improvement, our profit has been just in the shipping rates alone.
We’ve made improvements there. So, the fastest growing part of our business is now profitable and it continues to grow, that’s kind of thing of the future is of course everybody is buying on the Internet and this is just another facet of that. These ladies have their own Internet sites. They host these parties. People can then enter their site. They might buy something. It’s the same format but our sales are exploding in. We’re just extremely excited about that piece of the business.
WSA: Well, great. And what are some of the key goals and milestones that you’re hoping to accomplish over the course of the next 6 to 12 months?
Randall White: Well, again we did 21 million in the home business division and 11 million so we round that profit for 33 million, close to 33 million last year. We’re on target to do over 30 million alone in the home business division and maintain the other. So we think our sales this year can hit in the range of 40 to 45 million which we’ve never done before, we just had our biggest year ever at 32. We think this year we’re in could be 40 to 45 with maintaining a nice margin. So, that’s our goal. Direct selling is fascinating. We’re just – we had in the month of May alone last year we had 289 people join us as sales consultants, this year we had 536. So, you can see it’s a matter of a lot of people doing a little bit.
This is a very unique business where people join, they buy their kit, they’re independent consultants and they make commissions of what they sell and that’s a real – where there are – girls are coming with these Facebook parties in most direct sale fields in what appears. And so we think this target of 40 to 45 million is certainly within our reach and I guess if you, if you do the 50% again you’re really talking about a significant growth in the company if we can maintain that. I will say that we’re in a process of complete new software to handle the business which will be in the range of half a million dollars when we’re through, but it’ll allow us to function and conduct the business as we are currently doing it. So, we’re investing in the future, we think it’s coming and we’re really excited about where the company will go. Again, tiny piece of the business, if we did 50 million it’s still a tiny piece of the 3 billion dollar market for children’s books.
So, we have unlimited potential. We have excellent staff onboard. We have all new software that we’re installing some – we’re doing in pieces, because you guys been involved in a software conversion you know how difficult that is. So, we’re doing in pieces and fully – we think it’ll be fully installed by the first of the year. This will allow the growth to continue. The people, the millennials in this world, they want to wish about and everything happened, flick and wow it’s there. So, this new software that we’re putting in is by the state-of-the-art and will allow us to be among the leaders in the industry for up-to-date modern technology software and allow the business to grow. So, these are goals, but it’s not just an idea we’ve got to – we’re putting in the structure to handle the business and we think it’s, it’s going to be a pretty fun time around here for the next couple of years.
WSA: And perhaps you could walk us through your background, and experience Randall and talk a little bit about the key management team over at EDUC.
Randall White: I came here 33 years ago. I’ve been in financial background and I came here as an Accountant and after about three years – the company was a mess, little small company doing about 6 million dollars, publicly traded hard to imagine that, but 6 million dollar publicly traded company and stock was about a dime. And so in 1986, I took over as a CEO by default pretty much and when I did the company had lost 5 million dollars in 5 years, and you got to stop when you do that, but I had been here three years as accountant and I felt like I could see some future for the company.
So, when I took over as a CEO, I personally guaranteed the debt of the company which means I mortgaged my house, but I believed in the company and so the first day I called the 23 people to get in, “So, okay guys this is a new day at EDC. Our new motto is spend less and unique.” And so from that day forward we never had a losing quarter. So, very proud of that and we built the company and now it’s virtually no debt, growing internally which doesn’t require a lot of infrastructure, although I didn’t mention the software that we have to pay. We didn’t actually have a new plan in that type of facility. So, we can grow the business very economically and so we’re excited about it. I’ve got an excellent staff here, I would be remised if I didn’t mention that that we do have a strong staff and one of our strongest people is a lady named Heather Cobb who came just about four years ago and she has been very instrumental in building the home business division. She is excellent and – people ask me, “What do you really think the vision that turned around the company?”
And first of all I think of course the single most important thing that we did was when I made a decision not to continue to be in Amazon. That was a huge decision. People in the industry scoffed at it and expected a reporter from The New York Time, who actually flew to Tulsa, interviewed me and I told him, “You don’t need to do that. I can tell you all on the phone.” And he did and well that’s a bucket list for me. I got my picture on the front page of The New York Time’s business section in color; it’s because of getting out of Amazon. This has proven very successful for us and we’re moving ahead and Heather has been a key part and also my son Craig White who has a strong IT background. He’s our Vice President of IT and those are two key people here that we have that – are in the growth section for our company and I feel very comfortable with their performance. So, we have a strong team behind me.
I’m getting little old, but still got a lot left and really are excited about the team we have in place and the system we have in place and our products are unquestionably fine, our products that are on the marketplace, so I see a very nice upscale and find potential for our stock. The stock has traded as high as 6 in the last year and this is likely to dive back in November, but each will sway back now, but people ask me about the dividend. We pay 30 cents a year which is pretty good dividend on a under 5 dollar stock which I hope it’s not under 5 dollar for much longer, but still it’s a 7-8% dividend. That’s very safe as we generate cash. I’m planning to increase that dividend. So, for shareholders I feel like it’s a stock with upside potential and pretty nice dividend payout in the mean time. You generally don’t see growth stocks and dividends; you have that with the EDUC.
WSA: Great point and once again joining us today is Randall White, CEO of Educational Development Corp, which trades on NASDAQ, ticker symbol EDUC. Currently trading at 4.83 of share and before we conclude here Randall to recap some of your key points, why do you believe investor should consider the company as a good investment opportunity today?
Randall White: Well, I think we really have unlimited growth potential. We can grow at 35% to 40% annually and with improved margins, with a dividend. So, a growth stock with a dividend in a marketplace that we’re just a tiny piece of – it’s not like we have a huge market, and we can’t increase it. We can double or triple and feel like we’re not exactly saturating the market. So, I feel like it’s a very safe stock and one thing I own about 20% of it so this is my life. Everything I own is in this company. I believe in it and so I think the company is pretty much run through the shareholders, since I’m the largest one and is it dividend safe? Well I hope so cause I get most of it and that’s what I want to continue to do to run the company as a shareholder and it’s worked for us and I think the stock is an excellent buy right now with very nice upside potential. The stock by the way has traded as high as 12 back years ago and we now started having those sales numbers that we did back in 2006. So, I’m not forecasting the stock will be at 12, but I will tell you that we are starting to hit some historic sales levels that we had back in 2006. So, there’s definitely upside potential in our stock.
WSA: Well, we certainly look forward to continuing to track the company’s growth and report on your upcoming progress. We’d like to thank you for taking the time to join us today Randall, and update our investor audience on EDUC. It was great to have you on.
Randall White: Well, thanks for having me on, because we’re a real small thinly traded stock that most people haven’t heard of, so I really appreciate the opportunity to tell my story and get our story out to the marketplace.