* First quarter revenue of $378.8 million; busy season revenue on track
 * Free cash flow improved $9.7 million over prior year
 * Diluted EPS from continuing operations of $1.84
 * Full-year fiscal 2009 revenue and cash flow guidance confirmed;
   EPS guidance reduced $0.04 due to charges related to distribution
   center closing

GREENVILLE, Wis., Aug. 21, 2008 (GLOBE NEWSWIRE) — School Specialty (Nasdaq:SCHS), a leading education company providing supplemental learning products to the pre K-12 market, today reported fiscal 2009 first quarter financial results. The company reported first quarter revenue of $378.8 million, a 2 percent decline from the prior-year’s $386.5 million. Earnings from continuing operations were $35.1 million compared with $40.6 million reported in last year’s first quarter. Diluted earnings per share from continuing operations were $1.84 compared with $1.87 last year.

Chief Executive Officer, David J. Vander Zanden said order volume for the first quarter was in line with company expectations, although timing delays moved deliveries into the second quarter. “At this point in the back-to-school season we are seeing growth in orders in both our Specialty and Essentials segments, excluding adoption revenues. Shipments in the first quarter were trailing the prior year only due to the timing of orders and the expected lower revenue opportunities in science adoptions,” said Vander Zanden. “Our Specialty segment turned in a solid quarter, with encouraging growth coming in our reading, physical education, and publishing categories. We made significant progress advancing our reputation as a leading provider of value-added educational content and curriculum solutions.”

As expected, results for the company’s science category were below fiscal 2008’s first quarter due to the very strong science curriculum adoption schedule last year, principally in California. Adjusting for the adoption activity that was not available this year, revenue in the Specialty segment grew 4 percent over the prior year’s first quarter.

“Our year-over-year gross profit was impacted by delayed shipments, which we expect to recover in the second quarter,” said Vander Zanden. “We also experienced higher transportation costs and unexpected raw material price increases from suppliers that we were not able to immediately pass on due to fixed pricing within contract agreements and longer-lived catalogs. In addition, we were impacted by system integration issues that surfaced in the first quarter, which are being proactively addressed and resolved. We anticipate current gross margin levels to improve over the remainder of fiscal 2009 as we are able to adjust pricing in new catalogs, bids and contracts.”

“Our immediate priority,” emphasized Vander Zanden, “is to optimize our operational performance in what should be a good second quarter, while taking steps to offset increased raw material and transportation costs through reductions in SG&A expenses.”

First Quarter Financial Results

Revenue in the first quarter of fiscal 2009 was $378.8 million, a 2.0 percent decrease from fiscal 2008’s first quarter revenue of $386.5 million. This $7.7 million reduction in revenue was attributable to a $10 million decline in the company’s state adoption revenue in its science category during the first quarter of fiscal 2009 compared with the first quarter of fiscal 2008. The company’s state adoption revenues will have significant variability between years due to the cyclical nature of adoption revenues, which are based on schedules established by individual states. Specialty segment revenue, which includes the state adoption revenue, was down $4.3 million, or 1.9 percent, from $223.3 million in the first quarter of fiscal 2008 to $219.1 million in the first quarter of fiscal 2009. The Specialty segment revenue growth was approximately 4 percent after adjusting for the adoption revenue. The Essentials segment revenue was $161.4 million, or down 2.8 percent, in the first quarter of fiscal 2009 as compared to $166.1 million for the first quarter of fiscal 2008. The decline was primarily related to the timing of order fulfillment to match school requested delivery dates.

Gross profit was $164.0 million in the first quarter of fiscal 2009 compared with $173.4 in the first quarter of fiscal 2008. Specialty segment gross profit declined $4.1 million and gross margin declined 80 basis points from the first quarter of fiscal 2008 to the first quarter of fiscal 2009. The decrease in Specialty segment gross margin is related primarily to the revenue mix within the segment, specifically the reduction in science curriculum state adoption revenue. Essentials segment gross profit declined $5.7 million and gross margin declined 260 basis points from the first quarter of fiscal 2008 as compared to the first quarter of fiscal 2009. Approximately $1.6 million of the decrease is attributable to lower volume, with the remaining decrease split evenly between increased transportation and product costs, and enterprise system integration issues. The cost increases from vendors were not passed on to customers due to current fixed pricing, while integration issues identified in the first quarter are being proactively addressed and resolved.

Selling, general and administrative (SG&A) expenses increased $0.9 million from $100.1 million, or 25.9 percent of revenue, in the first quarter of fiscal 2008 to $101.0 million, or 26.7 percent of revenue, in the first quarter of fiscal 2009. The increase in SG&A is attributable to incremental outbound transportation costs of $1.5 million primarily associated with increased fuel prices over the past year. In addition, the company’s investments in its marketing and category management initiatives over the past year contributed additional SG&A costs in the first quarter of fiscal 2009. These increases have been partially offset by decreased variable selling and distribution expenses associated with the revenue decline.

Operating income as a percent of revenue was 16.6 percent in the first quarter of fiscal 2009 as compared to 18.9 percent in the first quarter of fiscal 2008. Income from continuing operations declined to $35.1 million in the first quarter of fiscal 2009 from $40.6 million in the first quarter of fiscal 2008. Diluted earnings per share from continuing operations were $1.84 in the first quarter of fiscal 2009 as compared to $1.87 in the first quarter of fiscal 2008. The percentage decline in diluted earnings per share was less than the decline in income from continuing operations due to the reduction in the share count associated with share repurchases over the past year. The incremental diluted earnings per share in the first quarter of fiscal 2009 as compared to the first quarter of fiscal 2008 due to the share repurchases was approximately $0.19 per share.

On June 11, 2008, the company announced its Board of Directors authorized the repurchase of up to $50 million of its issued and outstanding common stock. During the first quarter of fiscal 2009 the company repurchased 497,600 shares under this authority for a net purchase price of $15.3 million.

Distribution Center to Close

Productivity gains over the past two years have generated excess order fulfillment and distribution center capacity, which has resulted in the company’s decision to close one of its six core distribution centers. By the end of October, the Lyons, NY, distribution center will close, affecting approximately 40 full-time associates. As a result of the closure, order volume will be reapportioned within the School Specialty distribution network. Costs to close the center are approximately $1.2 million, which will result in a charge to second quarter earnings of approximately $0.04 per diluted share.

Outlook

School Specialty is confirming its fiscal 2009 free cash flow guidance of $80 million to $90 million, excluding approximately $11 million of additional free cash flow to be recognized in fiscal 2009 related to cash tax savings from the sale of its School Specialty Media business in late fiscal 2008. The company also is confirming its prior revenue guidance range of $1,077 million to $1,110 million. Its previous diluted earnings per share from continuing operations guidance range of $2.27 to $2.43 per share has been adjusted to reflect the expected $0.04 per diluted share impact from closing the Lyons, NY, distribution center. As a result, the new guidance range for fiscal 2009 diluted earnings per share from continuing operations is $2.23 to $2.39.

Conference Call

School Specialty will host a conference call to discuss its fiscal 2009 first quarter financial results. The conference call begins today, August 21, at 10:00 a.m. Central (11:00 a.m. Eastern). The call will be simultaneously broadcast in the Investor Information section of the School Specialty web site at www.schoolspecialty.com, and a replay of the call will be available.

About School Specialty, Inc.

School Specialty is a leading education company that provides innovative and proprietary products, programs and services to help educators engage and inspire students of all ages and abilities to learn. The company designs, develops, and provides preK-12 educators with the latest and very best curriculum, supplemental learning resources, and school supplies. Working in collaboration with educators, School Specialty reaches beyond the scope of textbooks to help teachers, guidance counselors and school administrators ensure that every student reaches his or her full potential.

For more information about School Specialty, visit www.schoolspecialty.com.

Cautionary Statement Concerning Forward-Looking Information

Any statements made in this press release about future results of operations, expectations, plans or prospects constitute forward-looking statements. Forward-looking statements also include those preceded or followed by the words “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “should,” “plans,” “targets” and/or similar expressions. These forward-looking statements are based on School Specialty’s current estimates and assumptions and, as such, involve uncertainty and risk. Forward-looking statements are not guarantees of future performance, and actual results may differ materially from those contemplated by the forward-looking statements because of a number of factors, including the factors described in Item 1A of School Specialty’s Annual Report on Form 10-K for the fiscal year ended April 26, 2008, which factors are incorporated herein by reference. Except to the extent required under the federal securities laws, School Specialty does not intend to update or revise the forward-looking statements.



                         SCHOOL SPECIALTY, INC.
                  CONSOLIDATED STATEMENTS OF OPERATIONS
                (In Thousands, Except Per Share Amounts)
                                Unaudited
                                                  Three Months Ended
                                                 --------------------
                                                 July 26,    July 28,
                                                   2008        2007
                                                 --------    --------
 Revenues                                        $378,794    $386,513
 Cost of revenues                                 214,792     213,145
                                                 --------    --------
     Gross profit                                 164,002     173,368
 Selling, general and administrative expenses     101,017     100,145
                                                 --------    --------
     Operating income                              62,985      73,223

 Other (income) expense:
     Interest expense                               4,893       5,332
     Interest income                                  (79)         (8)
     Other                                            555       1,209
                                                 --------    --------
 Income before provision for income taxes          57,616      66,690
 Provision for income taxes                        22,470      26,110
                                                 --------    --------
     Earnings from continuing operations           35,146      40,580

     Earnings (loss) from operations of
      discontinued School Specialty Media
      business unit, net of income taxes               --        (259)
                                                 --------    --------
     Net income                                  $ 35,146    $ 40,321
                                                 ========    ========
 Weighted average shares outstanding:
     Basic                                         18,840      21,134
     Diluted                                       19,107      21,732

 Basic earnings per share of common stock:
     Earnings from continuing operations         $   1.87    $   1.92
     Earnings (loss) from discontinued operations      --       (0.01)
                                                 --------    --------
     Total                                       $   1.87    $   1.91
                                                 ========    ========
 Diluted earnings per share of common stock:
     Earnings from continuing operations         $   1.84    $   1.87
     Earnings (loss) from discontinued operations      --       (0.01)
                                                 --------    --------
     Total                                       $   1.84    $   1.86
                                                 ========    ========


                         SCHOOL SPECIALTY, INC.
                  CONSOLIDATED CONDENSED BALANCE SHEETS
                             (In Thousands)

                                     July 26,    April 26,    July 28,
                                       2008        2008         2007
                                    ----------  ----------  ----------
 ASSETS                             (Unaudited)             (Unaudited)
 Current assets:
  Cash and cash equivalents         $    5,672  $    4,034  $    3,075
  Accounts receivable                  241,100      77,591     243,316
  Inventories                          170,784     149,548     198,868
  Deferred catalog costs                11,812      14,845      11,933
  Prepaid expenses and other
   current assets                       14,869      18,857      18,756
  Refundable income taxes                   --       9,288          --
  Deferred taxes                        16,921      15,726      10,331
                                    ----------  ----------  ----------
    Total current assets               461,158     289,889     486,279
 Property, plant and equipment, net     75,198      77,311      76,447
 Goodwill                              543,696     543,630     538,257
 Intangible assets, net                174,621     176,771     181,579
 Other                                  28,723      29,726      25,517
                                    ----------  ----------  ----------
    Total assets                    $1,283,396  $1,117,327  $1,308,079
                                    ==========  ==========  ==========

 LIABILITIES AND SHAREHOLDERS' EQUITY
 Current liabilities:
  Current maturities - long-term
   debt                             $  133,644  $  133,628  $  133,598
  Accounts payable                     113,467      64,340     126,898
  Accrued compensation                  15,523      19,476      17,422
  Deferred revenue                       8,018       6,641       8,072
  Accrued income taxes                  10,201          --      19,381
  Other accrued liabilities             44,462      30,593      37,588
                                    ----------  ----------  ----------
    Total current liabilities          325,315     254,678     342,959
 Long-term debt - less current
  maturities                           372,040     312,210     366,987
 Deferred taxes                         76,415      70,671      53,318
 Other liabilities                       1,080       1,080         895
                                    ----------  ----------  ----------
    Total liabilities                  774,850     638,639     764,159
                                    ----------  ----------  ----------
 Commitments and contingencies
 Shareholders' equity:
  Preferred stock, $0.001 par value
   per share, 1,000,000 shares
   authorized; none outstanding             --          --          --
  Common stock, $0.001 par value per
   share, 150,000,000 authorized and
   24,194,468; 23,631,135 and
   23,392,651 shares issued,
   respectively                             24          24          23
  Capital paid-in excess of par value  389,952     380,073     370,244
  Treasury stock, at cost -
   5,420,210; 4,922,610 and 2,571,606
   shares, respectively               (186,637)   (171,387)    (92,497)
  Accumulated other comprehensive
   income                               25,241      25,158      22,130
  Retained earnings                    279,966     244,820     244,020
                                    ----------  ----------  ----------
     Total shareholders' equity        508,546     478,688     543,920
                                    ----------  ----------  ----------
     Total liabilities and
      shareholders' equity          $1,283,396  $1,117,327  $1,308,079
                                    ==========  ==========  ==========


                         SCHOOL SPECIALTY, INC.
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (In Thousands)
                                Unaudited
                                                  Three Months Ended
                                                ----------------------
                                                 July 26,     July 28,
                                                   2008         2007
                                                ---------    ---------
 Cash flows from operating activities:
  Net income                                    $  35,146    $  40,321
  Adjustments to reconcile net income to
   net cash provided by operating activities:
    Depreciation and intangible asset
     amortization expense                           6,265        6,305
    Amortization of development costs               1,773        3,221
    Amortization of debt fees and other               510          508
    Share-based compensation expense                1,610        1,503
    Deferred taxes                                  4,549        3,087
    Loss (gain) on disposal of property,
     equipment and other                                1           (4)
    Changes in current assets and liabilities
     (net of assets acquired and liabilities
     assumed in business combinations):
      Change in amounts sold under
       receivables securitization, net                 --           --
      Accounts receivable                        (163,527)    (177,390)
      Inventories                                 (21,261)     (21,412)
      Deferred catalog costs                        3,033        2,915
      Prepaid expenses and other current
       assets                                      12,034         (298)
      Accounts payable                             49,184       49,306
      Accrued liabilities                          25,541       39,626
                                                ---------    ---------
       Net cash used in operating activities      (45,142)     (52,312)
                                                ---------    ---------
 Cash flows from investing activities:
  Additions to property, plant and equipment       (2,120)      (3,445)
  Proceeds from business dispositions               1,742           --
  Investment in product development costs          (1,780)      (2,923)
  Proceeds from disposal of property,
   plant and equipment                                 45           15
                                                ---------    ---------
       Net cash used in investing activities       (2,113)      (6,353)
                                                ---------    ---------
 Cash flows from financing activities:
  Proceeds from bank borrowings                   202,900      199,000
  Repayment of debt and capital leases           (143,054)    (125,144)
  Purchase of treasury stock                      (15,250)     (15,989)
  Proceeds from exercise of stock options           2,471        1,310
  Excess income tax benefit from
   exercise of stock options                        1,826          177
                                                ---------    ---------
       Net cash provided by financing
        activities                                 48,893       59,354
                                                ---------    ---------
 Net increase in cash and cash equivalents          1,638          689
 Cash and cash equivalents, beginning
  of period                                         4,034        2,386
                                                ---------    ---------
 Cash and cash equivalents, end of period       $   5,672    $   3,075
                                                =========    =========

 Free cash flow reconciliation:
  Net cash used in operating activities         $ (45,142)   $ (52,312)
  Additions to property and equipment              (2,120)      (3,445)
  Investment in development costs                  (1,780)      (2,923)
  Proceeds from disposal of property
   and equipment                                       45           15
                                                ---------    ---------
     Free cash flow                             $ (48,997)   $ (58,665)
                                                =========    =========



                          School Specialty, Inc.
      Segment Analysis - Revenues and Gross Profit/Margin Analysis
                        1st Quarter, Fiscal 2009

                             (In thousands)
                                Unaudited

 Segment Revenues and Gross Profit/Margin Analysis-QTD
 ----------------------------------------------------------------------
                                1Q09-QTD   1Q08-QTD  Change $  Change %
                                --------   --------   -------   -------
 Revenues
  Specialty                     $219,081   $223,331   $(4,250)    -1.9%
  Essentials                     161,432    166,131    (4,699)    -2.8%
  Corporate and Interco Elims     (1,719)    (2,949)    1,230    -41.7%
                                --------   --------   -------
    Total Revenues              $378,794   $386,513   $(7,719)    -2.0%
                                ========   ========   =======
 Gross Profit
  Specialty                     $113,483   $117,581   $(4,098)    -3.5%
  Essentials                      50,219     55,948    (5,729)   -10.2%
  Intercompany Eliminations          300       (161)      461   -286.3%
                                --------   --------   -------
    Total Gross Profit          $164,002   $173,368   $(9,366)    -5.4%
                                ========   ========   =======

                                          % of Revenues
                                       --------------------
                                       1Q09-QTD    1Q08-QTD
                                       --------    --------
 Revenues
  Specialty                              57.8%       57.8%
  Essentials                             42.6%       43.0%
  Corporate and Interco Elims           -0.4%       -0.8%
                                        -----       -----
    Total Revenues                      100.0%      100.0%
                                        =====       =====

 Gross Profit
  Specialty                              69.2%       67.8%
  Essentials                             30.6%       32.3%
  Intercompany Eliminations               0.2%      -0.1%
                                        -----       -----
    Total Gross Profit                  100.0%      100.0%
                                        =====       =====

 Segment Gross Margin Summary-QTD
 ----------------------------------------------------------
                                       1Q09-QTD    1Q08-QTD
                                       --------    --------
 Gross Margin
   Specialty                             51.8%       52.6%
   Essentials                            31.1%       33.7%
     Total Gross Margin                  43.3%       44.9%

This news release was distributed by GlobeNewswire, www.globenewswire.com

SOURCE: School Specialty, Inc.

School Specialty
David Vander Ploeg, Executive VP and CFO
920-882-5854
Communications & Investor Relations
Mark Fleming
920-882-5646