UPDATE 2-Scholastic cuts outlook, shares fall

Thu Dec 16, 2010 4:18pm EST

* Sees FY11 EPS $1.80-$2.05 from cont ops vs est $2.22

* Sees FY11 revenue $1.90-$1.95 bln vs est $1.95 bln

* Shares down as much as 10 pct (Recasts, adds analyst comment, conference call details)

By Siddharth Cavale

BANGALORE, Dec 16 (Reuters) - Children's books publisher Scholastic Corp (SCHL.O) cut its 2011 outlook due to higher spending related to its newly launched e-commerce website, sending its shares down as much as 10 percent.

However, the publisher of Harry Potter novels said it expects significant longer-term gains as more customers join the new website, which allows its book club members to order in bulk and receive bonus points.

The company said in the second quarter, an increase in incentives led to customers using bonus points instead of cash, leading to a slide in club revenue.

Scholastic, which also operates school-based book clubs and book fairs, said it expects increased online orders and fall promotions to generate modest growth for the remainder of the year.

Stifel Nicolaus analyst Drew Crum said he sees low-single digit revenue growth and a narrower loss in the next quarter.

"Two areas I would focus on: can they keep education publishing at a level similar to last year and ...what happens with clubs," he said.

Educational publishing revenue fell 21 percent in the second quarter, compared with an increase of 18 percent last year, due to lower sales of educational technology products.

The book club segment accounted for a fifth of the company's revenue in the quarter, but remained relatively flat compared with last year.

REVENUE MISS

For September-November, Scholastic earned $74.9 million, or $2.14 per share, compared with $55.5 million, or $1.51 per share, a year ago.

Revenue rose 2 percent to $675.7 million, but fell short of analysts' expectations of $684 million.

The company sees 2011 earnings of $1.80-$2.05 per share, on revenue of $1.90-$1.95 billion.

Analysts on average expected earnings of $2.22 per share, on revenue of $1.95 billion, according to Thomson Reuters I/B/E/S.

In September, the company had reiterated its 2011 earnings view of $1.95-$2.20 per share, on revenue of $1.90-$2.0 billion.

The New York-based company increased its quarterly dividend 33 percent to 10 cents.

Scholastic shares, which have gained 18 percent over the last six months, closed down 9 percent at $27.20 on Thursday on Nasdaq. They touched a low of $26.92 earlier in the session. (Reporting by Siddharth Cavale in Bangalore; Editing by Jarshad Kakkrakandy)

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