Telemarketing Rules Hamstring Scholastic

A federal initiative to curb telemarketing took a toll on Scholastic's ( SCHL) third quarter, and now investors are taking out their wrath on the stock.

Scholastic tanked 8% Wednesday morning after unexpectedly reporting a loss in the December to February period, blaming, in part, weak "direct-to-home" sales that reflected the impact of the federal "do not call" telephone registry. The publishing firm lost $6 million, or 15 cents a share, in the latest quarter, compared with a loss of $500,000, or 1 cent a share, last year.

Analysts had been forecasting earnings of 1 cent a share in the most recent period. The stock was recently down $2.39, or 7.6%, to $28.78. The 52-week low is $23.81.

For all of 2004, Scholastic now expects earnings to be below $1.95 a share, which represents the low end of its previous forecast, although it should be above 2003's earnings of $1.58 a share.

"Greater-than-anticipated challenges in our direct-to-home continuity and trade businesses caused lower results in the third quarter, particularly in February, and have caused us to re-evaluate our forecast for this fiscal year," Scholastic said. "In its first full quarter of effect, federal 'Do Not Call' legislation resulted in lower-than-expected direct-to-home response rates and margins."

In its trade division, a difficult retail environment led booksellers to more aggressively manage inventory, Scholastic said, resulting in lower backlist orders and increased returns.

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