Rosetta Stone returns to 2nd-quarter profit but revised outlook sends shares lower

Rosetta Stone shares fall on outlook

ARLINGTON, Va. — Shares of Rosetta Stone Inc., which makes foreign language learning software, sank Friday after the company predicted it would post a third-quarter loss and lowered its full-year outlook.

Shares of the Arlington, Va., company fell $2.69, or 12.5 percent, to $18.83 in midday trading Friday.

Late Thursday, Rosetta Stone said it returned to a second-quarter profit, earning $3.7 million, or 17 cents per share, for the three months ended in June. That’s up from last year’s loss of $7.3 million, or 42 cents per share. Excluding 3 cents per share in litigation costs, adjusted profit would have totaled 20 cents per share.

Revenue for the quarter climbed 7 percent to $60.6 million from $56.5 million last year. Rosetta’s international and institutional business did well during the quarter, but sales in its U.S. consumer division were weaker because the company curbed its TV ad spending as the cost of advertising rose.

Analysts surveyed by Thomson Reuters expected the software maker to earn 13 cents per share on slightly higher revenue of $62.7 million.

But Rosetta Stone offered a gloomy outlook, saying it expects to record an adjusted loss of 2 cents to 9 cents per share on revenue of $60 million to $64 million as it books costs to roll out a new software package. Analysts have been expecting the company to earn 11 cents per share on revenue of $73.4 million.

For the full year, Rosetta Stone dropped its bookings forecast to between $285 million to $295 million from a prior forecast of $310 million to $325 million. It now expects to earn adjusted profit of 77 cents to 93 cents per share on revenue of $265 million and $275 million. Previously, it had predicted earnings of 90 cents to $1 per share on revenue of $286 million to $299 million.

Rosetta Stone has faced a shakeup in management in recent months even as it prepares to launch its newest software package in the third quarter and increase its international business. CFO Brian D. Helman plans to leave by the end of August and Chief Operating Officer Eric Eichmann is departing this week.