Why Scholastic Shares Sank

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What: Shares of Scholastic (NASDAQ: SCHL  ) were flunking out of class today, falling as much as 15% after reporting a dismal third quarter.

So what: The children's education and publishing specialist said that the drop off in sales of Hunger Games books took a big chunk out of sales. For the quarter ending Feb. 28, Scholastic posted an adjusted EPS loss of ($0.57), down from ($0.33) a year ago. Analysts had expected a loss of ($0.39) per share. Revenue tumbled 19%, to $380.5 million, and the company cut its guidance for the fiscal year ending May 2013 to $1.10-$1.30, its second cut this year. The analyst consensus had stood at $1.52

Now what: The third quarter is generally a weak one for Scholastic, but these results are downright frightening. The children's book publishing business would appear to be in its demise as tablets and e-readers proliferate, and Scholastic may simply be another victim of creative destruction. Book sales fell by a whopping 59% in the quarter, yet its educational technology division only grew revenue by 5%. Scholastic expects digital products to increase profits next year, but long term, it looks like the deck is stacked against it.

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