What happened

Shares of TAL Education Group (NYSE:TAL) were sliding today after the Chinese tutoring company released disappointing results in its second-quarter earnings report. As of 11:54 a.m. EDT, the stock was down 10.7%.

TAL said revenue in the quarter jumped 68.1% to $455.7 million, topping estimates at $439.3 million. However, earnings per share was flat at $0.12, missing expectations by a penny. 

An Asian girl raising her hand in a classroom

Image source: Getty Images.

So what

Overall, it seemed to be a strong quarter for TAL from a top-line perspective as student enrollments doubled during the year, which helped propel revenue growth. However, earnings per share was flat as the company blamed a jump in teacher compensation and rental costs, which drove cost of revenue up 86% to $244.9 million. Selling and marketing expenses also more than doubled to $57.2 million as the company invested in the front end of the business. 

CFO Rong Luo said:

I'm pleased to see that our capacity expansion continued to drive our top-line growth in the second quarter. We expect to see normalized utilization gradually in the second half of the year. As we further scale our business, we intend to explore new opportunities to strengthen the foundation for our future growth.

Now what

TAL called for revenue growth of 58% to 60% for the current quarter, or $411.7 million to $416.9 million, which is in range of the analyst consensus of $414 million. While investors are disappointed with today's report, the sell-off may be a simple correction after the stock had tripled this year before today's news. The long-term story remains intact with a Chinese baby boom expected after the end of the one-child policy and an increase in online schooling, but based on its valuation, the stock looked like it needed a breather.

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