The company penciled in decent revenue growth in the fourth quarter, up 10.4% to $35.7 million. For the the full year, revenue rose 7.8% to $140.7 million. Yet Princeton Review posted a net loss of $4.2 million, or $0.15 per share, for the quarter, and a $0.36-per-share loss for the year.
The company has stabilized SG&A (selling, general and administrative) expenses, but its cost of revenues soared 22% to $59.1 million in 2006. Problem areas include increases in rent, compensation for tutors, and content licensing.
Reversing these costs will be a challenge. If Princeton Review lowers rates for tutors or buys cheaper content, the quality of its courses will likely fall, which could mean lower enrollments.
What about bumping up revenues? That would be nice, but Princeton Review's target markets are fairly mature, and they're filled with intense competitors such as Washington Post
The company has hired a consulting firm to improve its cost structure, which seems to indicate that management has run out of good ideas. I'm not sure how consultants will make significant headway, given the flabby cost of sales. For the foreseeable future, Fools, don't expect much improvement in the Princeton Review's scorecard.
Highly educational further Foolishness: