Rosetta Stone Cuts Outlook, Stock Offering

Rosetta Stone, an Arlington-based language instruction company, cut its earnings outlook and canceled a secondary offering of stock Monday, sending its shares tumbling more than 25 percent.

Citing higher operating costs, Rosetta Stone said it now expected to earn 25 to 27 cents during the third quarter, down from a forecast of 33 to 35 cents a share issued just three weeks ago. For the year, the company expects earnings of $1.14 to $1.18 per share, down from an earlier forecast of $1.22 to $1.26.

Rosetta Stone did not give a reason for putting a stop to the stock offering. It blamed marketing expenses as a major factor for the revision of its earnings forecast. Its shares closed Monday at $20.63, down $7.72, or 27.2 percent.

"In the current quarter, we experimented with a significant amount of Internet and television test marketing programs and we did not expeditiously terminate certain of those programs that were not yielding acceptable results," Brian Helman, Rosetta Stone's chief financial officer, said in a statement.

Known for the bright yellow kiosks it employs to sell products in airports across the country, Rosetta Stone went public in April and has been growing quickly. Its sales nearly doubled to $209.4 million in 2008 from the previous year, and the company has credited a refreshed product lineup for the gains.

But Rosetta Stone has hit some head winds since its IPO, as rising operating costs have cut into profitability. At the end of July, the company posted a second-quarter loss of $7.3 million compared with a profit of $3.4 million a year earlier, despite an 18 percent increase in sales. During the quarter, Rosetta's operating expenses jumped to $60.4 million, from $34.4 million in 2008. link....