Why KinderCare Learning Stock Flopped on Friday
Key Points
Unfortunately, this is by far the larger of its two core businesses.
That said, the company did beat on both revenue and profitability in the first quarter.
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Friday was not a good school day for early education and child care services provider KinderCare Learning (NYSE: KLC). The company published first-quarter results that slightly beat analyst estimates but revealed a decline in a key business. As a result, investors sold out of the stock on the last trading day of the week, leaving it with an 8% loss.
The twin beats weren't enough
KinderCare unveiled those figures after market close Thursday, reporting that its revenue bumped 0.6% higher year over year to $672.5 million. By contrast, the company's net income not under generally accepted accounting principles (GAAP) withered to $4.2 million ($0.04 per share) from the year-ago profit of slightly over $27 million.
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While the bottom-line fall was worrying, KinderCare actually beat the average analyst forecast of a $0.01 per share non-GAAP (adjusted) loss. The company also topped the pundit consensus of $669 million for revenue.
Looking ahead, KinderCare raised its adjusted net income guidance for the full year 2026. It's now anticipating $0.15 to $0.25 per share; formerly, its range was $0.10 to $0.20. Meanwhile, it left its revenue outlook unchanged at $2.7 to $2.75 billion. The consensus analyst projections of $0.15 and $2.71 billion, respectively, fall within the current ranges.
Slight decline leads to big concern
A deeper dive into KinderCare's results unearthed a negative development for the company. It splits its business between early childhood education centers and before- and after-school sites, with the former generating nearly ten times the revenue of the latter.
And that was an issue in the quarter. Early childhood center revenue slid by nearly 1%, due to reduced enrollment. The slide would have been more pronounced had the company not raised tuition.
In other words, enrollment in its No. 1 revenue stream is evaporating, and KinderCare is hiking prices to mitigate this. This doesn't speak well for the attractiveness of its offerings, nor does it show management has a better idea how to reignite growth. Given that fact alone, I wouldn't be a buyer of the stock these days.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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