New Oriental Education (NYSE: EDU) reported Q1 EPS of $1.16, $0.10 worse than the analyst estimate of $1.26. Revenue for the quarter came in at $859.8 million versus the consensus estimate of $851.12 million.

Michael Yu, New Oriental's Executive Chairman, commented, "We are very pleased to start fiscal year 2019 with a remarkable year-over-year acceleration in our top line growth rate at 30.1%, beating that of the same quarter of the previous year. This strong top-line growth was largely driven by the solid increase in student enrollments in the recent two quarters, which had a steady year-over-year increase of approximately 28% in the two quarters ended August 31, 2018. Our key growth driver, K-12 after-school tutoring business, continued its strong growth and achieved approximately 49% increase in revenue. Furthermore, our U-Can middle and high school all-subjects after-school tutoring business delivered a revenue growth of approximately 49%, while the POP Kids program grew by approximately 48% year-over-year."

Chenggang Zhou, New Oriental's Chief Executive Officer, added, "Guided by our well-proven \"Optimize the Market\" Strategy, we continued to deepen our market penetration in existing markets, by building out our capacity in cities where we see rapid growth and strong profitability. This quarter, we added a net of 18 learning centers in existing cities, and opened a new training school in the city of Yiwu. Altogether, the total square meters of classroom area by the end of this quarter increased approximately 34% year-over-year and 3% quarter-over-quarter. Furthermore, this quarter we completed a successful summer promotion campaign by offering low-cost trial courses for multiple subjects in 39 cities, mainly targeting students before they start the first year at secondary school. Trial course enrollments during the period reached 762,000, an increase of 37.5% year-over-year, while student retention also improved year-over-year. Meanwhile, we continue to leverage our online and offline integrated standardized teaching system in our core offline business including K-12 tutoring and overseas test preparation businesses."

Stephen Zhihui Yang, New Oriental's Chief Financial Officer, commented, "As a result of the incremental cost pressure from our larger scale summer promotion launched this summer, our non-GAAP operating margin for our offline language training and test preparation business decreased by approximately 110 basis points year-over-year. At the same time, we are deeply encouraged to see constant year-over-year utilization rate of facilities in this quarter, which is a clear indication of the healthy ramping up of new facilities we built in the last fiscal year. As for our offline language training and test preparation business, we will maintain our expansion plan with a goal of adding approximately 20-25% in overall capacity for the full fiscal year 2019, through the opening of new learning centers in existing cities and rolling out of dual-teacher model schools in new cities. All the while, we will continue to sustain the healthy balance between our strong growth momentum and cost control, with continued efforts in improving the utilization rate of our facilities. For our Koolearn.com pure online educational platform, we will continue making investments in new initiatives in the K-12 after-school tutoring business to capture the huge market opportunities in remote areas in China. We are confident that our robust ecosystem integrating both offline and online education will deliver sustainable value for our customers and shareholders over the long term."

GUIDANCE:

New Oriental Education sees Q2 2019 revenue of $568.5-586.4 million, versus the consensus of $606.53 million.

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