Facing a continued slowdown in the for-profit education industry, Capella Education Co. said Tuesday it will eliminate 65 non-faculty jobs because of a shift in its marketing strategy.
The Minneapolis-based online education business said the job cuts would result in savings of $5.5 million a year and reduce its nonfaculty workforce by 4 percent. Capella offers online graduate and bachelor's degree programs.
Capella and other companies in the for-profit education business have been suffering from a reduction in new enrollments at a time when the economy is weak and consumers are reluctant to take on additional debt for college. Competition among for-pay colleges also has increased.
"The industry went through hyper growth, and now there's a retrenchment," said Arvind Bhatia, an analyst at Sterne Agee Group in Birmingham, Ala., who remains neutral on Capella's stock. "We've already seen layoffs at several other companies in that market."
This is the second time this year that Capella has laid off non-faculty staff -- an important distinction because layoffs on the teaching staff would be more worrisome, Bhatia said. In February, the company laid off 125 non-faculty employees.
The market showed little reaction to the news. Capella stock closed at $34.40 Tuesday, up 13 cents, or less than 1 percent.
Capella's CEO Kevin Gilligan said in a statement that the company is moving to a new marketing strategy which is "less reliant on third-party marketing efforts." Gilligan also said the company has identified ways of making the organization more efficient during its planning process.
"Today's actions will allow us to make key strategic investments going forward in both our brand strategy and learner success efforts."
"Clearly Capella is focusing less on marketing, and more on brand-building," Bhatia said. "They're pursuing a longer-term strategy rather than trying to get as many students as they can now."
Capella employees will be told in the next two to three days if they will be laid off, said company spokesman Mike Buttry. The majority of jobs are based in Minnesota, Buttry added. He declined to comment on which types of jobs will be affected because some employees haven't been informed yet.
Capella said its faculty would not be directly affected by the job cuts. Because of the layoffs, Capella said it will take a $1.4 million charge in the fourth quarter. Capella said it doesn't have plans for future layoffs.
The industry's clouded future makes some analysts think that Capella is an uncertain investment for the near term.
In an Oct. 26 research note, Amy Junker, an analyst at Robert W. Baird in Milwaukee, wrote, "While the stock is arguably attractive for investors with a multiyear horizon, we remain on the sidelines given continued low visibility into Capella's fundamentals, and the potential for prolonged absence of enrollment growth."
Revenue at Capella declined 2.6 percent in the third quarter, to $102.3 million. Net income was down more than 26 percent to $9.9 million, compared with a year ago.