LeapFrog stock trips
By Brent Felgner -- Playthings, 8/2/2007 12:09:00 PM
EMERYVILLE, Calif.—Shares of LeapFrog Enterprises tumbled nearly 14 percent in midday trading after the company reported further declines in sales and a widening net loss during its second quarter.
The educational toy maker posted sales of $56.0 million, a decline of 18 percent, compared to $68.1 million during the same quarter last year, and net loss of $28.0 million, against last year’s loss of $25.7 million.
As of 2 p.m., LeapFrog shares had hit an intraday low of $8.01 from Wednesday’s $9.30 close, before appearing to recover slightly.
CEO Jeffrey Katz said the quarter and the half "came in on plan," under LF’s continuing turnaround effort.
"We continue to focus on better execution on retail while placing a big emphasis on our new product launches this fall and 2008," he said. "We’re on track with our plans to relaunch our once substantial reading business next year, grow our successful educational gaming business and strengthen our infant business as well. We have also begun a series of initiatives to ensure that our growth over the next few years translates into solid earnings."
Sales in the company’s U.S. consumer segment fell 21 percent, to $31.9 million. International sales fared better with sales slipping 7 percent, to $13.9 million, while SchoolHouse sales dropped 21 percent, to $10.2 million for the quarter.
Gross margins rose to 36.2 percent from last year’s 25.1 percent—1,110 basis points—benefiting from lower promotional allowances, inventory reserves and reserves for defective products.
LeapFrog reiterated guidance for a modest sales decline for the full year, to $502.3 million and a net loss that is "expected to show a significant improvement over 2006."
Wedbush Morgan analyst Sean McGowan maintained his "hold" rating on the stock, citing mostly positive evidence of a turnaround in progress "though crucial hurdles remain on the horizon." His 12-month target price for the stock was $8 a share.
"We view this quarter’s results as a positive sign of progress, but note that the stock’s valuation already anticipates a great deal of improvement," he wrote in a research note. "We believe the next significant event for the company will be the October toy previews, followed by an Analyst Day in early November. Absent any negative news between now and then, the stock probably has little reason to fall from current levels."
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