LeapFrog sets up for second half

By Staff -- Playthings, 8/5/2008 7:40:00 AM

EMERYVILLE, Calif.—LeapFrog Enterprises said today it was pleased with its stage-setting for the year's second half, reporting double-digit sales gains and slimmed losses for the second quarter, and success at implementing its product plans for the holiday season on time.

For the three month period ended on June 30, the electronic learning aids maker tallied a net loss of $20.6 million, or $0.32 per share, down from a net loss of $28.0 million, or $0.44 per share, in the second quarter of 2007. Higher sales and gross margin, lower operating expenses and an income tax benefit all contributed to the improved financial results, the company said.

Net sales for the quarter rose 22 percent to $68.3 million.

Net sales from LeapFrog’s U.S. Consumer segment totaled $50 million for the second quarter of 2008, up from $31.9 million in 2007’s Q2. The increase from 2007 was the result of initial shipments of new products. Net sales from its International segment declined to $12.3 million, compared with $13.9 million for the second quarter 2007. The International segment's sales do not reflect the impact of new products, as they were to be introduced in the second half of 2008. Net sales from the company’s School segment fell to $6.0 million for the second quarter 2008, down from $10.2 million for the second quarter 2007 due to the continuing effects of strong competition compounded by weak school funding levels.

During the quarter, the company launched three of its primary drivers for the year: the Tag Reading System in June and two new web-connected educational gaming systems, Leapster2 and Didj (pictured), in early July.

"The early sell-through of Tag and Tag books is good and our overall second quarter U.S. consumer sales were strong, reflecting initial sales to retailers of Tag, Leapster2 and Didj,” said Jeffrey Katz, LeapFrog’s president and CEO. “Leapster continues to sell well and early online results for Leapster2 are also good. That said, the second half of the year will be much more important with respect to sell-through of these products, particularly given the seemingly endless bad economic news impacting consumers.

“Looking ahead to the second half, we are locked and loaded to support our biggest ever product launch year. We'll be focused on continued supply chain execution, the launch of the LeapFrog Learning Path in August, and a broad media and promotional campaign consistent with the large scope of products we are bringing to market."

For the year, the company expects net sales to grow at an annual percentage rate in the mid to high teens, its gross margin to continue to improve and expenses to fall at least 10 percent compared to 2007, on its way to “a nominal loss” for the period overall.