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Great products are helping the company win consumers dollars in a slumping economy..

LeapFrog's (NYSE:LF) second-quarter net loss was $20.6 million, or 32 cents per share, compared with a year-earlier loss of $28 million, or 44 cents per share. Sales rose 22% to $68.3 million, boosted by the Tag reading system and gaming systems Leapster2 and Didj.

Analysts had been expecting, on average, a net loss of 44 cents per share on revenue of $54.5 million. U.S. sales rose 57 percent but sales fell 11.5 percent internationally, where new products had not yet been introduced during the quarter.

On the earnings call:

- "Sales for the quarter came in better than we expected due to strong and earlier-than-anticipated shipments of our new products. So far we’ve received excellent feedback and we are seeing strong sell-through at retail for Tag. Leapster 2 and Didj are just being introduced but early indications are promising, particularly at LeapFrog.com.

Gross margins are also improving and stood at 39.3% for the quarter. As we’ve talked about before, we expect gross margins to improve over time but they won’t reach or exceed our 45% new product hurdle rate until products are in the market for a year and we begin to see the benefit of improved software tie ratios." CEO Jeffery Katz

- "We have two remaining launches left for the year -- the LeapFrog Learning Path, which will debut in August, as I alluded to earlier; and Crammer, our study and sound system, which will launch in the early part of the fall." - Katz

- "Later in the fall, we are going to share with you the details of how we expect our strategy to evolve in the coming years but for now, you should know that we have quite an extensive product plan laid out through 2009 and into 2010 and 2011. The first elements of this will be on display at Toy Fair in October."- Katz

I have followed LeapFrog for over a year now and it has been good. Katz is a great CEO who has set goals for the company and beat them with transparency and candor. Investors aren't left wondering for anything after conference calls and Katz's strategy is clearly laid out for all to see. The project has been a long one though since the vast majority of LeapFrog sales come at the Christmas season. That means months will go by with no or little apparent progress in the plan. Patience is necessary but will be rewarded.

Full year estimates are for a 19 cent a share loss. Expect it to be beaten...

Disclosure ("none" means no position):Long LF

Source: LeapFrog Loss Beats Estimates, Patience Will Be Rewarded