LeapFrog Going Strong

| About: LeapFrog Enterprises (LF)

Long time readers would have seen this coming as we have covered LeapFrog (NYSE:LF) for over a year now. For the third quarter 2008, the company reported net sales of $194.6 million and net income of $24.0 million, or $0.38 per share. This compares to net sales of $144.0 million and a net loss of $10.3 million, or $0.16 per share, for the third quarter 2007. In addition to the 35% increase in net sales, the improved financial results included higher gross margin and lower operating expenses year-over-year. (Call Transcript)

LeapFrog President and Chief Executive Officer Jeffrey G. Katz stated:

We entered 2008 planning for our largest and most important launch year ever, and our third quarter results were on track with our expectations. Third quarter sales were driven by the continued roll-out of our new products, notably our Leapster2 and Didj educational gaming systems, and the Tag reading system in our international markets. These launches went well and our products have already won numerous awards and strong holiday toy accolades in the media, which we think bodes well for when holiday consumers finally come out of their bunkers. And we think they will come out. But, we doubt we can completely compensate for the recent softness in retail trends and so we are going to moderate our expectation for full year sales growth.

Leapfrog updated full year guidance and now sees revenue up 10%-15%, which implies $486.5 million to $508.6 million, below the Street at $524.8 million.

The full-year guidance implies Q4 revenue of $163.3 million to $187.4 million, considerably below Q3, and short of the Street at $219.8 million.

This is a very conservative estimate based in the current retail condition. I am not sure I agree with it. I think Leapfrog sits in an enviable position. Its products are sought after but not budget busters. Rather than skip a Leapfrog purchase for the holidays, I am thinking customers will still buy the Leapfrog and ensure they have the money for it by omitting some of the other more miscellaneous purchases.

Katz has always been one to under promise and over deliver, there is no reason to think he is not doing the same thing now.

Disclosure: Long LF

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