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LeapFrog's numbers slip

Learning toy maker continues to forecast Q4 sales boost

By Staff -- Gifts and Dec, 11/4/2009 12:13:00 PM

LeapFrog Tag reading system EMERYVILLE, Calif.—LeapFrog Enterprises saw its profit shrink 70 percent in the third quarter following a 42 percent decline in sales.

The electronic learning products company’s net income for the quarter was $7.2 million, or $0.11 per share, down from $24.1 million, or $0.38 per share, a year ago.

Net sales were $111.9 million, down from $194.6 million in the corresponding period of 2008. The 2009 figure was impacted by high retail inventory levels remaining from 2008, which have now reached levels substantially lower than a year ago, the company said. It added that retail point-of-sale dollars were up 2 percent year-to-date for the 39 weeks ended Oct. 3, 2009.

"Over the past nine months, our net sales declined substantially as we worked with our retail partners to bring down unusually high inventory levels from last year. We are pleased that current retail inventory levels are now over 30 percent lower than a year ago," said Jeffrey Katz, Chairman and Chief Executive Officer. "But in this tough environment, we have also grown retail point-of-sales dollars year over year, we have increased our market share, we have our lowest operating expenses since we went public in 2002, and we expect to see sales growth in the fourth quarter."

"We are also pleased to be starting to see early benefits from our Learning Path strategy which builds direct 'one-to-one' relationships with consumers. For example, POS and tie ratios of software for Tag (pictured), our first connected product, are well beyond what we experienced with the highly successful LeapPad at the same point in its lifecycle. We have over 1 million connected consumers today, and we have the capability to market to them directly in a personalized manner based on consumer information we have through the Learning Path. At the end of the holiday season, we expect to have substantially more connected consumers and to see earnings benefits grow further as a result," Katz continued.

Despite the decline in net sales, cash and cash equivalents were $29.5 million on Sept. 30, 2009, an improvement of $5.9 million compared to a year ago. Operating expenses for the quarter were $38.7 million, down nearly 31 percent compared to a year ago, helped by a 20 percent paring of selling, general and administrative expenses, a 37 percent drop in research and development costs, and a 51 percent cut in advertising expenses.

Income from operations for the quarter was $9.1 million, compared to $29.4 million a year ago.

For the fourth quarter of 2009 the company expects net sales of between $155 million and $170 million, up from $138 million in the fourth quarter of 2008, a gross margin of between 40 and 45 percent, and operating expenses 40 percent lower than those in the fourth quarter of 2008.

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