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LeapFrog shrinks loss in '08 despite Q4 drop

By Staff -- Gifts and Dec, 3/3/2009 2:25:00 PM

The Tag Reading System was one of LeapFrog EMERYVILLE, Calif.—Electronic learning products maker LeapFrog Enterprises said this week that it pared its net loss for 2008 on a gain in annual sales that overcame a double-digit sales decline in the fourth quarter.
For the full year 2008, net sales rose 4 percent to $459.1 million, helped by a 7 percent gain in U.S. sales to $363.4 million. The company benefited from a 23 percent increase in sales during the first nine months of the year as it launched its first four web-connected products, a new content library and Learning Path, a proprietary learning feedback technology that facilitated more than 2 million Tag Reading System (pictured) audio downloads. International sales during the year fell 7 percent, half of which was attributed to unfavorable currency exchange.
Net loss for the year narrowed 33 percent to $68.3 million, or $1.07 per share. The net loss for 2008 included approximately $24 million of charges and provisions related to the weak macroeconomic environment.
For 2008’s fourth quarter, net sales dropped 24 percent overall to $137.8 million as U.S. sales slipped 22 percent and international business fell 31 percent. Net loss for the quarter was $44.3 million, or $0.70 per share, up from a loss of $32.6 million, or $0.51 per share, in the prior year. The company blamed its year-over-year increase in fourth quarter net losses on the impact of “the unprecedented deterioration of economic conditions at the end of 2008.”
"As was the case for many consumer goods companies, LeapFrog experienced considerable challenges during the 2008 holiday selling season," said Jeffrey Katz, LeapFrog’s president and CEO. "Consumer sentiment fell off sharply during the quarter, and exchange rates trended unfavorably. Discounting accelerated through the quarter, which impacted margins and diluted merchandising strategies, and ultimately the discounting that occurred did not adequately reduce year-end retailer inventories.”
Gross profit was $181.5 million for the full year 2008, up from $173.3 million for the full year 2007. The company generate $12 million in cash from operations, a $27 million improvement. It reduced operating expenses 12 percent year-over-year.
"We are disappointed that the current economic crisis has delayed the growth we were experiencing from the launch of our new product portfolio through the third quarter of 2008,” said Katz. “Nevertheless, the changes we implemented throughout the year have helped substantially narrow our losses, restart our reading business, and boost gross margins. In late 2008 we began making further cost cuts and, later this year, we will introduce more new products. In combination, we expect these cost reductions and new products will further improve our operating results and cash flow, even under pessimistic sales assumptions for the majority of the year."

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