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LeapFrog Shares Plunge on Forecast

March 11, 2004|From Reuters

Educational toy maker LeapFrog Enterprises Inc. said Wednesday that it would miss analysts' sales and earnings estimates for the first quarter, citing the "difficult financial position" of some retailers and reduced gross margin.

The announcement, which sent shares plunging more than 30% in after-hours trading, was the latest in a string of bad news released by the Emeryville, Calif.-based company best known for its LeapPad, a junior-sized laptop system that holds interactive workbooks.

LeapFrog said it expected first-quarter net sales of $66 million to $72 million and forecast a net loss for the quarter of 18 cents to 22 cents a share.

Analysts, on average, had been expecting it to post a loss of 6 cents a share and revenue of about $87.2 million, according to Reuters Research.

Shares fell to $17.56 in after-hours trade, down 32% from LeapFrog's closing price of $26 on the New York Stock Exchange.

"The first quarter is particularly vulnerable to trends that impact our net sales, margin and net income, including the shifting of retail orders to later in the year, and the difficult financial position of certain retailers," LeapFrog Chief Executive Tom Kalinske said in a statement.

Toy retailers have had a tough time in the last year, with discounters such as Wal-Mart Stores Inc. nabbing a bigger share of the market, at the expense of traditional toy stores. FAO Inc. and KB Toys Inc. both filed for bankruptcy protection in recent months.

LeapFrog also blamed the sales and earnings miss on reduced gross margin for the quarter and "strong investment in research and development and supply chain initiatives." It said it was incurring "significant legal expenses" to protect its intellectual property against competitors.

Shares of the company crashed in October after it reported third-quarter sales and earnings below expectations and said retailers were ordering products closer to need. It also said third-quarter orders would materialize in the fourth quarter.

The shares plunged again last month after its fourth-quarter earnings announcement on concern that LeapFrog's sales growth could slow in 2004.

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