LeapFrog Tumbles on Disappointing Outlook

EMERYVILLE, Calif. (TheStreet) -- Shares of LeapFrog Enterprises(LF) fell in after-hours action on Thursday after the company gave a disappointing fiscal 2011 outlook with net sales expected to be "flat or slightly down" because of high inventory levels.

The stock finished Thursday's regular session at $4.43, up 3%, on much heavier than usual volume ahead of its results following a Reuters report speculating Leapfrog could be a takeover target for rival toymakers Mattel(MAT) or Hasbro(HAS).

The shares were last quoted at $4.16, down 6.1%, on after-hours volume of around 130,000, according to Nasdaq.com.

LeapFrog's shares plummeted 22.3% on Jan. 12 after the company warned of slower 2010 sales. Since then it had climbed back less than 2% ahead of Thursday's session. Fund manager Robert Auer told Reuters the stock remains a bargain -- and potential takeover target -- ahead of its report. Auer says he divested his stake in LeapFrog following its guidance revision.

"You can make the case that LeapFrog can get an offer between $7.50 and $10 a share, depending on how the deal is priced," Auer, senior portfolio manager at SBAuer Funds, told Reuters.

A $10-per-share offer would value Leapfrog at more than twice its current market capitalization.

After the closing bell Thursday, LeapFrog reported a profit of $25.3 million, or 38 cents a share, for its fiscal fourth quarter, on revenue of $189.8 million. The bottom-line performance was 2 cents ahead of Wall Street's consensus view, but revenue fell short of the average analysts' estimate of $192.3 million.

LeapFrog said growth in its mobile learning line was offset by declines in its interactive reading and learning toy lines when sales slowed down in December.

For 2011, the company said it sees earnings of 15 to 20 cents a share, much lower than the 29 cents per share analysts are currently expecting.

"We have some exciting innovative products that we will be launching this year," said CFO Mark Etnyre. "However, we are planning more conservatively given the December 2010 sales slowdown relative to our expectations."