Leapfrog Gets Splattered

Sales plunge 22%.
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Leapfrog

(LF)

posted a steeper-than-expected second-quarter loss after revenue plunged 22% from a year ago.

The Emeryville, Calif., educational technology outfit lost $25.7 million, or 41 cents a share, for the quarter ended June 30. That compares with a year-ago loss of $9.8 million, or 16 cents a share. Revenue fell to $68 million from $87 million a year earlier.

Analysts were calling for a 25-cent loss on sales of $92 million.

The declines were driven by lower sales of the LeapPad family of products and, to a lesser extent, increased sales discounts and allowances.

Gross margin fell 18.3 percentage points from a year ago to 25.1%, on sales discounts and allowances and higher sales of closeout products. In addition, gross margins in the second quarter of 2005 benefited from the reduction of allowances for defective products, while allowances for defective products increased slightly in the second quarter of 2006.

"The results speak for themselves -- LeapFrog is a company with fundamentals that need to be addressed," said CEO Jeffrey G. Katz. "While the numbers are very disappointing, I believe in the future of this company. We have a brand that continues to resonate strongly with parents and kids, impressive technology, and the financial wherewithal to do what we need to do.

"We've got a great deal of work to do," continued Katz, "and we are doing it."

Shares fell 11 cents Wednesday to $9.68 before being halted.