LeapFrog shares plunge after first-quarter loss narrows, but misses analyst expectations

LeapFrog shares plunge after 1Q results miss

NEW YORK — Shares of LeapFrog Enterprises Inc. plunged Tuesday after the educational toy maker reported a first-quarter loss much steeper than analysts predicted.

Shares of the company, based in Emeryville, Calif., fell $1.32, or 18.5 percent, to $5.80 in afternoon trading. Earlier, the shares traded as low as $5.35.

Although company has been getting out new products, “it could not keep up the momentum in the face of the global economic weakness,” Edward Woo, an analyst with Wedbush told clients in a note.

“The company had misjudged demand, overshipped into the retail channel, did not focus on value products, or discount fast enough,” he said. “Ultimately, like its peers, the company was negatively affected by the rapid decline in consumer retail purchases.

Inventory cuts from last year have helped sales expand the past two quarters, Woo said, and the company has been managing its expenses well while increasing demand for its products. But, he said the stock isn’t worth the price right now.

“The company’s valuation is difficult, as sales and earnings growth still appear a year away,” he said.

Stifel Nicolaus analyst Drew Crum said his estimates for earnings per share this fiscal year and next are under review. He said the miss was primarily caused by higher than expected cost of goods and lower gross margins.

The company’s loss totaled $23.6 million, or 37 cents per share in the first three months of the year, compared with a loss of $27.1 million, or 43 cents per share, in the year-ago quarter.

Excluding one-time items, LeapFrog’s loss totaled 33 cents per share, steeper than the loss of 28 cents a share analysts had expected, according to Thomson Reuters.

Revenue rose 42 percent to $42.4 million, but was still about $1 million lower than what analysts expected.

The company said Monday it still expects sales to rise 10 percent to 20 percent for the full year, or $418 million to $456 million. Woo said given consumer demand and the low inventory levels, that growth should be achievable.

He rates the stock as “Underperform” with a $7 target price. Crum has the same target price but maintained his “Buy” rating.