LeapFrog Enterprises (LF) Prelim. Q3 Revs, EPS Miss Expectations

LeapFrog Enterprises (NYSE: LF) provided preliminary unaudited fiscal third quarter results for the three-month period ended December 31, 2014. The company's fiscal year covers the twelve-month period ending March 31, 2015.

"We are very disappointed that our performance in the third quarter was significantly below our expectations and that we will not achieve our fiscal year guidance," said John Barbour, Chief Executive Officer.

"The sales shortfall was mainly due to the following factors:

• In our major territories, holiday sales of children's tablets across the toy and electronics segments declined more than expected. This fall in consumer demand resulted in lower than planned LeapPad shipments in the quarter.
• Due to development issues, we shipped and promoted our new LeapTV educational video game system later than planned. This delay along with communication challenges and inconsistent execution at retail resulted in us significantly missing our sales expectations on this innovative new platform.
• The lower consumer sales of LeapPad and LeapTV hardware resulted in less demand for cartridges, accessories and digital content.
• Our LeapReader learn-to-read system sales were also lower than expected over the quarter, partly due to the significant drop in the retail prices of children's tablets.
• In addition to the primary drivers above, retail in-stocks of our new tablets were hampered by tighter inventory management and open-to-buy challenges across a number of our retailer partners and the West Coast port slowdown in the US.

"Despite these sales declines, the children's tablet business remains a sizeable business around the world, and we believe based on market data that LeapPad tablets continued to be the #1 selling kids' tablets in the US based on units. In addition, our LeapPad tablets were also the overall #1 selling toy in the UK for the year according to NPD1. LeapTV has also won a wide variety of independent awards and has been getting good online consumer reviews.

"In light of our significant sales decline and losses, we are thoroughly reviewing our product strategies, operations and cost structure in order to improve our financial performance. For the last 20 years, LeapFrog has gained substantial expertise in developing educational entertainment products for children. We have a strong brand that parents trust and a rich history of innovation and education. We are confident we can leverage these core assets to continue to deliver exceptional educational products and to return the company to growth."

"Our results for the third quarter will be significantly impacted by the non-cash write-down of goodwill and deferred tax assets of approximately $107 million," said Ray Arthur, Chief Financial Officer.

"We expect our net sales to decline in the fourth quarter," continued Mr. Arthur. "However, we cannot provide a sales estimate at this time as we continue to evaluate our retail inventory levels coming out of the holidays. We are, therefore, withdrawing our prior guidance for the current fiscal year ending March 31, 2015. We expect to provide guidance for the new fiscal year ending March 31, 2016, when we report our financial results for the fourth quarter ending March 31, 2015."

For our fiscal third quarter ended December 31, 2014, our preliminary unaudited results are:

• Net sales will be approximately $145 million compared with prior guidance of $220 million to $240 million.
• Net loss will be approximately $124 million, which includes non-cash charges of approximately $20 million for goodwill impairment and approximately $87 million for deferred tax asset valuation allowance.
• Net loss per basic and diluted share will be approximately $1.77, which includes approximately $0.28 per share related to goodwill impairment and approximately $1.24 per share related to deferred tax asset valuation allowance. This compares to prior guidance of net income per diluted share to be in the range of $0.16 to $0.28, assuming an effective 37.5% tax rate.
• Cash and cash equivalents will be approximately $94 million, accounts receivables will be approximately $101 million and inventories will be approximately $78 million. The company had no short-term or long-term debt outstanding as of December 31, 2014.

LeapFrog will report its fiscal third quarter financial results in more detail on Thursday, February 5, 2015.

You May Also Be Interested In

• Fisker (FSR) files form 10-K, sees more job cuts, reiterates going concern doubts
• Renault posts revenue beat in Q1, confirms full-year outlook
• NextEra Energy (NEE) Tops Q1 EPS by 16c, provides guidance