Weak retail climate dims LeapFrog’s holiday view

LeapFrog Enterprises is rolling into the holiday with its strongest product lineup ever but concerns about consumer spending have the leading educational entertainment company tempering its view of fourth quarter sales.

LeapFrog just reported sales for the third quarter ended September 30, that increased 4% to $201 million due to shipments of products such as LeapPad Ultra, LeapPad2 Power, LeapPad 2 holiday bundles and LeapReader. However, much of the company’s growth was driven by international sales which increased 14% to $54.2 million including a 3% negative impact from currency exchange rates.

Domestically, sales were up 1% to $146.8 million. Profits on an adjusted basis to account for non-recurring expenses increased 19% to $26.8 million, or 38 cents a share, from $22.5 million, or 32 cents a share, the prior year.

“Despite a tough retail climate in most of the markets in which we operate, the LeapFrog team delivered another solid quarterly financial performance,” CEO John Barbour said of the company’s performance. “We head into the all-important holiday season with the best product offering we have ever had. We have hundreds of new pieces of life-changing educational entertainment content, an expanded learning tablet line with LeapPad Ultra, LeapPad2 Power, LeapPad2 and our LeapPad exclusive holiday bundles, a new learn-to-read-and-write line with LeapReader and new learning toys such as Read With Me Scout & Violet.”

As is often the case, LeapFrog brands products tend to be featured on most of the top toy lists retailers generate for the holiday and the company continues to win accolades from consumer and independent experts.

“We are well-positioned for the holidays with improved in-stocks, stronger retail promotions and greater marketing investment during the highest-volume shopping weeks. At the same time, we see a weak retail climate and growing concern surrounding this holiday season, especially in the U.S.,” Barbour said.

LeapFrog CFO Ray Athur echoed the concerns of his boss.

“While our financial performance to date has met our expectations, we are concerned about the fourth quarter given economic headwinds and a weak retail environment,” Arthur said. “Additionally, the holiday season will be more challenged and trend later in the U.S. this year compared to last year with six fewer shopping days between Thanksgiving and Christmas, and two fewer weekend shopping days.”

Those concerns caused the company to adjust its full year outlook with sales now projected to range from $570 million to $590 million, which could leave the company with either a 2% increase or decrease compared to last year’s sales of $581 million. Earnings per share are forecast to range from 36 cents to 46 cents, below last year’s profit of 56 cents a share.