Late last month, LeapFrog Enterprises, developer of the LeapPad learning system and related content products, reported disappointing results for the third quarter ended September 30, and also announced that sales and earnings for the full year will be below previous expectations. In addition, LeapFrog said it will eliminate about 100 jobs, approximately 11% of its workforce, in a bid to improve operating margins.
For the most recent quarter, total sales rose 13.3%, to $231.1 million, but net income fell to $20.2 million from $33.4 million. Sales in LeapFrog's U.S. consumer segment increased 2%, to $170.8 million, while sales in its education and training segment jumped 96%, to $14.2 million. International sales increased 56%, to $46.1 million. Despite the increase in total revenue, higher expenses as well as a shift in sales from higher-margin software to newer, lower-margin platforms resulted in a drop in profits.
LeapFrog CEO Tom Kalinske attributed the poor results to softness in the company's core LeapPad business and said he expects the tough operating climate for its products to continue through the holiday season.
The combination of lower than expected sales through the first nine months of the year plus a soft holiday period prompted LeapFrog to drop its sales forecast for 2004 from $770 million—$800 million to $680 million—$710 million; earnings per share estimates were cut to 40 cents—60 cents per share, down from $1.18—$1.20 per share.
