Emeryville, California-based LeapFrog Enterprises, Inc (LF) reduced its guidance for 2010 based on its preliminary results for the year. The company will report its full results on February 10, 2011.
The educational toy company expects sales to increase 13% to 14% year over year in 2010, below its previous forecast of 15-20% as demand for toys dipped after a strong start to the holiday season. We believe the demand was low due to tough weather conditions.
Moreover, LeapFrog experienced soft sales growth for its interactive reading products. Geographically, net sales are expected to rise 12% in the U.S. and 20% internationally.
LeapFrog expects earnings in the range of 3 cents to 6 cents per share for 2010, down from its prior forecast of 20 cents to 30 cents.
However, the company remains optimistic regarding 2011 based on its strong product line-up, cost-saving initiatives and international expansion.
One of its rivals Hasbro Inc. (HAS) also expects revenue to drop in the fourth quarter and 2010 due to a slowdown in consumer demand during the holiday season.
The Zacks Consensus EPS estimate for the fourth quarter of 2010 is 40 cents (reflecting a year-over-year decline of 12.2%) and 11 cents for fiscal 2010 (reflecting a year-over-year growth of 381.3%). In the last 7 days, the analysts have decreased their fourth quarter earnings from 58 cents to 40 cents and fiscal 2010 earnings to 11 cents from 28 cents, as the company trimmed its outlook.
We remain skeptical regarding the company and consequently retain a Zacks #4 Rank, which translates into a short-term Sell rating. We also maintain our long-term Neutral recommendation on the stock.
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