Come the holiday season, retailers and toy manufacturers begin to count on the usual sales rush that happens at this time of the year. But 2013 holiday season sales projections aren’t very rosy. According to a report by Morgan Stanley, Expect Coal: We Predict the Weakest Holiday Since 2008, analysts are projecting depressed U.S. economic conditions will lead to this holiday season seeing the slowest retail growth in five years. Add to that the calendar shift which has resulted in fewer shopping days. The National Retail Federation has forecast that during this holiday season, per capita spending on gifts and décor will fall 2% over the year.
In a recent call, educational toy manufacturer, LeapFrog (NYSE:LF) mentioned a cautious holiday outlook, sending its stock downward. LeapFrog’s recently ended third quarter results were not very encouraging, either. Revenues grew 4% over the year to $201 million, falling short of the market’s expectations of $206.7 million. EPS of $0.38 was, however, significantly ahead of the Street’s target of $0.32 per share.
The company’s outlook was surprisingly grim. For the current quarter, LeapFrog is projecting revenues of $203 million-$223.1 million, significantly short of the market’s projections of sales of $259.9 million. LeapFrog expects to end the year with revenues of $570 million-$590 million, with EPS of $0.36-$0.46. The market expected the company to end the year with revenues of $632.4 million and EPS of $0.63.
LeapFrog attributed the weak outlook to fewer shopping days between Thanksgiving and Christmas Day. This year, Thanksgiving is one week later in the holiday season, thus resulting in six fewer shopping days.
LeapFrog’s Growing Product Offerings
LeapFrog has tried to counter the weak sales outlook by increasing its product portfolio. Going into the holiday season, its product lineup includes some of the leading award-winning toys. Recently, three products, LeapPad Ultra, LeapReader and Learn to Write with Mr. Pencil Stylus and Writing App, won one of the most prestigious awards, the Platinum Award, from the Oppenheim Toy Portfolio. These products were also the recipients of Special Needs Adaptable Product Awards from the Oppenheim Toy Portfolio.
Today LeapFrog offers the kid tablet, LeapPad in four different price ranges, thus attracting a wide array of consumers. LeapPad prices range from $80-$150 and the toy allows children to have access to a library of more than 800 digital media.
As part of their international expansion, LeapFrog also released the French-language LeapPads to cater to the French-speaking markets of France and Canada. While the U.S. still accounts for 73% of their quarter’s revenues, international sales are growing. During the last quarter, revenues from international operations grew 14% over the year.
Continuing with their focus on digital content, LeapFrog released a proprietary resource for parents – Parent’s Guide to Educational Games & Apps. The knowledge repository has been created by LeapFrog’s in-house learning experts and helps parents identify the right games and apps for their children based on comprehension skills, age appropriateness, educator approvals, personalized learning capabilities, and offering fun to kids.
They also released a new Learning Path that offers a better integrated digital experience through an app for iPhones and iPads, a website, and an email blog that lets parents get personalized learning ideas, and share and discuss topics while tracking their child’s progress.
The market is not pleased with LeapFrog’s disappointing sales outlook. The stock is trading at $8.04, with a market capitalization of $554.14 million. It touched a 52-week high of $11.95 in August 2013.