Leapfrog’s Toy Tablet Scores Successful Turnaround

According to a recently released toy industry report by NPD Research, U.S. retail sales of toys fell 2% over the year to $21.18. During the holiday season, the 5% increase in prices of toys helped compensate for the 7% decline in the volume of toy sales. Overall, for the quarter, dollar value of toy sales fell 3% over the year. But, while toy sales may have declined, digital educational toy maker, Leapfrog (NYSE:LF) saw significant growth in the holiday quarter.

Leapfrog’s Financials
Leapfrog’s Q4 revenues grew 10% over the year to $210 million compared with market projections of $202 million. EPS grew 20% over the year to $0.49 and was significantly ahead of the Street’s target of $0.42.

Leapfrog attributed increased sales for the quarter to the strong demand for their tablet, LeapPad. According to analysts, LeapPad was among the “hottest” toys for the season. The company sold out of its pre-sale units in the first two weeks of its launch. LeapPad’s sales figures were not revealed, but analysts expect Leapfrog to have sold 500,000 units during the holiday season and project sales for the toy to grow to 1.5 million units in fiscal 2012.

They ended the year with revenues growing 5% over the year to $455 million and net income growing to $0.30 per share. By geography, LeapFrog’s international sales grew 28% over the year to $113 million for the year and domestic revenues remained flat at $342 million.

For the current quarter, Leapfrog is projeting revenues of $48-$52 million with a loss of $0.26-$0.30 per share. The market was looking for revenues of $44 million with a loss of $0.32 per share. They expect to end the year with revenue growth of 6%-8% over the year with EPS of $0.40-$0.45, compared with Street projections of revenue growth of 7.5% over the year with EPS of $0.41.

Leapfrog’s Digital Plans
Leapfrog has been expanding their digital presence by tying up for digital content rights with leading video content providers. As part of their agreement with Hasbro, they are now licensed to use Hasbro Studios’s animated television shows as part of their app center offerings. Initially, they will be offering video apps for episodes from programs, including My Little Pony Friendship is Magic, The Adventures of Chuck and Friends and Pound Puppies. Hasbro is expected to add to this library in the future. Each app is expected to be priced at $5-$10 each and will contain two episodes from one of the shows.

Last quarter, they entered into a similar downloadable app based content distribution agreement with HIT Entertainment and Nickelodeon for episodes from Thomas & Friends, Fireman Sam, Sponge Bob SquarePants, Dora the Explorer, Bubble Guppies, and Team Umizoomi series.

The stock is trading $7.34 with a market capitalization of $484.70 million. It touched a 52-week high of $7.90 earlier this month.