LeapFrog Enterprises Inc. shares fell Tuesday after the educational tech toy company said its first-quarter loss narrowed, beating analysts expectations, but its gross margin dipped and an analyst downgraded the stock on valuation concerns.
LeapFrog shares fell 73 cents, or 8.1 percent, to $8.25. The stock has traded between $4.95 and $11.37 in the past year.
Late Monday, Emeryville, Calif.-based LeapFrog reported a loss of $27.4 million, or 43 cents per share, for the quarter, compared with a loss of $30.4 million, or 48 cents per share, in the year-ago period.
The company's revenue declined to $58.3 million from $60.9 million.
Analysts polled by Thomson Financial expected a loss of 48 cents per share on $52.2 million in revenue.
LeapFrog said revenue declined mostly due to an ongoing dip in sales of products that were being phased out or replaced in 2008, somewhat offset by increased sales of continuing educational gaming products.
The company's gross margin declined 4.2 percentage points to 36.3 percent in the quarter, due mainly to higher shipments of its Leapster hardware.
LeapFrog said operating expenses declined 9.4 percent to $49.8 million. The company also reported a $625,000 income tax benefit, compared with a $2.2 million provision for income taxes in the same quarter last year.
LeapFrog reiterated its expectation for a "nominal" loss in 2008, with sales growth in the mid-to-high teens.
BMO Capital Markets analyst Gerrick Johnson downgraded the stock to "Market Perform" from "Outperform" and kept his $8 price target in a Tuesday client note.
The analyst said the stock is trading close to $9 per share _ an 80 percent increase from January lows _ and the success of LeapFrog's upcoming product launch is already figured into the price.
"The company is set to launch an entirely revamped product line starting next month. While this story may be the same, we think expectations have risen significantly heading into this important rollout," he said.
He had upgraded the shares in early March.
Meanwhile, Wedbush Morgan analyst Edward Woo reiterated his "Hold" rating and raised his price target for the stock by a dollar to $8.
"With major revamping in its core reading products, introduction and improvement of handheld learning devices, and a focus on web connected products, we see the potential for a turnaround in the company's struggles over the past several years," he said.
Still, current sales and profits "remain challenged and financial results have been weak," he said, noting he'll be keeping an eye on consumer and retailer reactions to the company's new rollouts.
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