You know that moment when you're playing Frogger, and you're about to get hit by a car or chomped by a croc? That may be where LeapFrog Enterprises (NYSE:LF) finds itself after a horrendous second-quarter performance.
The company's loss per share widened from $0.16 to $0.41 for the June quarter, on a 22% decline in net sales. That's bad news, even before you consider that analysts were expecting the company to lose just $0.25 a share and actually grow the top line.
It's easy to dismiss this as a sleepy period. Everyone knows that the toy industry is highly seasonal, and that the second half of the calendar year matters most, but we can't let LeapFrog off easy this time. Its disappointing performance is just too bad to ignore.
This latest news does not bode well for the 2006 holiday selling season, especially after LeapFrog had what seemed to be an ambitious slate of new products during the 2005 season, with a sleek new LeapPad and the intriguing yet ultimately confusing FLY pentop computer.
The company's stumble contrasts the respectable performances turned in by toy giants Mattel (NYSE:MAT) and Motley Fool Stock Advisor recommendation Hasbro (NYSE:HAS) last month.
Can LeapFrog be saved? Can the brand be salvaged? For a refreshing change, we can't blame the CEO, because the new guy has only been at the helm for less than a month. Jeffrey Katz, who came to the company after extensive leadership positions in aviation and a stint helping get Orbitz off the ground, will have his work cut out for him as LeapFrog tries to regain its standing in the retail and educational markets.
Thankfully, LeapFrog has the time to get it right, since its cash-rich balance sheet sports nearly $3 a share in greenbacks. Investors will have to be patient, though, barring a buyout offer. We can't discount that possibility, especially as Mattel and Hasbro arm their wide toy lines with electronic playthings. Just last week, Mattel -- a Motley Fool Inside Value pick -- announced that it was buyingRadica Games (NASDAQ:RADA).
Shareholders just got squashed in this fiscal Frogger, but there are a few spare lives left. Let's hope Katz knows how to play the game differently. If not, don't be surprised if that chomping crocodile starts looking a lot like a hungry Hasbro or Mattel.
Hasbro is a Stock Advisor pick, and Mattel is an Inside Value pick. Take the newsletter that best fits your investing style for a 30-day trial.
Longtime Fool contributor Rick Munarriz relishes the way his youngest son takes to his LeapPad. However, he does not own shares in any of the companies mentioned in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
