Source: LeapFrog Enterprises.

LeapFrog Enterprises (UNKNOWN:LF.DL) investors are learning the hard way that electronic learning toys don't always pan out. Shares of the company behind the the LeapPad continue to flirt with its lowest levels in nearly three years after posting disappointing quarterly results on Monday afternoon.

The market was braced for a bad report. Analysts were eyeing a small deficit of $0.01 a share, with consolidated net sales plunging 36% from a year earlier to $128.7 million. What the market got was considerably worse. LeapFrog's top line plunged 43% to $113.6 million, tripped up by retailers holding back after being stuck with a glut of unsold LeapFrog tablets during last year's holiday quarter.

LeapFrog also points to the late release of its LeapTV kid-friendly video game system -- slipping into October -- as a reason for the sharper-than-expected slump in sales. The breakdown was global. U.S. sales led the way down with a 47% drop, but there was no relief overseas as international sales plummeted 33%. In the end, the year-over-year plunge matched the 43% drop that LeapFrog reported in its fiscal first quarter three months ago.

Things got ugly on the bottom line. LeapFrog's net loss of $0.03 a share reversed a year-ago profit of $0.37, and it also fell shy of the smaller deficit that the Wall Street pros were modeling. 

At least investors aren't likely to see a three-peat of 43% year-over-year slides in consolidated net sales. The recent rollout of LeapTV and summer's debut of the LeapBand fitness tracker should pad results during the holiday quarter, especially if retailers replenish their LeapPad learning tablet supplies. LeapFrog sees net sales climbing 18% to 28% during its fiscal third quarter to between $220 million and $240 million. It's also targeting earnings per share between $0.16 and $0.28.

That may smell like the first whiff of a turnaround for LeapFrog, but the market isn't seeing it that way. Wall Street was banking on a profit of $0.31 a share on $243.5 million. 

The silver lining is that there are plenty of arrows in LeapFrog's frayed quiver. It updated its tablet line earlier this year with LeapPad 3 and LeapPad Ultra XDi, giving it twice as many opportunities to regain the kid tablet shine it had when LeapPad was the sensation of the 2011 and 2012 holiday shopping seasons before slumping last year. 

It's also too early to assess the potential of the LeapBand in the growing realm of fitness-tracking wearables. Kids seeing their parents hopping on the FitBit and Jawbone UP bandwagons may want the $40 LeapBand. It will be more challenging for LeapFrog to break into the console market with LeapTV, but at $150 a pop before considering software purchases the stakes are high if it's able to make a dent in the market.

Yes, this was another brutal quarter for LeapFrog, but it's loading up on ammo to see if it can turn things around this holiday season.