Egads! The bad news just doesn't let up at educational toymaker LeapFrog
Sales declined by either 6% or 8%, depending on whether you want to count beneficial exchange rates as mitigating the damage. Gross and operating margins declined; net profit margins were nonexistent because, well, there were no profits with which to constitute a margin.
So as I was saying, "Egads!" And I'm not the only one: Wall Street has already sold the company's stock off by 11%. The company itself has ditched its chief operating officer, replaced its chief information officer, and begun looking for a new VP for supply.
By now you're probably wondering: "Gee, was there any good news?" And the answer is yes. The company's earnings release was refreshingly blunt in reporting all of the above bad news. No punches were pulled. No facts were spun. Management literally laid out all the damage for investors to see. Yes, dear Fools, wonder of wonders, LeapFrog even published a cash-flow statement! I have to admit that this Fool has been utterly taken aback at the level of disclosure exhibited in this earnings release. It was, quite literally, the closest I have come to reading the perfect earnings report -- an animal that, even though Foolish Corporate Conscience Bill Mann described it last year, I had previously believed to be as mythical as the unicorn
Now I have to admit, I have not followed LeapFrog closely in the past. Perhaps this kind of disclosure is not the norm for the company; management may have just thought that this week's news was so bad that it could not be spun, so better not to even try. But in reviewing recent Foolish research on LeapFrog, the evidence strongly suggests the contrary -- that LeapFrog goes out of its way to play it straight with its owners. Fellow Fool Rick Munarriz, for instance, exclaimed in surprise in December that when it issued its last earnings warning, the company also reminded investors that the profits target it would miss was already considerably lower than the profits target it had set for itself back in October. So perhaps this week's announcement was not at all out of the ordinary.
So what's my Foolish opinion in the end? LeapFrog today is a financial train wreck. No doubt about that. But with a popular line of products, it has the potential to fix itself. And with its honest management, I suspect it will richly reward shareholders when it does so.
Read more about LeapFrog in:
- LeapFrog's Blue Christmas
- LeapFrog Teaches Subtraction
- LeapFrog's Greener Pastures
- LeapFrog's New Pad
Fool contributor Rich Smith has no position in LeapFrog -- yet.