It's that time of year again. Toy makers wear big and busy smiles as they prepare to make a mint over the gift-giving holiday season. What's that? LeapFrog (NYSE:LF) is warning that it's going to miss its targets? Again?
Well, bah humbug! The story may be getting old as learning-toy specialist LeapFrog continues to flunk out, but it seems to get scarier with every retelling. Last night, the company warned that its earnings this year would fall "significantly below" its October guidance, which called for profits to clock in somewhere between $0.40 and $0.60 a share on net sales of no more than $710 million.
Yet should the company have added that those October projections were also "significantly below" its summer estimates of $1.18 to $1.20 a share in earnings for 2004?
LeapFrog can't catch a break, but don't blame the niche. When Wal-Mart (NYSE:WMT) announced a slow start over the critical Thanksgiving weekend, it singled out learning toys as a source of strength. LeapFrog had also signed on to provide new toys that would be sold exclusively at Toys "R" Us (NYSE:TOY) over the holidays.
So if the sector is doing fine and the company is introducing new lines that should result in incremental sales, what could the problem be? Cue the mirror, bud. It's all on LeapFrog. Sure, toy giants such as Mattel (NYSE:MAT) and Motley Fool Stock Advisor recommendation Hasbro (NYSE:HAS) had to shore up their educational playthings, but toy companies have to be ready for the competition.
The fact that LeapFrog hasn't been acquired by one of the larger toy manufacturers by now may also be revealing. I mean, Mattel has made it a habit of snapping up such smaller rivals as Tyco and Learning Co., so why not LeapFrog? Why isn't anyone lining up to kiss the LeapFrog to see the prince that lies beneath?
Maybe it's because they think that the company can be had for less by waiting. You can't fault the strategy. When LeapFrog was hot last year, it traded just shy of the $50 mark. With every watered-down outlook, the stock has cratered to roughly a quarter of its all-time highs.
The company is oddly optimistic, pointing to potential new lines and strong marketing efforts. It would ring possible until you dust off its second-quarter press release over the summer, one that also had it "excited" over new product lines, its foray into schools, and robust retail sales, "which should bode well for the busy fall and holiday selling season." We all know how that ultimately panned out now. My optimism for LeapFrog is "significantly below" what it used to be.
Do you have a LeapPad or a Leapster or any other LeapFrog product? Do they stimulate a child or is it just more needless electronic gadgetry? All this and more -- in the Parents and Expecting Parents discussion board. Only on Fool.com.
Longtime Fool contributor Rick Munarriz does relish the way his youngest son takes to his LeapPad. However, he does not own shares in any companies mentioned in this story. He is also part of the Motley Fool Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
