LeapFrog Announces Q1 Results
LeapFrog Enterprises, Inc., announced financial results for the first quarter ended March 31, 2014. “Our first quarter performance was about as we expected given the calendar shift of Easter into quarter two, higher levels of retail carryover inventory from holiday 2013 across the key categories we play in, and a continued challenging retail environment in our major markets,” said John Barbour, CEO, in a statement. “With a tough start to the year and our major new product launches scheduled for the second half, we expect our sales to be significantly more back-end focused in 2014 than last year. Our lineup of major new product introductions will begin shipping in late summer and fall.”
He continued. “LeapFrog has a great track record of identifying hot new categories and creating innovative, fun learning products for children that become best sellers. Just last week, we announced LeapBand, the first wearable activity tracker created for children that encourages active play and healthy habits while they nurture their own personalized virtual pet. LeapBand will hit store shelves this summer and is a great example of our strategy to diversify our business by creating unique play experiences that help children achieve their potential through pure learning fun. We will further diversify our product portfolio with the fall launch of the exciting new LeapTV platform, an innovative kids’ active video game console system for younger children that gets their minds and bodies moving. We will support the launch with over 100 pieces of content by the end of the year. Additionally, we plan to extend our market leadership in children’s tablets with a number of innovative new LeapPads, including our first tablet that’s specifically designed to be merchandised in the consumer electronics section of stores, and lots more amazing children’s educational content.”
Financial Overview for the First Quarter 2014
First quarter 2014 net sales were $56.9 million, down 31 percent compared to $82.9 million last year, and were not materially impacted by changes in currency exchange rates. LeapFrog faced an exceptionally tough sales comparison from last year’s record first quarter sales performance, driven by high post-season demand for its LeapPads in spring 2013 following an exceptional holiday 2012 performance when its tablets held three of the top 10 selling toy slots in the U.S., according to NPD, and were virtually a total sell-out around the world. Net sales were also impacted by the calendar shift of Easter, retail inventory levels at the beginning of the year, which were higher than a year ago, and a continued tough retail environment. In the U.S. segment, net sales were $39.1 million, down 33 percent compared to $58.1 million last year. In the International segment, net sales were $17.7 million, down 29 percent compared to $24.8 million last year, and included a 1 percent negative impact from changes in currency exchange rates.
Loss from operations for the first quarter of 2014 was $18.6 million, compared to $4.6 million last year.
Net loss (GAAP) for the first quarter of 2014 was $11.5 million, compared to $3 million last year. Net loss per basic and diluted share (GAAP) was $0.16, compared to $0.04 last year.
Adjusted EBITDA (non-GAAP) for the first quarter was a loss of $10.4 million, compared to a gain of $2.4 million last year.
Guidance
“Our first quarter 2014 results slightly exceeded our guidance, and while we are maintaining our full year 2014 guidance that we previously provided, if current retail trends continue we see ourselves coming in at the lower side of our guidance range,” said Ray Arthur, CFO. “We will continue to focus on executing our plans for the year as well as carefully monitoring consumer purchases given the tough economic climate. In addition, when considering second quarter guidance, note that most initial shipments of our major new product introductions were in the second and third quarters of 2013 and comparable shipments will not occur until late in the third quarter and fourth quarter of 2014. Additionally, we see high retail inventory levels continuing to subdue sales to our retailer partners for at least the next three to four months. From a full-year perspective, we expect these factors to result in a significant shift of our business to the back-end of the year.”
For the full year 2014, LeapFrog expects:
• Net sales to be in a range of $554 million to $580 million compared to $554 million in 2013.
• Net income per diluted share (GAAP) and normalized net income per diluted share (non-GAAP) to both be in the range of $0.18 to $0.25. For the full-year 2013, net income per diluted share (GAAP) was $1.19 and normalized net income per diluted share (non-GAAP) was $0.30.
• Capital expenditures to be in the range of $35 million to $45 million as it makes long-term, strategic investments in the business, particularly in information technology systems. Capital expenditures include purchases of property and equipment and capitalization of product costs.
For the second quarter of 2014, LeapFrog expects:
• Net sales to be in a range of $48 million to $52 million compared to $83 million in the second quarter of 2013.
• Net loss per basic and diluted share (GAAP) and normalized net loss per basic and diluted share (non-GAAP) to both be in the range of $0.24 to $0.21. For the second quarter of 2013, net loss per basic and diluted share (GAAP) was $0.05 and normalized net loss per basic and diluted share (non-GAAP) was $0.04.
Voting Underway for LIMA Awards
Members of the International Licensing Industry Merchandisers’ Association’s (LIMA) can now vote for the 2014 International Licensing Excellence Awards. This year’s ballot features a record 118 nominees in 20 categories from across the licensing, retailing, promotion, and consumer products arenas. LIMA members may cast their votes online here through Wednesday, May 14. The winners will be announced at the LIMA Opening Night Awards Ceremony on Tuesday, June 17, during Licensing Expo 2014 in Las Vegas.
The 2014 ballot introduces two new categories, Digital/New Media and Location-Based or Experiential Initiatives, and makes Celebrity licensing a classification of its own, separate from Film and Television.
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