Leapfrog had a good first half of 2012. Consumer demand has remained high for the LeapPad1, even through the summer months. There were double-digit partner sales in every major market. The LeapPad1 is the number 1 kids tablet and has received a number of awards.
In August, Leapfrog will begin shipping the LeapPad2, which has a faster processor, double the memory, higher resolution, front and back cameras and video recorders, music player, reduced energy consumption and a battery recharging option. Pre-sell orders have been very strong—the company is pre-selling more units in a few days than the LeapPad1 sold in a week. The LeapPad2 will be rolled out in English-speaking countries in Q3. It has not yet developed all the software for non-English-speaking countries. Leapfrog will continue to sell the LeapPad1 through the end of the year.
Leapfrog will also be launching the LeapsterGS, a learning video game system that offers fast action game play. The system should please kids, who like to play fast action video games, and parents, who want their kids to play enriching activities. Compared to the prior game system, the Leapster Explorer, the LeapsterGS will have a thinner design, larger screen, built-in motion sensor, camera and video recorder, far faster processor and four times the memory. LeapsterGS will be compatible with the digital content that can also be played on the LeapPad2.
Leapfrog has been creating its own content in-house, as well as selecting content from other children's entertainment companies, such as Nickelodeon, Sesame Street, HIT Entertainment, Hasbro, Discovery Education, Lionsgate, Ludorum, and Kidz Bop. It is more than doubling the number of cartridges from last year and significantly increasing the number of apps. It will continue to aggressively add more content in the next 6 to 12 months.
Leapfrog will also be introducing a number of other new educational toys, such as (1) its Touch Magic line-up, which includes a new learning book, Counting Train, Rockin' Guitar, and My Talking LapPups, a laptop featuring its Scout and Violet characters, and (2) a new Letter Factory Phonics, which introduces telephonics play in a portable phone.
Leapfrog has obtained additional shelf space from its major customers for the LeapPad2, LeapsterGS and Touch Magic line. It does not expect any change in its pricing strategy.
Leapfrog's Tag reading system is the leader in the learn-to-read platform. The company is doubling the number of books and products associated with the Tag reading system, including a Human Body Discovery Pack and a Get Ready for Kindergarten book.
In Q2, Leapfrog partnered with MEGA Brands, who developed a new line of stationery and activity products that includes workbooks, flashcards, writing pads, and pencils. This creates additional sources of revenue and brand awareness in new stores and different aisles.
Internationally, sales in the United Kingdom have outperformed the rest of the international market. Leapfrog is also seeing strong sales of the LeapPad1 in France and a good response to the LeapPad2 and the GS in Canada.
Financials.
Net sales increased by 52 percent in the first half of 2012 and by 31 percent Q2. The comps for the first half of the year were much lower and Leapfrog had good momentum from the LeapPad1. Sales increased by 55 percent in the United States in the first half and by 26 percent in Q2. Strong LeapPad sales and lower retail channel inventory at the start of Q2 this year versus the start of Q2/2011 contributed to the growth. Internationally, net sales increased by 47 percent for the first half of the year and 46 percent in Q2. Sales momentum internationally remains strong.
Net sales on learning platforms and content doubled year-over-year. Sales relating to the LeapPad were strong, while sales on gaming systems slightly declined as the gaming systems are nearing the end of their life cycles. Learning toy sales declined by 24 percent as Leapfrog is transitioning product lines. Further, many toy categories, especially preschool toys, are experiencing a sharp decline in the United States.
In the second half of the year, Leapfrog will be going against harder comps, a lot more tablet competition and a potentially more difficult economic environment. Although its forecast has increased somewhat, it remains cautious. 75 percent of its POS for the year is in the second half. It expects net sales in Q3 to increase between 10 and 15 percent. For full year 2012, Leapfrog expects 15 percent sales growth. It plans to have some extra capacity if the demand exceeds the 4 percent sales growth expected for the second half of the year.
Gross profit increased by 50 percent in Q2.
Gross margins increased by 709 basis points in the first half of the year as a result of increased sales and a higher content mix. Gross margins for Q2 were 39.9 percent, an increase of 500 basis points. Content contributed to the margin improvement in Q2. Because Leapfrog expects more hardware than software sales in Q3, it expects gross margin growth in Q3 to be tempered.
Operating expenses increased by 12 percent, but they were down more than 8 points as a percentage of net sales. In Q3, operating costs will increase due to an increase in the number of employees and higher advertising in the fall.
In the first half of the year, Leapfrog reduced its operating loss by 53 percent. Its net loss per share for Q2 was $.12, an improvement of $.09. In Q3, Leapfrog expects EPS to be between $.36 and $.41 compared to $.35 a year ago. For full year 2012, Leapfrog expects EPS in the range of $0.61 to $0.66, compared to $0.30 in 2011.
Leapfrog's cash balance at the end of Q2 was $127 million compared to $58 million a year ago. Inventory balance was $53 million, down 17 percent.
The full transcript of the earnings conference call can be found on Seeking Alpha at the following link:
Copyright 2012 Jaygo's Earnings Conference Call Summaries
This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.
No comments:
Post a Comment