In the midst of a painful turnaround effort, LeapFrog Enterprises reported plunging sales and a net loss for the fourth quarter and full year, as margins continued to shrink and expenses rose…. Last year, 2006, was a financial train wreck by any standard…. [I]t recorded a 22.7 percent decline in net sales, to $502.3 million, compared with $649.8 million in 2005. The full year net loss was $145.1 million, a loss $2.31 a share, versus a profit of $17.5 million and $0.28 per share the year before. All divisions recorded sales declines…. At the same time, operating expenses soared to $271.7 million — a 5 percentage point increase.

In a conference call with investors, Jeffery Katz, president and CEO, said the company remains true to its three-step turnaround plan unveiled last November—fix, reload and grow ….  “Our 2007 marketing plan also calls for the first phase of what we call, ‘Get out of the clutter… The market we compete in is rife with products offering learning benefits from brands that basically stand for fun, to be sure, or affordable, for sure, but learning? Not so much. We could do better based on what our products do and what goes into them. So this year we’ll start getting ourselves out of the muck. Part of this involves improved in-store marketing with the rollout of improved displays and, in some stores, in-store kiosks.”… But the year ahead will bring more pain “We expect a modest sales decline for the year… Sales for the first half of 2007 will be weaker than the second half since our new products will not ship until the fall.”

Brent Felgner, Playthings, March 2.