A startling first-quarter sales decline has investors and analysts worrying that management has lost its handle on the company.

"They have lost a lot of credibility," said Pacific Growth Equities' Natalie Walrond. She is among several industry analysts who have soured on the Emeryville, Calif.-based maker of LeapPad, a top-selling line of electronic books that help children learn to read.

The company's troubles prompted Bear, Stearns & Co. analyst Jennifer Childe to send a note of exasperation to investors last month: "We are throwing in the towel on shares of LeapFrog."

So have many investors: LeapFrog's stock has lost half its value since peaking at $47.30 in late October.

Responding to the backlash, LeapFrog CEO Thomas Kalinske contends the company is a victim of Wall Street's misconceptions, and remains as popular as ever with customers.

"Moms love our products and preschool teachers love our products," Kalinske said in a recent interview. "Right now, it's only the investors that don't love us."

LeapPad is designed to make learning fun by using interactive technology to teach phonics, math and music. Children use a small console and an electronic wand to touch words, letters and symbols so they can listen to stories, problems and tunes.

Like video game makers, LeapFrog sells a wide range of interchangeable book cartridges, containing everything from Dr. Seuss tales to Mozart melodies that work in the consoles. The company has also developed interactive toys for children in elementary and middle schools.

The first serious signs of trouble emerged nearly six months ago, when management blamed a disappointing third-quarter performance on shipping problems. The bungling raised doubts that became more acute when LeapFrog warned last month that its first-quarter results would be much worse than previously projected.

LeapFrog lost $11.8 million on sales of $72 million in the three months ended in March. The results, released Wednesday, represent a step backward for a company that had been growing steadily since its 1995 inception. LeapFrog lost $969,000 on sales of $77 million at the same time last year.

Kalinske brushes off the first-quarter setback as a hiccup that the company will overcome in the second half, when toy makers generally make all their money. LeapFrog expects to finish the year with a profit of $74 million to $81 million, on revenue of $770 million to $800 million.

The projected results would be an improvement from last year, when the company made $73 million on sales of $680 million, but lag behind LeapFrog's predictions in February, when management forecast 2004 profit as high as $95 million on revenue of $850 million.

"We will have another great year this year," Kalinske said. "Having said that, any company that has grown like we have is going to make mistakes along the way. There are things we can improve upon, and we will do that."

Kalinske, a former CEO at Mattel Inc. and video game maker Sega of America, is supposed to be part of the solution. LeapFrog brought him back for a second stint as CEO in February, replacing company founder Michael Wood, who now focuses on product development as chief creative officer.

In one of his first significant moves, Kalinske is lowering the prices of older LeapPad products to expected retail prices of about $39.95 to $34.95 by fall. Kalinske hopes that will lead more households to buy LeapPad hardware, and thus more book titles.

Kalinske, 59, became LeapFrog's CEO in 1997, shortly after Oracle Corp.'s Larry Ellison and former junk bond financier Michael Milken made major investments in the company. Ellison and Milken remain LeapFrog's largest shareholders.

Wood, a lawyer who developed the LeapPad to help his own son learn how to read, took over as CEO in early 2002.

LeapFrog initially thrived under Wood's leadership. Overcoming a gloomy investment climate, LeapFrog went public in July 2002 at $13 per share, and the company's shares rocketed along with its sales.

Since 1999, LeapFrog has sold more than 23 million units of its high-tech books and related products. By the end of last year, it passed Mattel's Fisher-Price division as the nation's leading seller of preschool toys, with a 27 percent market share, according to the market researcher NPD group.

The recent bankruptcies of two big customers, KB Toys and the parent of FAO Schwarz, further complicated matters; LeapFrog says cutbacks at those companies cost it about 10 percent of its first-quarter sales.

But Kalinski is confident.