Jakks Pacific reports Q3 losses

The US toy manufacturer - which saw declines in net sales and adjusted EBITDA - reports Toys "R" Us' recent bankruptcy filing had a significant impact on its bottom line.
October 26, 2017

California-based toymaker Jakks Pacific reported net sales of US$262.4 million in Q3 2017, down from US$302.8 million in the same period last year. According to chairman and CEO Stephen Berman, Jakks’ third quarter came in below expectations due in large part to company’s paused shipments to Toys “R” Us in anticipation of, and as a direct result of, the retailer’s bankruptcy filing.

The company also reported losses in Q1, following a year of new category investments, and in Q2, driven by a decline in demand for film-related licensed properties. Jakks also reported its adjusted EBITDA declined compared to Q3 2016 from US$42.8 million to US$38.6 million.

The company’s reported GAAP net loss for the third quarter was US$17.6 million, or US$0.77 per diluted share. This loss included pre-tax charges totaling US$19.4 million relating to the bankruptcy filing of a major customer and minimum guarantee shortfalls resulting from lower sales. Excluding non-cash and other charges, the toy manufacturer’s adjusted net income for Q3 2017 was US$19.6 million. Last year, Jakks reported GAAP net income of US$30.6 million (US$0.82 per diluted share) for the same period.

GAAP gross margin in the third quarter, meanwhile, was 23.5% (down from 31.4% in Q3 2016) as a result of the minimum guarantee shortfalls, inventory impairment and the impact of low margin sales.

According to Jakks, a number of products lines saw sales growth and improved performance in the third quarter, and Berman said new major licenses like Pixar’s Incredibles 2 are expected to spark growth in 2018. And production is currently underway on C’est Moi, Jakks’ proprietary cosmetic brand for tweens. Early shipments of the skincare and cosmetic products are slated to begin in December, and the company anticipates the line will have “significantly higher margins” than its toy business.

Additionally, Studio JP—an animation initiative producing content based on the toymaker’s proprietary IPs—is developing a new franchise comprised of original animated content and created specifically for digital distribution. Studio JP is also developing an app featuring augmented reality as well as a line of toys slated for a fall 2018 launch. Jakks launched Studio JP in 2016 in collaboration with its Chinese distribution partner Meisheng Culture & Creative Corp.

Fellow US toymaker Hasbro also reported that Toys “R” Us’ bankruptcy filing affected its bottom line in Q3, with the filing negatively impacting Hasbro’s quarterly revenue and operating profit.

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