JAKKS Pacific (JAKK) reported earnings Mon 19 Dec 2016 (b/o)

** charts after earnings **

 

Shares of toys and consumer products manufacturing company, JAKKS Pacific, Inc. JAKK have been widely underperforming the Zacks categorized Toys/Games/Hobbies Products industry year to date. While the industry grew 6.8%, JAKKS Pacific’s stock declined 11.4% in the same time frame. This stock performance is reflective enough of slackening investor confidence in the company.

In the last four trailing quarters, the company has missed on earnings estimates three times and sales estimates twice. Consequently, the company has once again reduced its guidance for the full-year 2016.


Outlook Slashed & Other Concerns

The company’s sales view for 2016 has been trending downward over the quarters. In the beginning of the year, the company expected sales to increase 7% over the 2015 figure to $800 million. In October, the figure was slashed to an expectation of 1% increase year over year to $755 million. However, in its most recent press release, the company further lowered its expectation and now expects net sales of approximately $700 million, a more than 6% decrease year over year.

The company’s earnings per share (EPS) also has a similar story. Starting with an expectation of generating an EPS of 78 cents per share, the company lowered its expectation to 56 cents per share mid-year. The final figure revealed by the company suggests EPS is likely to be in the range of 1–5 cents for the full year, compared with 71 cents in 2015.

Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) for the full year is now expected to be $51 million, down from $53 million expected previously and foremost expectation of $65 million.

The company has cited lower-than-expected sales of select key product lines as the primary reason for this shortfall. The retail environment is challenging for toys due to declining consumer confidence, especially in European markets, where the economic/political conditions are expected to be more challenging post Brexit. Same is the case in the U.S. where consumer spending uncertainty is a lingering concern because of higher health care costs and reduced credit availability. Also, unfavorable currency translations have adverse effects on the top line.

Moreover, JAKKS Pacific along with other toy manufacturers like Hasbro, Inc. HAS and Mattel, Inc. MAT is facing stiff competition from a wide range of alternative entertainment modes like video games, tablets, and other electronic devices. Continuous competition from technology-based gaming companies like Nintendo Ltd. NTDOY is thereby posing a threat to JAKKS Pacific’s market share.

Bottom Line

Nevertheless, the company is optimistic that its strategic initiatives, including new product launches, its new skin care and performance make-up brand, and the opening of offices in five new countries will contribute to the future growth of its business and profitability.