Jakks Pacific Inc. reported financial results for the third quarter ended Sept. 30, 2017.
Net sales for third quarter 2017 were $262.4 million compared to $302.8 million reported in the year ago period. The reported GAAP net loss attributable to Jakks Pacific for the third quarter was $17.6 million, or a loss of $0.77 per diluted share, which included pre-tax non-cash charges totaling $24.9 million relating to the impairment of goodwill and other intangible assets, inventory and a certain non-operating asset, and other significant and unusual pre-tax charges totaling $19.4 million relating to the bankruptcy filing of a major customer and minimum guarantee shortfalls resulting from lower sales. This compares to GAAP net income attributable to Jakks Pacific of $30.6 million, or $0.82 per diluted share, reported in 2016.
Excluding the non-cash and other charges described above, adjusted net income attributable to Jakks Pacific for the third quarter of 2017 was $19.6 million, or $0.53 per diluted share. Adjusted EBITDA for the third quarter of 2017 was $38.6 million, compared to Adjusted EBITDA of $42.8 million in 2016.
As reported GAAP gross margin in the third quarter 2017 was 23.5 percent down from 31.4 percent last year as a result of the minimum guarantee shortfalls, inventory impairment and the impact of low margin sales recognized in the quarter. Excluding the charges that impact gross margin, gross margin would have been 29.7 percent, which reduction is due to the impact of closeout and other low margin sales in the quarter.
Operating costs for the quarter are on track with the Company’s initial general outlook for 2017 with Selling, General and Administrative expenses excluding the aforementioned charges that impact SG&A declining 20.0 percent to $48.5 million, or 18.5 percent of net sales, from $60.5 million, or 20.0 percent of net sales.
Jakks continues to make progress on long-term strategic initiatives in creating a strong portfolio of owned intellectual properties, entering new categories, and broadening geographic reach. With production currently underway and initial distribution partners secured, early shipments of C’est Moi reformulated skincare and cosmetic products will begin in December, which the company expects will have significantly higher margins than its toy business.
Studio JP is in development of a new franchise, which will be comprised of original animated content created specifically for digital distribution, an app featuring augmented reality, and a line of toys slated for next fall.
The company continues to execute on its geographic expansion strategy with newly established sales offices in France and Italy. Jakks Mexico continues to grow, and the company plans further investment in the market next year to support local distribution.
