The first quarter earnings season continues with JAKKS Pacific falling in line as the third publicly traded toymaker to report.
JAKKS reported a decline in net sales to $90.1 million, marking a year-over-year decrease of $17.4 million or 16%. This drop was attributed to a dearth of new film releases compared to last year. Gross margin stood at 23.4%, down 580 basis points from Q1 2023, primarily due to increased inventory obsolescence expense and retailer markdowns. Sales of toys and consumer products dipped 15% while the company’s Disguise costumes sales dropped 25% compared to last year.
The beginning of the year at JAKKS is always our smallest shipping quarter and is focused on taking stock of the just concluded holiday season, solidifying our full-year plans and development work towards longer-term opportunities, and the quarter just concluded was very active on all three of those fronts. For the past two years we have had the added benefit of a robust film slate layering on top of our strong core business. Last year, we were shipping products to support what proved to be two of the year’s largest grossing films, 'The Super Mario Bros. Movie' and 'The Little Mermaid.'"
Without a big movie release to kick off 2024, Berman says the company also faced off against weakened demand for products tied to Q4 2023 film releases, including Disney’s much-anticipated, but ultimately underperforming Wish. During Toy Book-conducted store checks last December, product was already on clearance and making its way into the value channels less than a month after the film’s release.
“We supported our retail partners in funding markdowns to move that stock as well as addressing canceled reorders for which we had built inventory,” Berman says. Unfortunately, these types of situations happen in our business, and we have found it is best to address them head-on and move on focusing on the fall season where the majority of the business is done.
In other metrics, gross profit amounted to $21.1 million, down $10.4 million from the $31.4 million reported in Q1 2023. Operating loss widened to $21.3 million, compared to $4.4 million in the same period last year. Adjusted net loss attributable to common stockholders was $11.3 million (or $1.09 per diluted share), contrasting with $4.0 million (or $0.40 per diluted share) in Q1 2023. Adjusted EBITDA stood at $(17.2) million, compared to $(1.1) million in Q1 2023.
Looking ahead, JAKKS expects a big back half in 2024 driven by products from its new range inspired by The Simpsons — which will go even bigger in 2025 — Disney’s Moana 2, Paramount and SEGA’s Sonic the Hedgehog 3, and items inspired by the Authentic Brands Group (ABG) portfolio. Products in the ABG collaboration include skateboards for Quiksilver and Element along with roller skates, volleyballs, beach accessories, and other toy and toy-adjacent products for Forever 21, Juicy Couture, Prince, Sports Illustrated, and Roxy.
Additionally, DIsguise sales should see a spike from new products tied to Wicked, Ghostbusters: Frozen Empire, and other top properties.
At Licensing Expo next month, JAKKS Pacific and Epic Story Media will show off products and entertainment content tied to Wild Manes, an all-new, original IP in the equestrian play space.
