As predicted following its second quarter earnings reports, the back half of the year is looking good for Jakks Pacific.
The Santa Monica-based toymaker reported solid third-quarter numbers that reflect growth in several areas despite looming tariff threats and its position as an acquisition target. Net sales for the second quarter were $280.1 million, an increase of 18% compared to $236.7 million during the same period last year. Gross margin increased to 28.9% versus 27.2% a year ago. Gross profit rose to $80.8 million versus $64.3 million a year ago.
“We are pleased to report solid results across several financial metrics in the third quarter, as strong sales of Disney Frozen 2, Disguise, and Nintendo more than offset the declines of some older products,” says Jakks Pacific Chairman and CEO Stephen Berman. “Our net sales grew 18% in the quarter, the strongest quarterly growth in year-over-year sales we have seen in nearly five years, led by online sales of our products, which were up 32% compared to last year. More importantly, we were able to improve gross margins and tightly managed expenses, resulting in a 64% year-over-year increase in Adjusted EBITDA.”
On a call with investors, Berman stated that Nintendo products and the debut of Jakks’ Sonic the Hedgehog line have been strong, with the Bowser’s Castle Playset leading the charge as the No. 1 item in the Nintendo line. Toy Story 4 and Godzilla product also performed well, countering declines in aging lines such as Fancy Nancy and Squish Delish.
Echoing the announcement of a similar departure at Mattel last week, Jakks’ Chief Financial Officer Brent T. Novak will leave the company in December 2019 to pursue other opportunities.
“Brent has been a valued member of the Jakks team since joining the company in April 2018. We wish him well in his future endeavors,” Berman says.
A search for a new CFO is currently underway.
Tariff Impact
As evidenced in recent earnings reports from Hasbro, Mattel, and Spin Master, the impact of the potential enactment of List 4B tariffs on Dec. 15 is having mixed results on toymakers across the board. Unlike the competition, Jakks has not yet seen much of a switch in shipping preferences aside from retailers taking some product early. Looking ahead to next year, Berman states that the company can pull the levers of changes in sourcing, modifying logistics, and price increases to offset tariffs.
Holiday Drivers
The holiday season is off to a strong start with many Frozen 2 products hitting stores on Oct. 4 during Frozen Fan Fest. The company believes that other licensed products including the Disney Princess Style Collection, The Little Mermaid, Toy Story 4, Nintendo, and Sonic the Hedgehog continue to be strong drivers in addition to a couple of new categories: ball pits and play tents. Additionally, the company’s expanded lineup and distribution program for foot-to-floor ride-ons are doing well. The Disguise costumes division, categorized as Halloween, was up 16% in the third quarter.
“We expect to close out the year on a strong note and carry momentum into 2020. We remain committed to containing costs and managing our balance sheet prudently,” Berman says.
