JAKKS Pacific

Source: Jakks Pacific/The Toy Book

Despite the U.S. toy industry having grown 16% in 2020, Jakks Pacific faced challenges that came to light as the company reported its Q4 and full-year earnings today.

Jakks reported that net sales declined 16% in Q4 to $128.3 million versus $152.5 million during the same period last year. Net sales fell 13.82% in 2020 to 515.8 million versus $598.6 million in 2019. In its reporting and this afternoon’s call with investors, Jakks leaned heavily on declines from Frozen 2 merchandise as pulling down the toy side of the business while the COVID-19 pandemic led to a 26% decline in the Disguise costumes division due to disruption of Halloween celebrations across the U.S. The company says that excluding Frozen 2 declines, its net sales were up 16% which is in line with the toy industry as a whole.

“Since Jakks was founded over 26 years ago, we have focused on proven play patterns and working with license partners with highly recognizable brands, and we believe this focus served us well in 2020 as parents of kids spending so much more time at home were looking for products they knew and brands they trust,” says Stephen Berman, chairman and CEO, Jakks Pacific. “As was the case throughout 2020, our fourth-quarter results exceeded our expectations for sales, gross margin, operating income, and adjusted EBITDA. We saw very strong sales increases in Disney Princess, Nintendo, Sonic the Hedgehog and Disguise costumes.”

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On the business end, Jakks made progress in stabilizing its balance sheet through cost and inventory adjustments. Berman says that Jakks’ “top three U.S. retailers reported a double-digit increase in sell-through” last year. Additionally, despite lower sales, the company increased its gross margins and ended the year with its lowest level of net debt since 2013.

Berman also notes that the upcoming release of Disney’s Raya and the Last Dragon will be a big test for how streaming impacts toy sales. Products for the film were initially slated to hit retail in November but were held for the hybrid release of the film in limited theaters and streaming on Disney+. Like other companies, including Hasbro and Mattel, Jakks is seeing encouraging sales relating to evergreen streaming content such as Disney Princess which saw a 33% gain last year. This fall, Jakks will release toys tied to Disney’s Encanto.

Some of the big wins for Jakks last year include a 91% gain in net sales for Disguise in Q4 and growth in the outdoor categories led by triple-digit growth in sales of the ReDo Skateboards line. Gaming-related licensed toys performed exceptionally well with a 74% gain in Q4 and a 65% gain year-over-year thanks to products from Nintendo, SEGA, and the fall launch of Apex Legends products.

While formal guidance was not provided, Jakks expects a strong year from Disguise which continues to gain top licenses. Provided that the COVID-19 pandemic is somewhat controlled by fall, Halloween takes place on a Sunday which should drive strong sales in costumes and accessories.

Jakks Pacific recently inked new deals with Nintendo, SEGA of America, Moonbug Entertainment, and Universal Brand Development for Disguise costumes inspired by properties including Kirby, Sonic the Hedgehog 2, Blippi, Jurassic World, Trolls, Minions, and more.