We have recently downgraded our recommendation on multi-brand
Jakks Pacific Inc.
) from Neutral to Underperform following its lackluster
first-quarter 2013 results.
Why the Downgrade?
Despite significant revenue growth, the company's first quarter
loss was wider than the Zacks Consensus Estimate and the year-ago
level. In fact, the company's bottom line has missed the Zacks
Consensus Estimate for seven quarters in a row. Several of its
key products lack demand. In the first quarter of 2013, business
from Monsuno, one of Jakks Pacific's major products, witnessed a
significant decline in the U.S. Its other major product Winx
Club, launched in the second half of 2012, also met with the same
Basically, the Malibu, Calif-based company has become a victim of
the change in children's play pattern in recent years, battling a
broad array of alternative devices including MP3 players, tablet,
smartphones and other devices.
Moreover, Jakks Pacific does not have any meaningful launch in
the near term, apart from the DreamPlay product line slated for a
fall 2013 launch in association with its joint venture partner
NantWorks. The product is scheduled for an international launch
next year. Although management remains optimistic on DreamPlay,
there will be no material benefit before the fourth-quarter of
Incremental operating and marketing expenses associated with the
launch of the DreamPlay product line are also taking a toll on
Jakks Pacific's margin. Moreover, Jakks Pacific's restructuring
activities, aimed to lower occupancy costs and increase
efficiencies and profitability in the long term, are suppressing
margins in the near term.
Faltering consumer confidence owing to the anemic economic
situation in the US and Europe may restrain the company's sales.
Other Stocks to Consider
Other players in the toy industry, which look attractive at
current levels include
LeapFrog Enterprises Inc.
) carrying a Zacks Rank #1 (Strong Buy).
Another company in the leisure and recreational products
), carrying a Zacks Rank #2 (Buy), is also worth a mention.
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JAKKS PACIFIC (JAKK): Free Stock Analysis
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