Share price of
JAKKS Pacific Inc.
) slumped more than 9% in the trading session on Apr 23, 2014,
despite the company posting narrower year-over-year loss in the
first quarter of 2014. In our view, higher cost of sales, amid a
tough operating environment for toymakers failed to garner
investors' confidence in the stock. Also, despite beating
expectations, the company reiterated its guidance for 2014,
further dampening investors' sentiment in the stock.
The California-based toy maker's loss of 74 cents per share was
narrower than the Zacks Consensus Estimate of a loss of 76 cents
and the year-ago loss of $1.26. Further, the loss was narrower
than the company's expected loss range of 77 to 81 cents.
Better-than-expected top-line performance boosted the bottom line
in the quarter.
JAKKS Pacific's revenues increased approximately 5.7% year over
year to $82.5 million and were above management's expected range
of $72.0 to $75.0 million. Further, revenues beat the Zacks
Consensus Estimate of $75.0 million by 10%. Higher sales in the
quarter were driven by dolls; dress-up and role play in the
company's Frozen line, Disney Pirate Fairies dolls and dress-up,
and pre-school foot-to-floor ride-ons and wagons.
Behind the Headline Numbers
Gross margin in the quarter was 28.5%, down 140 basis points
(bps) year over year, mainly due to increased costs of sales,
primarily driven by higher royalty expense. Selling, general and
administrative (SG&A) expense ratio declined 1400 bps to
46.5% due to restructuring and cost savings initiatives
undertaken in the second half of 2013, as well as a shift in
media buys due to Easter falling later in the year.
Guidance for 2014
JAKKS Pacific affirmed its previous guidance for 2014. The
company expects to return to profitability in 2014 and expects
earnings per share in the range of 30 to 40 cents. The guidance
is attributable to cost saving and other margin improvement
initiatives undertaken in 2013.
Given the aggressive retail efforts, the company expects sales to
gain momentum in 2014 and beyond. It expects 2014 revenues in the
range of $633.0 to $640.0 million. Additionally, EBITDA is
expected in the range of $41.0 to $43.0 million.
Other Events in the Quarter
JAKKS Pacific closed on a three-year senior secured credit
facility with General Electric Capital Corporation - the
financial service unit of
General Electric Company
) - that will provide up to $75 million, subject to availability
and certain financial covenants. The company intends to use the
net proceeds for working capital needs, capital expenditures and
general corporate purposes.
Performance of Other Toymakers
Among other toymakers,
) reported first-quarter 2014 loss of 3 cents per share which
compared unfavorably with the prior-year quarter earnings of 11
cents as well as the Zacks Consensus Estimate of earnings of 8
cents. The downside reflects weak sales.
) posted mixed first-quarter 2014 results wherein earnings beat
the Zacks Consensus Estimate but revenues missed the same.
Despite posting a loss in the quarter, this Zacks Rank #3 (Hold)
company performed better than expected on the back of improved
top-line performance and cost saving initiatives undertaken
during the second half of 2013. These initiatives include
elimination of underperforming units and rightsizing of
Moreover, the company's international expansion efforts have
started yielding benefits leading to improved margins. Going
forward, we remain optimistic about the company's product
launches and organic growth initiatives, which include securing
JAKKS Pacific, currently, carries a Zacks Rank #2 (Buy).
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