Share price of
JAKKS Pacific Inc.
) slumped almost 14% in the trading session on Jul 23, after the
company reported wider second-quarter losses than the Zacks
Consensus Estimate. Also, as the surge in the Frozen line of toys
came at the expense of some of the company's other product lines,
it did little to boost investors' confidence on the stock.
The California-based toy maker's loss of 43 cents per share
(including pre-tax restructuring charges) was wider than the Zacks
Consensus Estimate of a loss of 38 cents. However, losses were
narrower than the year-ago loss of $2.14 backed by top-line growth.
Higher than anticipated product testing and development costs and
incremental interest expense associated with the recently completed
convertible note issuance led to a soft bottom-line performance in
Jakks Pacific, Inc - Earnings Surprise |
Behind the Headline Numbers
JAKKS Pacific's revenues increased approximately 16.9% year over
year to $124.2 million. Further, revenues beat the Zacks Consensus
Estimate of $112.0 million by 10%. Higher sales in the quarter were
driven by the dolls segment; dress-up and role play in the
company's Frozen line, Disney Pirate Fairies dolls and dress-up,
seasonal outdoor toys, foot-to-floor ride-ons and ball pits, and
Disguise Halloween costumes.
Gross margin in the quarter was 30.5%, up substantially year over
year, mainly due to increased sales. Selling, general and
administrative (SG&A) expense ratio declined 940 basis points
(bps) to 34.4% due to restructuring and cost savings initiatives
undertaken in the second half of 2013.
Guidance for 2014
JAKKS Pacific expects the full year impact of the 15 cents per
share related to the recent convertible note issuance and stock
buyback, to result in earnings in the range of 20 cents to 30 cents
per share, which is down from the previous earnings guidance, which
was in the range of 30 cents to 40 cents per share.
Given the aggressive retail efforts, JAAKS Pacific expects sales to
gain momentum in 2014 and beyond. The company expects 2014 revenues
in the range of $660 to $670 million, up from $633.0 to $640.0
million expected earlier. Additionally, EBITDA is expected in the
range of $42 to $44 million, up from the previously expected range
of $41.0 to $43.0 million
Other Events in the Quarter
The company recently completed the issuance of $115.0 million
principal amount of 4.875% Convertible Senior Notes due in 2020.
The notes, which will mature on June 1, 2020, are initially
convertible at $9.64 per share.
The company received net proceeds of approximately $110.4 million
from the offering, of which $24.0 million was used to repurchase
3.1 million shares of the company's common stock pursuant to a
prepaid forward purchase contract. Additionally, $39.0
million will be used to retire the company's convertible notes
maturing on Nov 1, 2014. The remainder will be used as working
capital and for general corporate purposes.
Performance of Other Toymakers
Among other toymakers, both
) reported second-quarter 2014 results with earnings and revenue
missing the Zacks Consensus Estimate. Weak consumer spending amid
sluggish economic growth in the U.S. took a toll on their results.
Despite posting a loss in the quarter, the company performed better
than the prior year quarter on the back of improved top-line
performance and cost saving initiatives. These initiatives include
elimination of underperforming units and rightsizing of businesses.
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 new
JAKKS Pacific currently carries a Zacks Rank #3 (Hold). A
better-ranked stock in the same sector is
Electronic Arts Inc.
), which carries a Zacks Rank #1 (Strong Buy).
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