JAKKS Pacific, Inc. (JAKK)

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JAKKS Pacific, Inc. (JAKK)

Q3 2008 Earnings Call Transcript

October 21, 2008 9:30 am ET


Genna Rosenbert - SVP of Communications and IR

Jack Friedman - Chairman, CEO

Joel Bennett - EVP, CFO


Arvind Bhatia - Sterne, Agee

Drew Crum - Stifel Nicolaus

Ed Woo - Wedbush

Gerrick Johnson - BMO Capital Markets

Sean McGowan - Needham

Tony Gikas - Piper Jaffray

Jeff Blaeser - Morgan Joseph

Todd Schwartzman - Sidoti & Company



Good morning. My name is Sierra, and I will be your conference operator today. At this time, I’d like to welcome everyone to the JAKKS Pacific Third Quarter Results 2008 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-session. (Operator Instructions)

Thank you. I’d now like to turn the conference over to Ms. Genna Rosenberg. Ma'am, you may begin the conference.

Genna Rosenbert

Thank you, operator. Good morning, ladies and gentlemen. This is Genna Rosenberg, Senior Vice President of Communications and Investor Relations for JAKKS Pacific. Thank you for joining our teleconference with management of JAKKS Pacific to review results for third quarter and first nine months ended September 30, 2008.

On the call today are Jack Friedman, Chairman and Chief Executive Officer of JAKKS Pacific; Steven Berman, our President and Chief Operating Officer; and Joel Bennett, Executive Vice President and Chief Financial Officer.

Mr. Friedman will first provide an overview of the quarter and our operational results. And then Mr. Bennett will provide detailed comments regarding our financial results. Mr. Friedman will then conclude the prepared portion of the call with highlights our product lines and current business trends prior to opening up the call for your one-on-one questions.

Before we begin, I'd like to point out that any comments made about our future performance, events or circumstances including the estimates of sales and earnings per share for 2008 as well as any forward-looking statements are subject to the safe harbor protection under the Federal security laws.

These statements reflect our best judgment based on current market trends and conditions today and are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected in our forward-looking statements.

For details concerning these and other such risks and uncertainties, you should consult our most recent 10-K and 10-Q filings with the SEC as well as our Company's other reports subsequently filed with the SEC from time-to-time.

With that, I will turn the call over to Mr. Friedman.

Jack Friedman

Good morning, ladies and gentlemen. This is Jack Friedman. Thank you for joining us this morning to discuss our results for the third quarter and the first nine months of 2008.

As we expected, the third quarter was robust for JAKKS with traditional toys being the largest contributors. Third quarter 2008 net sales for JAKKS Pacific increased 12.4% to $357.8 million compared to $318.4 million in the third quarter of 2007. And sales for the first nine months of 2008 increased 10.8% to $634 million versus $572 million for the first nine months of last year.

At this time, we remain cautiously optimistic that we are still on track to our previous guidance for a year of growth for JAKKS Pacific. We expect traditional toys from our diverse product portfolio will resonate with consumers at retail who historically continue to buy holiday gifts for kids even in tough times.

We shipped many of our new fall items in the third quarter as retailers began to stock the shelves for holiday season and experienced strong sales in electronics, activity toys, dolls, action figures and pretend play products.

Last week, we announced the acquisitions of Tollytots Limited and Kids Only. Our two newest JAKKS's division, Tollytots Limited have as extensive line are of baby doll pretend play accessories mostly based on the Fisher Price and Graco brands.

And Kids Only is a leader in licensed indoor and outdoor kid sized furniture based on popular licenses. We expect that both will be accretive beginning in 2009. For 2007, combined sales of Tollytots and Kids Only was approximately $60 million.

Our financial position remains extremely strong and working capital is approximately $392.7 million. Including cash, cash equivalents and marketable securities of $192.8 million as of September 30, 2008. Leaving us with the ability to execute on additional acquisitions to further grow our business.

Before I get into more details about our outlook for the future, I’d like to turn the call over to Joel Bennett for a review of our financial performance for the first quarter of 2008.

Joel Bennett

Thank you, Jack. Good morning, everybody. Third quarter 2008 net sales were $357.8 million compared to $318.4 million in the same period of last year, an increase of 12%. Net income for the third quarter was $54.1 million or $1.70 per diluted share compared to $47.3 million or $1.45 per diluted share reported in the third quarter of 2007.

Included in net income are tax benefits relating to FIN 48 and other tax adjustments in the amount of $13.3 million or $0.41 per diluted share in 2008. And $1.4 million or $0.04 per diluted share in 2007, and $9.1 million or $0.18 per diluted share in pre-tax non-cash charges relating to the write down of certain of the Company's trademarks in 2008.

Net sales for the nine months ended September 30, 2008, were $634 million compared to $572 million during the same period in 2007 an increase of 10.8%. Net income for the first nine months of 2008 was $59.2 million or $1.88 per diluted share compared to the first nine months of 2007 of earnings of $55.6 million or $1.75 per diluted share.

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