JAKKS Pacific, Inc. (JAKK)

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JAKKS Pacific, Inc. (JAKK)

Q4 2008 Earnings Call Transcript

February 18, 2009 9:00 am ET


Genna Rosenberg – SVP, Corporate Communications & IR

Jack Friedman – Chairman & CEO

Joel Bennett – EVP & CFO

Stephen Berman – President & COO


Luke Shagets – Sterne Agee

Todd Schwartzman – Sidoti

Sean McGowan – Needham & Company



Good morning, ladies and gentlemen, and welcome to the JAKKS Pacific fourth quarter and 2008 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer. Please note that this conference is being recorded. I will now turn the call over to Ms. Genna Rosenberg. Ms. Rosenberg, you may begin.

Genna Rosenberg

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 the results for the fourth quarter and full year of 2008 ended December 31, 2008.

On the call today are Jack Friedman, Chairman and Co-Chief Executive Officer of JAKKS Pacific; Stephen Berman, President and Co-Chief Executive 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 of our product lines and current business trends prior to opening up the call for your one-on-one questions.

But before we begin, I would like to point out that any comments made about our future performance, events or circumstances, including estimates of sales and earnings per share for 2009, as well as any forward-looking statements, are subject to 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 fourth quarter and full year 2008. We achieved our capitalized guidance for the year with net sales increasing to $903.4 million, up from $857.1 million in 2007. For the quarter, we had net sales of $269.3 million compared to $285.0 million in the prior year.

We continued to have top selling items in our portfolio that performed for JAKKS and our retail partners, including our award-winning EyeClops Night Vision Goggles, Girl Gourmet product line, Disney pretend play products and others, especially considering the overall retail environment and state of the US economy and believe we further strengthen our standing and important relationships with our retailers, licensors and other key stakeholders in our business. But we also experienced declines in some of our lines, including Pokemon, Care Bears and Hannah Montana.

And we had an impact to earnings in the year due to the rising cost of raw material, labor, testing and development, and increases in TV advertising, all of which affected margins across the board and resulted in earnings of $76.1 million or $2.40 per diluted share for the year versus the $89.0 million or $2.77 per diluted share last year.

For 2009 we have been implementing company-wide cost savings initiatives to reduce overhead as well as to improve our margins across every JAKKS division. We are pleased to have closed on three acquisitions in the fourth quarter, Tollytots, Kids Only and Disguise, executing on an important part of our growth strategy. After these acquisitions, we still finished the year with a strong cash position of $169.7 million.

We have been working diligently on integrating these acquired divisions into our infrastructure and evaluating strategic cost savings in this area as well, as we seek to maximize profitability and while we do expect it to take time to fully digest and assimilate our recently acquired divisions, we will continue to evaluate other potential acquisition opportunities, while simultaneously executing on internal growth and cost savings initiatives.

Our three new divisions, Tollytots, Kids Only and Disguise, will each contribute to JAKKS’ growth for the future. Tollytots has an extensive but focused line of leading licenses for baby doll accessory. Kids Only is a leader in licensed indoor and outdoor furniture based on popular licenses, and Disguise is an innovative and well respected Halloween custom company that also has strong synergies with JAKKS’ core businesses. We expect all these companies to be accretive in 2009. For 2009 and beyond, we will continue to be a value player with a major of our product lines retailing for under $20, offering consumers great play value for their money.

Before I get into more details about our outlook for the future, I would like to turn the call over to Joel Bennett for a review of our financial performance for the fourth quarter and full year of 2008.

Joel Bennett

Thank you, Jack. And good morning, everyone. Fourth quarter 2008 net sales were $269.3 million compared to $285.1 million in the same period last year. Net income for the fourth quarter was $16.9 million or $0.55 per diluted share compared to $33.4 million or $1.03 per diluted share reported in the fourth quarter of 2007. Net sales for the year ended December 31, 2008 were $903.4 million compared to $857.1 million during the same period in 2007, an increase of 5.4%.

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