Jakks Reports Q2
Jakks Pacific, Inc., reported results for the company’s second quarter ended June 30, 2013.
Net sales for the second quarter of 2013 were $106.2 million compared to net sales of $145.4 million reported in the comparable period in 2012. The reported net loss for the second quarter was $46.9 million, or $2.14 per diluted share, which included charges for license minimum guarantee shortfalls of $14.1 million and inventory impairment of $12.2 million. This compares to net income of $0.2 million, or $0.01 per diluted share, reported in the comparable period in 2012, which included $1.7 million, or $0.5 per diluted share, of legal and financial advisory fees and expenses related to the 2011 unsolicited indication of interest.
Net sales for the six months ending June 30, 2013, were $184.3 million compared to $218.8 million in 2012. The net loss reported for the six month period was $74.4 million, or $3.40 per diluted share, which includes $0.8 million, or $0.03 per diluted share, of pre-tax financial and legal advisory fees and expenses relating to the 2011 unsolicited indication of interest, and charges for license minimum guarantee shortfalls of $14.4 million and inventory impairment of $14.9 million. This compares to a net loss for the first six months of 2012 of $15.8 million, or $0.61 per diluted share, which included $3.1 million, or $0.09 per diluted share, of pre-tax financial and legal advisory fees and expenses.
Stephen Berman, president and CEO of Jakks Pacific, stated, “We are disappointed that Jakks has not met its second quarter target and will not achieve its full year 2013 forecast. Sales for the second quarter were significantly below expectations due to a variety of factors. Several retailers, both in the United States and in Europe, are struggling and have substantially decreased their orders. In addition, the poor performance of several of our key properties, including Monsuno and The Winx Club, also contributed to the decline, along with unusually cool weather that affected seasonal toy sales leading to more aggressive markdowns at retail as shelves are cleared for back-to-school products,” said Berman. “We also believe the decline in sales reflects the continuing change in play patterns of children of all ages, who continue to rely more and more on smart devices for their fun and entertainment. As previously announced, this shift in play patterns has caused companies like Jakks to evolve to meet the changing demands of its consumers with technologically enhanced product offerings.”
He continued. “We are making key, targeted moves to align operations, drive productivity, and support innovation with the objective of returning the company to profitability in 2014. We believe that Jakks, which has now been in business for almost 18 years, will be able to weather the seismic shift that the toy industry is experiencing due in large part to our commitment to growing a segment of our portfolio that combines the power of digital content with physical product, such as our innovative DreamPlay line of toy products. These initiatives should be seen in this strategic context as we continue to reshape our business to improve innovation and product sales and with it our long-term ability to compete in a rapidly changing industry. Coupled with our core, evergreen business, we expect that Jakks will be able to solidify its position in 2014 and beyond as one of the leading toy companies in the United States.”
Jakks currently anticipates net sales for the full year of approximately $620 million, with revised loss per share in the range of approximately $56.1 million, or $2.56 per diluted share. The revised guidance represents a reduction from the company’s previously anticipated full year net sales of approximately $694 million to $700 million and diluted earnings per share in the range of approximately $0.63 to $0.68, excluding financial and legal advisory fees relating to the 2011 unsolicited indication of interest. Jakks also announced that due to business conditions, it has suspended its quarterly dividend, which it will re-evaluate upon a return to profitability.
Jakks also announced a restructuring plan to commence in the third quarter, which will include the substantial reduction of leased space, employees, and other overhead expenses. Despite the projected loss this year, Jakks is anticipating a return to profitability in the year 2014.
Chub City Series in Development
Dentsu Entertainment USA, Inc., has signed a development agreement with Nelvana Enterprises and Fuel Entertainment to create the animated action comedy TV series, Chub City.
The series follows the adventures of a team of heroic teenagers who drive customized cars at Chub City battle rallies. These rally sites pop-up spontaneously in different parts of the world.
The series is based on the intellectual property and toy brand, which has been sold worldwide at more than 11,000 stores including Walmart and Carrefour, and has been featured in Burger King and Taco Bell kids meal promotions.
Dentsu Entertainment USA, Nelvana Enterprises, and Fuel Entertainment are actively seeking toy and broadcast partners for the animated action comedy, Chub City.