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JAKKS Pacific Reports Third Quarter 2020 Financial Results

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JAKKS Pacific, Inc. reported financial results for the third quarter ended September 30, 2020.

Net sales for the third quarter 2020 were $242.3 million down 14% versus $280.1 million last year. The decline was driven by lower sales of products related to Disney’s Frozen and Frozen 2, which were strong contributors to sales in the third quarter 2019, and by sharp declines in sales of Disguise Halloween costumes, demand for which was curtailed by COVID-19. Net sales in the Toys/Consumer Products segment were down 8% globally. Net sales of Disguise Halloween costumes declined 27%.

Despite the sales decline, net income attributable to common stockholders rose to $32.1 million, or $4.27 per diluted share, compared to $16.3 million, or $5.08 per diluted share last year. Last year’s third quarter net income included significant charges related to the extinguishment of convertible senior notes. Excluding similar charges and gains in both years, adjusted net income attributable to common stockholders (a non-GAAP measure) was $32.6 million, or $4.76 per diluted share in the third quarter of 2020 versus $31.4 million or $5.38 per diluted share in the third quarter of 2019.

The Company’s cash and cash equivalents (including restricted cash) totaled $79.8 million as of September 30, 2020 compared to $66.3 million as of December 31, 2019 and $75.9 million as of September 30, 2019.

Subsequent to the quarter-end, the Company reached an agreement with term loan holders that provided covenant relief through March 2022 and a related $15 million early pay-down that will save $1.6 million in annual interest expense

“Our third quarter results exceeded our expectations for sales, gross margin, operating income and adjusted EBITDA,” said Stephen Berman, JAKKS Pacific’s Chairman and CEO. “We faced significant challenges in the quarter, including difficult comparisons against the successful launch of Disney Frozen 2 last year and reduced retailer commitments to Halloween products. Excluding declines in Disney Frozen® merchandise and Disguise Halloween costumes, our net sales rose thirteen percent compared to the third quarter of last year. Our disciplined cost controls and improved inventory management resulted in higher gross margins, lower SG&A expenses and higher operating income. Retail sales of our products continued to accelerate during the quarter. Our top three US customers in aggregate reported an increase in year-to-date sell-through of 28% through the first nine months, compared to an increase of 14% through the first half.

“We expect the balance of this year to show continued progress on profitability despite difficult revenue comparisons, and to end the year poised for growth in sales and profitability in 2021. We expect to close out the year on a strong note, and carry momentum into 2021. We remain committed to containing costs and managing our balance sheet prudently. We expect good performances over the holiday season from new introductions from Disney Princess®, Disney Frozen®, Electronic Arts® APEX Legends™, SEGA® Sonic the Hedgehog™ and Nintendo® Super Mario™. In addition, we’re continuing to see strong support from our internal brands and products like Kitten Catfe™, Xtreme Power Dump Truck™, ReDo™ Skateboard Co. and our re-launch of Eyeclops™.

“Looking ahead to next year, we believe sales will be buoyed by a more robust entertainment slate by our licensing partners compared to 2020, and what we hope will be a return to more normal consumer shopping patterns and gift giving, as well as a return to more normal Halloween activities. We believe our continued emphasis on margin improvement and cash preservation will lead to improved results in 2021.”