JAKKS Pacific, Inc (NASDAQ: JAKK) has reported financial results for the third quarter ended September 30, 2022.
JAKKS Third Quarter 2022 Overview:
- Net sales were $323.0 million, a year-over-year increase of 36%
- Toys/Consumer Products were $269.6 million, a year-over-year increase of 56%
- Costumes were $53.4 million, a year-over-year decrease of 17%
- Costumes year-to-date are $134.7 million, a 36% increase over 2021
- Year-to-date net sales were $664.3 million, which exceeded full year 2021 net sales of $621.1 million
- Gross margin of 28.5%, down 310 basis points vs. Q3 2021
- Operating income of $53.7 million (16.7% of net sales) in Q3 2022 vs. $36.7 million (15.5% of net sales) in Q3 2021
- Year-to-date operating income of $76.7 million (11.6% of net sales) vs. $35.8 million (8.3% of net sales) for comparable period in 2021
- Net income attributable to common stockholders of $30.3 million or $2.96 per diluted share, compared to net income attributable to common stockholders of $36.0 million or $3.97 per diluted share in Q3 2021
- Adjusted net income attributable to common stockholders (a non-GAAP measure) of $39.0 million or $3.80 per diluted share, compared to adjusted net income attributable to common stockholders of $34.2 million or $3.76 per diluted share in Q3 2021
- Adjusted EBITDA (a non-GAAP measure) of $59.4 million vs. $41.7 million in Q3 2021
Management Commentary
“We continued to see strong retail sell-thru for our product throughout the third quarter,” said Stephen Berman, CEO of JAKKS Pacific. “Our top three toy accounts in the US sustained point of sale results in the high teens in Q3 as we head into the all-important fourth quarter. By leaning into our heritage as an FOB-first company, we’ve managed to ship more of our product earlier in the year to avoid excessive supply-chain expenses and mitigate out-of-stock risks at retail. As a result, our customers are ready for the holiday season with a great range of product and promotional plans. We are on track to deliver full-year 2022 revenue growth around 20% vs. prior year for the second year in a row, which are exceptional results that the team and I are very proud of.
“In addition to the strength in our toy segment, our costume business is also performing at a very high level. We have already shipped 25% more costumes this year than the amount we shipped in all of 2021. Q3 2022 Disguise costumes sales were down compared to Q3 2021 as Halloween customers ordered product earlier this year. We are on track for our biggest year with Disguise since JAKKS acquired the company in 2008, and we are also excited about that momentum continuing into 2023.
“We have been clear about our desire to reduce our long-term debt and cash interest expense. To that end, based on our strong performance and near-term outlook we decided to make an optional $17.5 million principal pay-down of our term loan this past quarter. This brings our year-to-date principal payments to $29.0 million, or 29% of our balance as of January 1st of this year, and results in a principal balance of $69.5 million.”
JAKKS Third Quarter 2022 Results
Net sales for the third quarter of 2022 were $323.0 million, up 36% versus $237.0 million last year. The Toys/Consumer Products segment sales were up 56% globally (50% North America; 85% International) and as noted sales of Disguise costumes were down 17% compared to last year (-23% North America; 144% International) as Halloween customers ordered product earlier this year than the traditional seasonality.
Year-to-date Toys/Consumer Products sales were up 58% over the comparable 2021 period. Year-to-date the Costumes segment was up 36% over the comparable 2021 period.
Year-to-date adjusted net income attributable to common stockholders was $57.5 million ($5.68 per diluted share), compared to $22.3 million ($3.15 per diluted share) in the first nine months of 2021. Year-to-date adjusted EBITDA of $88.5 million (13.3% of net sales), was double the $44.2 million (10.2% of net sales) in the comparable 2021 period.
Balance Sheet Highlights
The Company’s cash and cash equivalents (including restricted cash) totaled $76.6 million as of September 30, 2022 compared to $26.7 million as of September 30, 2021, and $45.3 million as of December 31, 2021.
Total debt was $67.7 million net of unamortized discounts and issuance costs, compared to $95.8 million as of September 30, 2021, and $95.5 million as of December 31, 2021. Total debt includes the amount outstanding under the Company’s term loan, net of unamortized discounts and issuance costs.
Inventory levels are down from prior quarter but remain elevated, totaling $109.2 million, of which $20.5 million was in-transit to our distribution centers, compared to $123.7 million in total inventory as of June 30, 2022 and $89.8 million in total inventory as of September 30, 2021.
Use of Non-GAAP Financial Information
In addition to the preliminary results reported in accordance with U.S. GAAP included in this release, the Company has provided certain non-GAAP financial information including Adjusted EBITDA which is a non-GAAP metric that excludes various items that aredetailed in the financial tables and accompanying footnotes reconciling GAAP to non-GAAP results contained in this release.Management believes that the presentation of these non-GAAP financial measures provides useful information to investorsbecause the information may allow investors to better evaluate ongoing business performance and certain components of theCompany’s results. In addition, the Company believes that the presentation of these financial measures enhances an investor’sability to make period-to-period comparisons of the Company’s operating results. This information should be considered in additionto the results presented in accordance with GAAP, and should not be considered a substitute for the GAAP results. The Companyhas reconciled the non-GAAP financial information included in this release to the nearest GAAP measures. See the attached“Reconciliation of Non-GAAP Financial Information.” “Total liquidity” is calculated as cash and cash equivalents, plus availability under the Company’s $67.5 million revolving credit facility.
Conference Call Live Webcast
JAKKS Pacific, Inc. invited analysts, investors and media to listen to the teleconference scheduled for 5:00 p.m. ET / 2:00 p.m. PT on October 27, 2022. A live webcast of the call is available on the “Investor Relations” page of the Company’s website at www.jakks.com/investors.