JAKKS Pacific, Inc (NASDAQ: JAKK) reported financial results for the third quarter ended September 30, 2023 and highest level gross margin of 32+% since 2011.
JAKKS Third Quarter 2023 Overview
- Net sales were $309.7 million, a year-over-year decrease of 4%
- Toys/Consumer Products were $246.0 million, a year-over-year decrease of 9%
- Costumes were $63.7 million, a year-over-year increase of 19%
- Costumes year-to-date are $122.3 million, a year-over-year decrease of 9%
- Gross margin of 34.5%, up 600 basis points vs. Q3 2022
- Gross profit of $107.0 million, up 16% compared to $91.9 million in Q3 2022
- Year-to-date gross profit of $189.6 million, up 4% compared to $182.7 million in 2022
- Operating income of $62.4 million (20.1% of net sales) in Q3 2023 vs. $53.7 million (16.7% of net sales) in Q3 2022
- Year-to-date operating income of $74.4 million (12.7% of net sales) vs. $76.7 million (11.6% of net sales) for the comparable period in 2022
- Net income attributable to common stockholders of $47.8 million or $4.53 per diluted share, compared to net income attributable to common stockholders of $30.3 million or $2.96 per diluted share in Q3 2022
- Adjusted net income attributable to common stockholders (a non-GAAP measure) of $50.1 million or $4.75 per diluted share, compared to adjusted net income attributable to common stockholders of $39.0 million or $3.80 per diluted share in Q3 2022
- Adjusted EBITDA (a non-GAAP measure) of $67.1 million vs. $59.4 million in Q3 2022
- Trailing twelve month Adjusted EBITDA of $74.5 million (10.4% of trailing twelve months net sales) down from $93.5 million (11.0% of net sales) in the trailing twelve months ended September 2022.
Management Commentary
“Although we have seen activity at retail slowing, our business continued to perform well throughout the third quarter. Retail sell-through at our Top 3 accounts in the US were down low single digits on a year-to-date basis, while our inventory at those accounts is down over 20% year-over-year” said Stephen Berman, CEO of JAKKS Pacific. “A more predictable supply-chain and lower promotional activity than last year has resulted in significantly improved product margins, building on the continued rigor and collaboration between our development and sourcing teams. Of note, our Action Play & Collectibles business was up 43% in the quarter, and with $184.1 million shipped through Q3, is up 37% compared to last year. We are looking forward to the holiday season and have recently finished great customer meetings previewing our Fall 2024 product line. We are exceeding our own internal expectations for the full-year and are carefully navigating towards the end of the year given the persistent uncertainty about consumer behavior.
“Also in the quarter, we saw our Costumes business seasonality returning to more traditional levels and catching up on a year-to-date basis. Although down 9% in year-to-date shipping vs. 2022, globally, we remain +24% vs. the same period in 2021, along with significantly improved margins. Our view of 2023 Halloween shopping in the US was that it was a bit softer overall. We see that in our data and in referencing syndicated market data. The latter suggests we have retained and expanded our market leadership position, but final syndicated data won’t be available until later this month.
“Finally, during the third quarter, we officially opened our new office and internally operated warehouse in Italy to better serve that market and Southern Europe broadly starting in 2024. We are very focused on maximizing our presence across the EU given the current strength of our product line. We nonetheless continue to proactively manage our owned inventory, increasing our internal discipline around turns and maximizing our cash position. Our Q3 ending inventory level of $68.8 million is the lowest Q3 level since 2020, down 37% from this time last year. We are always striving to improve our internal operations to remain competitive and the partner of choice for our customers, licensors and vendors.
It is gratifying to see the team continue to deliver exceptional, consistent results. Everyone in our company remains 100% focused on delivering great toys, costumes and other consumer products relevant to today’s children. Our evergreen category assortment and product lines have never been stronger, which continue to enhance our financial position and resilience.”
JAKKS Third Quarter 2023 Results
Net sales for the third quarter of 2023 were $309.7 million, down 4% versus $323.0 million last year. The Toys/Consumer Products segment sales were down 9% globally (-10% North America; -4% International) and sales of Disguise costumes were up 19% compared to last year (23% North America; -13% International) as Halloween customers ordering reverted to more traditional seasonality.
Year-to-date Toys/Consumer Products sales were down 13% over the comparable 2022 period. Year-to-date the Costumes segment was down 9% over the comparable 2022 period.
Year-to-date adjusted net income attributable to common stockholders was $59.4 million ($5.66 per diluted share), compared to $57.5 million ($5.68 per diluted share) in the first nine months of 2022. Year-to-date adjusted EBITDA of $86.6 million (14.8% of net sales) declined from $88.5 million (13.3% of net sales) in the comparable 2022 period.
JAKKS Third Quarter 2023 Balance Sheet Highlights
The Company’s cash and cash equivalents (including restricted cash) totaled $96.4 million as of September 30, 2023 compared to $76.6 million as of September 30, 2022, and $85.5 million as of December 31, 2022.
Total debt was zero, compared to $67.7 million as of September 30, 2022, and $67.2 million as of December 31, 2022. Total debt included the amount outstanding under the Company’s term loan, net of unamortized discounts and issuance costs.
Inventory was $68.8 million, compared to $109.2 million as of September 30, 2022 and $80.6 million in total inventory as of December 31, 2022.
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 are detailed 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 investors because the information may allow investors to better evaluate ongoing business performance and certain components of the Company’s results. In addition, the Company believes that the presentation of these financial measures enhances an investor’s ability to make period-to-period comparisons of the Company’s operating results. This information should be considered in addition to the results presented in accordance with GAAP, and should not be considered a substitute for the GAAP results. The Company has 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.