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JAKKS Pacific (JAKK) Q2 Loss Narrower than Expected
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JAKKS Pacific Inc. (JAKK - Free Report) reported a narrower-than-expected loss and better-than-expected sales in the second quarter of 2016. The toy maker reiterated its guidance for 2016.
Quarter Discussion
The California-based company’s loss of 27 cents per share was narrower than the prior-year quarter loss and the Zacks Consensus Estimate of a loss of 30 cents. The improvement was driven by higher top line and an increase in margins. Lower share count owing to share buybacks also pared losses on a year-over-year basis.
JAKKS Pacific’s revenues increased 8% year over year to $141 million and also exceeded the Zacks Consensus Estimate of $136 million by 3.7%. The company’s revenues increased on the back of improved sales in role play, novelty and seasonal toy segment, offset by a decline in the traditional toys and electronics segment.
In fact, this marks the third consecutive second quarter with year-over-year growth in revenues and earnings.
Gross margin in the quarter was 31.8%, up 180 basis points (bps) year over year, mainly due to lower product costs and lower royalties, driven by ongoing margin enhancement initiatives.
Selling, general and administrative expense ratio as a percentage of net sales increased 30 bps to 32.6% due to higher marketing expenses.
Adjusted EBITDA increased 166% to $4 million, compared with $1.5 million in the year-ago quarter, as the company prudently controlled costs and managed its expenses.
2016 Guidance Reiterated
JAKKS Pacific expects net sales to increase approximately 7% to $800 million in 2016. Earnings per share are projected to rise around 10% to 78 cents and adjusted EBITDA is likely to increase roughly 28%. The company’s outlook reflects anticipated gross margin expansion and operating leverage, partly offset by higher marketing costs.
Other Financial Update
The company repurchased about 3.2 million shares for $25.2 million and $0.7 million face amount of 2020 convertible notes at a cost of $1.9 million through the end of the second quarter. At quarter end, approximately $2.2 million remained available in the current buyback authorization.
Performance of Other Toymakers
Among other toymakers, Hasbro Inc. (HAS - Free Report) reported better-than-expected second-quarter 2016 results while Mattel Inc. (MAT - Free Report) posted a narrower-than-expected loss and better-than-expected sales for the second quarter of 2016.
Our Take
Despite reporting a loss in the second quarter, JAKKS Pacific is poised well owing to its cost saving initiatives, which include the elimination of underperforming units and rightsizing businesses.
Moreover, the company’s international expansion efforts have already started benefiting margins. Going forward, we remain optimistic about the company’s product launches and organic growth measures, such as securing new licenses. However, intense competition in the sector and elevated costs related to product launches remain concerns.
JAKKS Pacific currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the same space is Take-Two Interactive Software Inc. (TTWO - Free Report) , carrying a Zacks Rank #2 (Buy).
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JAKKS Pacific (JAKK) Q2 Loss Narrower than Expected
JAKKS Pacific Inc. (JAKK - Free Report) reported a narrower-than-expected loss and better-than-expected sales in the second quarter of 2016. The toy maker reiterated its guidance for 2016.
Quarter Discussion
The California-based company’s loss of 27 cents per share was narrower than the prior-year quarter loss and the Zacks Consensus Estimate of a loss of 30 cents. The improvement was driven by higher top line and an increase in margins. Lower share count owing to share buybacks also pared losses on a year-over-year basis.
JAKKS Pacific’s revenues increased 8% year over year to $141 million and also exceeded the Zacks Consensus Estimate of $136 million by 3.7%. The company’s revenues increased on the back of improved sales in role play, novelty and seasonal toy segment, offset by a decline in the traditional toys and electronics segment.
In fact, this marks the third consecutive second quarter with year-over-year growth in revenues and earnings.
JAKKS PACIFIC Price, Consensus and EPS Surprise
JAKKS PACIFIC Price, Consensus and EPS Surprise | JAKKS PACIFIC Quote
Behind the Headline Numbers
Gross margin in the quarter was 31.8%, up 180 basis points (bps) year over year, mainly due to lower product costs and lower royalties, driven by ongoing margin enhancement initiatives.
Selling, general and administrative expense ratio as a percentage of net sales increased 30 bps to 32.6% due to higher marketing expenses.
Adjusted EBITDA increased 166% to $4 million, compared with $1.5 million in the year-ago quarter, as the company prudently controlled costs and managed its expenses.
2016 Guidance Reiterated
JAKKS Pacific expects net sales to increase approximately 7% to $800 million in 2016. Earnings per share are projected to rise around 10% to 78 cents and adjusted EBITDA is likely to increase roughly 28%. The company’s outlook reflects anticipated gross margin expansion and operating leverage, partly offset by higher marketing costs.
Other Financial Update
The company repurchased about 3.2 million shares for $25.2 million and $0.7 million face amount of 2020 convertible notes at a cost of $1.9 million through the end of the second quarter. At quarter end, approximately $2.2 million remained available in the current buyback authorization.
Performance of Other Toymakers
Among other toymakers, Hasbro Inc. (HAS - Free Report) reported better-than-expected second-quarter 2016 results while Mattel Inc. (MAT - Free Report) posted a narrower-than-expected loss and better-than-expected sales for the second quarter of 2016.
Our Take
Despite reporting a loss in the second quarter, JAKKS Pacific is poised well owing to its cost saving initiatives, which include the elimination of underperforming units and rightsizing businesses.
Moreover, the company’s international expansion efforts have already started benefiting margins. Going forward, we remain optimistic about the company’s product launches and organic growth measures, such as securing new licenses. However, intense competition in the sector and elevated costs related to product launches remain concerns.
JAKKS Pacific currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the same space is Take-Two Interactive Software Inc. (TTWO - Free Report) , carrying a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>