Lower domestic product sales coupled with decline in product orders before the crucial holiday season led Malibu, California-based JAKKS Pacific Inc. (JAKK - Analyst Report) to slash its sales and earnings outlook for fiscal 2012. The company also had to bear the brunt of higher costs, including marketing and advertising expenses as well as minimum license royalty guarantees.

For 2012, the company lowered its net sales forecast to the range of $690—$700 million from the previous range of $720–-$728 million and adjusted earnings guidance to 68—74 cents from the earlier projection of $1.04 and $1.08 per share, excluding the legal and financial advisory charges. On a GAAP basis, JAKKS Pacific anticipates to finish 2012 in the range of a loss of $2.77 to earnings of 74 cents.

Management is apprehensive about the remainder of 2012 based on a host of factors which include tough retail environment, cost inflation, increased pricing pressures, and higher costs for many manufacturers operating in Asia affecting production and shipment.

The Zacks Consensus Estimate for the third quarter and fiscal 2012 are pegged at $1.43 and 52 cents, respectively. We expect estimates to go down in the coming days as the company reduced its fiscal 2012 guidance based on its weak retail sales prior to the upcoming holiday season.

Earlier, management remained upbeat on its product line-up driven by Monsuno, an animated Japanese television series, as well as a toy-line and Winx Club, an eminent fashion doll in European markets. However, the expectation does not seem to come into fruition.

JAKKS, which competes with Mattel Inc. (MAT - Analyst Report) and Hasbro Inc. (HAS - Analyst Report), is expected to report its third quarter 2012 results on October 15, 2012.

JAKKS Pacific currently carries a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.