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JAKKS Pacific Down 53% in 3 Months: What's Hurting the Stock?

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Are you still holding shares of JAKKS Pacific, Inc. (JAKK - Free Report) and waiting for a miracle to take the stock higher in the near term? If yes, then you might end up losing more money as chances of a turnaround appear bleak in the near term. This is quite apparent from the stock’s decline of 48.7% in a year’s time. On the contrary, the Toys - Games - Hobbies industry has risen 3% in the same time period. Let’s delve deeper and analyze the factors behind this Zacks Rank #4 (Sell) company’s dismal performance.

JAKKS Pacific Vs Industry Scorecard

Concerns

The coronavirus pandemic has been wreaking havoc across the industry, and JAKKS Pacific isn’t immune to the trend. Management at the company is actively monitoring the global situation and the resulting impact on its financial condition, liquidity, operations, suppliers, industry, and workforce. Although the company is unable to estimate the impact of the COVID-19 outbreak at this time, it is likely that the pandemic will have an adverse effect on the company’s sales expectations for fiscal year 2020.

JAKKS Pacific has been grappling with escalating interest expenses. In second-quarter 2020, the company’s interest expenses increased to $5.5 million from $2.9 million in the prior-year quarter. During the three months ended Jun 30, 2020, it booked interest expenses of $0.6 million related to its convertible senior notes, $4.6 million related to its term loan, and $0.3 million in relation to its revolving credit facility.

A strong balance sheet helps a company tide over crisis. At the end of Jun 30, 2020, the company’s long-term debt was $174.2 million compared with $192.5 million as of Mar 31, 2020. However, the company’s debt-to-capitalization rose to 112.1% in the second quarter compared with 104.7% as of March-end. Moreover, JAKKS Pacific ended second-quarter fiscal 2020 with cash and cash equivalent of $52.7 million, which may not be enough to manage the high debt level.

Moreover, net sales in the Halloween segment were $22.5 million for the three months ended Jun 30, 2020, compared with $36.4 million for the prior-year period, representing a decrease of $13.9 million, or 38.2%. Notably, sales in the quarter were primarily impacted by lower retailer orders owing to the pandemic concerns on Halloween celebrations.

Key Picks

Some better-ranked stocks worth considering in the same space include Activision Blizzard, Inc. (ATVI - Free Report) , Electronic Arts Inc. (EA - Free Report) and Mattel, Inc. (MAT - Free Report) . While Activision Blizzard sports a Zacks Rank #1 (Strong Buy), Electronic Arts and Mattel carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Activision Blizzard and Electronic Arts has an impressive long-term earnings growth rate of 16% and 12.4%, respectively.

Mattel current quarter earnings are likely to witness growth of 42.3%.

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