JAKKS Pacific, Inc.’s (JAKK - Free Report) focus on diversifying its footprint outside the United States along with a string of acquisitions over the past several years bodes well. This is quite evident from the company’s share price performance in the past six months. The stock has surged 25.6%, outperforming the industry’s 15.6% rally. However, decrease in demand for its product and rising costs raise concerns. Let’s delve deeper.
JAKKS Pacific has emerged as a diversified consumer products company buoyed by a string of acquisitions over the past several years. Additionally, the company’s ability to successfully identify, close, and integrate acquisitions is commendable. This apart, JAKKS Pacific has collaborations with Disney, Skechers, Nickelodeon, Cabbage Patch Kids and Chico to manufacture toys and merchandise related to these brands. The company stated that it will benefit from the success of Incredibles 2 and expects to generate solid sales through the end of 2018 and into 2019.
Also, the company has licensing agreements with popular movie and television franchises like Time Warner’s Cartoon network, Warner Bros. Consumer Products, LAFIG and Sony Pictures Consumer Products and Universal Pictures. These, in turn, are expected to boost sales as merchandise based on movies enjoy immense popularity.
Meanwhile, JAKKS Pacific continues to strengthen its foothold outside the United States. Consistent with its endeavors, the company has opened sales offices and expanded distribution agreements for its products. Since management expects to benefit from geographic expansion, it started full-fledged operations at its newest sales office in Germany and France last year.
Furthermore, its partnership with Meisheng is expected to result in strong growth in Asia. After launching Tsum Tsum in key international markets like Latin America and Asia, the company plans to expand its distribution in new territories moving ahead.
Soft demand for its products has been hurting the company’s sales. In the second quarter of 2018, net sales declined 11.5% from the year-ago level. Per the Zacks Consensus Estimate sales for the third quarter is likely to witness a decline of 2.5%.
Similar to the traditional toymakers, JAKKS Pacific competes with a broad array of alternative modes of entertainment, including video games, MP3 players, tablets, smartphones and other electronic devices. Due to the shift in demand patterns of kids, the company’s revenues remain under pressure and are not likely to recover soon.
Further, Toys "R" Us liquidation, which has impacted the company’s sales, is an added concern. Also, other toymakers like Mattel (MAT - Free Report) and Hasbro (HAS - Free Report) are hurt due to the liquidation and the trend is likely to continue as a considerable portion of their revenues were generated from sales to Toys "R" Us.
Zacks Rank & Key Pick
JAKKS Pacific has a Zacks Rank #3 (Hold). A better-ranked stock in the same space is Glu Mobile Inc. (GLUU - Free Report) , which carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Glu Mobile has an impressive long-term earnings growth rate of 15%.
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