Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Jakks Pacific Inc (JAKK, Financial) reported a gross margin increase of 130 basis points, reaching 32.0%, the best Q2 margin since 2012.
- The doll and role play division saw a 6.6% increase in net sales, despite challenging comparisons with previous Disney releases.
- The company was named the 2023 Hard Goods Vendor of the Year by Target, highlighting strong retail partnerships.
- Jakks Pacific Inc (JAKK) is launching several new product lines, including The Simpsons and Wild Manes, which have received positive early reactions.
- The company has successfully reduced its total inventory level to $51 million, the lowest since 2010, indicating efficient inventory management.
Negative Points
- Total business sales decreased by 11% compared to the same quarter last year, reflecting a challenging market environment.
- The action play and collectible business experienced a significant decline of 30.5% in net sales, impacted by tough comparisons with the previous year's Super Mario Brothers movie.
- International sales dropped by 31.1%, partly due to logistic issues in Asia, affecting overall performance.
- The disguise costume business saw a decline in net sales from $49 million to $44 million, with expectations of a softer performance globally.
- Adjusted EPS decreased to $0.65 per diluted share, down from $1.26 last year, indicating a decline in profitability.
Q & A Highlights
Q: How do you view the Authentic Brands Group (ABG) initiative's potential to offset seasonality in your business?
A: Stephen Berman, CEO, explained that the ABG initiative is expected to level out revenue by introducing products like Element skateboards, Roxy, and Quiksilver, which are less seasonal and have strong brand recognition. This initiative aims to create a stable, evergreen segment that is not hit-driven, appealing to a wide demographic.
Q: What has been the response to The Simpsons product line, and how do you plan to cater to both collectors and kids?
A: Stephen Berman noted that The Simpsons products have not been in the market for over 15 years, creating significant demand. The response has been strong, with a blend of collectible items for adults and products for kids. The company aims to manage excitement and build The Simpsons into an evergreen brand, similar to Sonic and Nintendo.
Q: How have supply chain issues affected international sales, and what is the strategy moving forward?
A: Stephen Berman stated that supply chain issues, particularly in Europe, were due to new logistics centers in Italy and Spain. These issues have been resolved, and the company plans to continue focusing on FOB (Free on Board) sales, which are capital-efficient, while managing inventory cautiously.
Q: With the company being debt-free, what are the plans for capital allocation?
A: Stephen Berman mentioned that the company is exploring various capital allocation strategies, including dividends, buybacks, and acquisitions. They are assessing opportunities arising from industry bankruptcies and are in discussions with the board to determine the best course of action.
Q: What is the outlook for the second half of 2024 and beyond?
A: Stephen Berman expressed optimism for the second half of 2024, driven by new product launches and support for major film releases like Disney's Moana 2 and Sega's Sonic the Hedgehog 3. The company is also excited about 2025, with plans to expand product lines and capitalize on streaming launches.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
