JAKKS Pacific, Inc. Reports Second Quarter 2013 Results And Revises 2013 Guidance

JAKKS Pacific, Inc. (NASDAQ: JAKK) reported results for the Company’s second quarter ended June 30, 2013.

Net sales for the second quarter of 2013 were $106.2 million compared to net sales of $145.4 million reported in the comparable period in 2012. The reported net loss for the second quarter was $46.9 million, or $2.14 per diluted share, which included charges for license minimum guarantee shortfalls of $14.1 million and inventory impairment of $12.2 million. This compares to net income of $0.2 million, or $0.01 per diluted share, reported in the comparable period in 2012, which included $1.7 million, or $0.5 per diluted share, of legal and financial advisory fees and expenses related to the 2011 unsolicited indication of interest.

Net sales for the six months ending June 30, 2013, were $184.3 million compared to $218.8 million in 2012. The net loss reported for the six month period was $74.4 million, or $3.40 per diluted share, which includes $0.8 million, or $0.03 per diluted share, of pre-tax financial and legal advisory fees and expenses relating to the 2011 unsolicited indication of interest, and charges for license minimum guarantee shortfalls of $14.4 million and inventory impairment of $14.9 million. This compares to a net loss for the first six months of 2012 of $15.8 million, or $0.61 per diluted share, which included $3.1 million, or $0.09 per diluted share, of pre-tax financial and legal advisory fees and expenses.

Stephen Berman, President and CEO of JAKKS Pacific, stated, “We are disappointed that JAKKS has not met its second quarter target and will not achieve its full year 2013 forecast. Sales for the second quarter were significantly below expectations due to a variety of factors. Several retailers, both in the United States and in Europe, are struggling and have substantially decreased their orders. In addition, the poor performance of several of our key properties, including Monsuno and the Winx Club, also contributed to the decline, along with unusually cool weather that affected seasonal toy sales leading to more aggressive markdowns at retail as shelves are cleared for back-to-school products. We also believe the decline in sales reflects the continuing change in play patterns of children of all ages, who continue to rely more and more on smart devices for their fun and entertainment. As previously announced, this shift in play patterns has caused companies like JAKKS to evolve to meet the changing demands of its consumers with technologically enhanced product offerings.”

Mr. Berman continued, “We are making key, targeted moves to align operations, drive productivity and support innovation with the objective of returning the Company to profitability in 2014. We believe that JAKKS, which has now been in business for almost 18 years, will be able to weather the seismic shift that the toy industry is experiencing due in large part to our commitment to growing a segment of our portfolio that combines the power of digital content with physical product, such as our innovative DreamPlay line of toy products. These initiatives should be seen in this strategic context as we continue to reshape our business to improve innovation and product sales and with it our long-term ability to compete in a rapidly changing industry. Coupled with our core, evergreen business, we expect that JAKKS will be able to solidify its position in 2014 and beyond as one of the leading toy companies in the United States.”

2013 Guidance

The Company currently anticipates net sales for the full year of approximately $620.0 million, with revised loss per share in the range of approximately $56.1 million, or $2.56 per diluted share. The revised guidance represents a reduction from the Company’s previously anticipated full year net sales of approximately $694 million to $700 million and diluted earnings per share in the range of approximately $0.63 to $0.68, excluding financial and legal advisory fees relating to the 2011 unsolicited indication of interest.


The Company also announced that due to business conditions, it has suspended its quarterly dividend, which it will re-evaluate upon a return to profitability.

Restructuring Plan

The Company also announced a restructuring plan to commence in the third quarter, which will include the substantial reduction of leased space, employees and other overhead expenses. Despite the projected loss this year, JAKKS is anticipating a return to profitability in the year 2014.

Conference Call

JAKKS Pacific will webcast its second quarter earnings conference call today, July 17, 2013, at 4:45 p.m. ET (1:45 p.m. PT). To listen to the live webcast, go to www.jakks.com/investors, and click on the earnings webcast link under Events and Presentations at least 10 minutes prior to register, download and install any necessary audio software. A telephonic playback will be available from 6:15 p.m. ET on July 17 through August 16, 2012. The playback can be accessed by calling 1-888-843-7419, or 1-630-652-3042 for international callers, pass code “35263238.”

About JAKKS Pacific, Inc.

JAKKS Pacific, Inc. (NASDAQ: JAKK) is a leading designer and marketer of toys and consumer products with a wide range of products that feature popular brands and children’s toy licenses. JAKKS’ diverse portfolio includes Action Figures, Electronics, Dolls, Dress-Up, Role Play, Halloween Costumes, Kids Furniture, Vehicles, Plush, Art Activity Kits, Seasonal Products, Infant/Pre-School, Construction Toys, Ride-On Vehicles, Wagons, Inflatable Environments and Tents, Impulse Toys and Pet Products sold under various proprietary brands including JAKKS Pacific®, Creative Designs International™, Road Champs®, Funnoodle®, JAKKS Pets™, Plug It In & Play TV Games™, Kids Only!®, Tollytots®, Disguise®, Moose Mountain® and Maui®. JAKKS is also the creator of the underlying Monsuno® property and toy line. JAKKS is an award-winning licensee of several hundred nationally and internationally known trademarks including Nickelodeon®, Warner Bros.®, Ultimate Fighting Championship®, Hello Kitty®, Graco® and Cabbage Patch Kids®. DreamPlay Toys, LLC is a joint venture between JAKKS Pacific, Inc. and NantWorks LLC to develop, market and sell toys and related consumer products incorporating NantWorks’ proprietary iD image recognition technology. www.jakks.com

About DreamPlay Toys, LLC

JAKKS Pacific, Inc. and NantWorks LLC formed DreamPlay Toys, LLC, a joint venture company to develop, market and sell toys and related consumer products incorporating NantWorks’ proprietary iD image recognition technology. This novel technology enables the consumer to instantly link a physical toy to interactive content, including video, animation and games using a smart phone or tablet device to instantly bringing the toy to life. JAKKS Pacific plans to introduce a broad product line, which will combine this revolutionary technology with exciting new content, including augmented reality, leaving consumers with a memorable and entertaining experience. JAKKS Pacific and NantWorks have also formed DreamPlay LLC, in order to extend image recognition technology to non-toy consumer products and applications.

This press release may contain forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) that are based on current expectations, estimates and projections about JAKKS Pacific’s business based partly on assumptions made by its management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such statements due to numerous factors, including, but not limited to, those described above, changes in demand for JAKKS’ products, product mix, the timing of customer orders and deliveries, the impact of competitive products and pricing, and difficulties with integrating acquired businesses. The forward-looking statements contained herein speak only as of the date on which they are made, and JAKKS undertakes no obligation to update any of them to reflect events or circumstances after the date of this release.

© 2013 JAKKS Pacific, Inc. All rights reserved.
JAKKS Pacific, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
June 30,   December 31,
2013 2012
(In thousands)
Current assets:
Cash and cash equivalents $ 69,717 $ 189,321
Marketable securities 220 218
Accounts receivable, net 94,915 105,455
Inventory, net 56,674 59,689
Income taxes receivable 24,008 24,008
Deferred income taxes 7,059 7,059
Prepaid expenses and other current assets   27,570     20,306  
Total current assets   280,163     406,056  
Property and equipment 95,572 94,799
Less accumulated depreciation and amortization   80,616     78,973  
Property and equipment, net   14,956     15,826  
Goodwill 48,502 48,836
Trademarks & other assets, net 69,420 73,946
Investment in joint venture 2,046 3,161
Investment in DreamPlay   7,000     7,000  
Total assets $ 422,087   $ 554,825  
Current liabilities:
Accounts payable and accrued expenses $ 117,276 $ 101,470
Reserve for sales returns and allowances 27,776 34,373
Income taxes payable 18,081 12,922
Short term debt, net of current portion   -     70,710  
Total current liabilities   163,133     219,475  
Long term debt 96,283 94,918
Other liabilities 18,368 18,345
Income taxes payable 4,614 4,687
Deferred tax liability   10,181     10,180  
Total liabilities   292,579     347,605  
Stockholders' equity:
Common stock, $.001 par value 22 22
Additional paid-in capital 202,968 202,577
Retained earnings (Accumulated deficit) (68,683 ) 8,836
Accumulated other comprehensive income (loss)   (4,799 )   (4,215 )
Total stockholders' equity   129,508     207,220  
Total liabilities and stockholders' equity $ 422,087   $ 554,825  
Working Capital $ 117,030 $ 186,581

JAKKS Pacific, Inc. and Subsidiaries
Second Quarter Earnings Announcement, 2013
Condensed Statements of Income (Unaudited)
  Three Months Ended June 30,   Six Months Ended June 30,
2013 2012 2013 2012
(In thousands, expect per share data) (In thousands, expect per share data)
Net sales $ 106,232 $ 145,359 $ 184,301 $ 218,764
Less cost of sales
Cost of goods 74,248 78,472 120,533 118,717
Royalty expense 27,222 17,449 34,576 25,794
Amortization of tools and molds   2,524     2,545     3,575     3,794  
Cost of sales   103,994     98,466     158,684     148,305  
Gross profit 2,238 46,893 25,617 70,459
Direct selling expenses 6,976 9,795 17,472 19,285
Selling, general and administrative expenses 37,081 34,877 72,264 67,307
Depreciation and amortization   2,469     2,114     4,014     3,170  
Loss from operations (44,288 ) 107 (68,133 ) (19,303 )
Other income (expense):
Income from video game joint venture - 2,000 - 2,000
Equity in net income (loss) of joint venture (806 ) (98 ) (1,452 ) (44 )
Interest income 134 314 209 513
Interest expense, net of benefit   (2,058 )   (2,035 )   (4,904 )   (4,070 )
Loss before provision (benefit) for income taxes (47,018 ) 288 (74,280 ) (20,904 )
Provision (benefit) for income taxes   (145 )   74     155     (5,118 )
Net loss $ (46,873 ) $ 214   $ (74,435 ) $ (15,786 )
Loss per share $ (2.14 ) $ 0.01 $ (3.40 ) $ (0.61 )
Shares used in loss per share 21,920 25,870 21,921 25,766

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