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JAKKS PACIFIC INC (JAKK)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 2024 was seasonally small and materially weaker year-over-year: net sales fell 16% to $90.1M and gross margin contracted 580 bps to 23.4% on higher obsolescence and retailer markdowns tied to a disappointing Q4 2023 film release .
  • Non-GAAP metrics deteriorated: Adjusted EPS was a loss of $1.09 vs. a $0.40 loss in Q1 2023, and Adjusted EBITDA was $(17.2)M vs. $(1.1)M in Q1 2023 .
  • Balance sheet positive catalyst: retirement of preferred shares removed restrictions on capital return; total debt remains zero, cash was $35.5M at quarter end (seasonally low), and inventory declined to $46.3M .
  • Management expects margin recovery as one-time cleanup effects subside and back-half content (Moana 2, Sonic 3) plus evergreen lines drive sales; they reiterated confidence that full-year gross margin will “start with a 3” despite Q1 pressure .

What Went Well and What Went Wrong

What Went Well

  • “For the first time in many years, there are no lenders or other parties restricting the common stockholders’ claim over the entire enterprise,” after retiring preferred shares at a discount, removing a capital return constraint .
  • Strategic pipeline for H2 and 2025: retailers reacted positively to new licenses and evergreen portfolio; Moana 2 and Sonic 3 lines expected on shelf in Q4 with strong engagement in Europe and Latin America .
  • Evergreen strength and strategic focus: management emphasized expanding evergreen brands and international distribution, with confidence in a gross margin that “starts with a 3” for the year even though Q1 was weak .

What Went Wrong

  • Net sales down 16% to $90.1M; Toys/Consumer Products down 15% and Costumes down 25% year-over-year amid a light film slate and markdowns to clear inventory tied to a Q4 2023 release .
  • Gross margin compressed 580 bps to 23.4%; margin headwinds included obsolescence, retailer price promotions, and cleanup of the prior film-driven assortment .
  • Operating loss widened to $(21.3)M (vs. $(4.4)M) and G&A rose 22% y/y as management invests in infrastructure, technology, and international capabilities; CFO noted small-quarter dynamics magnified timing and cost effects .

Financial Results

MetricQ3 2023Q4 2023Q1 2024
Revenue ($USD Millions)$309.744 $127.396 $90.076
Gross Margin (%)34.5% 26.5% 23.4%
Operating Income (Loss) ($USD Millions)$62.399 $(15.340) $(21.324)
Net Income (Loss) to Common ($USD Millions)$47.754 $(11.252) $(13.175)
Diluted EPS ($)$4.53 $(1.12) $(1.27)
Adjusted EPS ($)$4.75 $(1.04) $(1.09)
Adjusted EBITDA ($USD Millions)$67.071 $(10.929) $(17.235)

Segment Net Sales (Q1):

SegmentQ1 2023 ($USD Millions)Q1 2024 ($USD Millions)
Toys/Consumer Products$97.893 $82.910
- Dolls, Role-Play/Dress Up$47.843 $40.574
- Action Play & Collectibles$37.846 $33.008
- Outdoor/Seasonal Toys$12.204 $9.328
Costumes$9.591 $7.166
Total$107.484 $90.076

Geography Net Sales (Q1):

RegionQ1 2023 ($USD Millions)Q1 2024 ($USD Millions)
United States$80.443 $70.430
Europe$10.162 $5.735
Latin America$9.204 $7.996
Canada$4.054 $3.370
Asia$1.380 $0.965
Australia & New Zealand$1.608 $1.346
Middle East & Africa$0.633 $0.234
Total$107.484 $90.076

KPIs and Balance Sheet/CF:

KPIQ1 2023Q4 2023Q1 2024
Cash & Equivalents ($USD Millions)$38.103 $72.350 $35.290
Inventory ($USD Millions)$63.988 $52.647 $46.341
Total Debt ($USD Millions)$29.444 $0.000 $0.000
DSO (days)71 89 81
DSI (days)76 52 61
Cash Flow from Operations ($USD Millions, period)$(4.116) $66.404 (FY) $(7.938)
Capex ($USD Millions, period)$3.490 $8.906 (FY) $2.228

Notes:

  • Q1 2024 versus Q4 2023 showed sequential declines in revenue and margins, reflecting seasonal trough and cleanup actions; year-over-year declines were broader across segments/regions, with Europe particularly soft (-44% y/y) .
  • Non-GAAP reconciliations and definitions provided in the company’s 8-K exhibits .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Gross Margin (%)FY 2024No formal guidanceManagement expects full-year GM% to “start with a 3” despite Q1 weakness Introduced qualitative outlook
Capital AllocationFY 2024N/APreference shares retired; board evaluating capital return, licenses, M&A, working capital needs Strategic update
Content & Product TimingH2 2024N/AMoana 2 and Sonic 3 expected to support Q4 assortments; Simpsons initial global launch in late 2024, broader rollout in 2025 New content timing detail

No quantified revenue/EPS/margin guidance ranges were provided in Q1 materials; commentary emphasized back-half content, evergreen portfolio, and international expansion .

Earnings Call Themes & Trends

TopicQ3 2023 (Prev-2)Q4 2023 (Prev-1)Q1 2024 (Current)Trend
Gross Margin+600 bps y/y improvement on landed costs and freight; tooling capitalization boost 480 bps y/y improvement in Q4; full-year GM 31.4% Q1 GM compressed to 23.4%; one-time cleanup and promotions; confidence in GM “starting with a 3” for FY Near-term pressure; FY recovery expected
Preferred/Capital StructureDebt retired; clean balance sheet progress Debt-free; end-year cash $72.6M Preferred shares retired; exploring capital return, licenses, M&A Structural de-risking; optionality rising
Content slate & productABG partnership; Simpsons license announced for 2024 Moana 2, Sonic Prime/Knuckles/Sonic 3; ABG rollouts detailed Emphasis on Q4 Moana 2/Sonic 3; Simpsons tease late-2024, major 2025 rollout Back-half content tailwinds
International expansionMexico and EU initiatives; Italy facility setup Larger Nuremberg presence; Europe team build-out Focus on EU distribution and growth; FOB-first model noted Building capacity; expected FY improvement
Cost/SG&A & infraMargin design, freight normalization Investing in tech/cybersecurity; operating margin 8.3% FY SG&A heavier near-term; infrastructure and demand-creation investments Investing for medium-term efficiency

Management Commentary

  • CEO on seasonality and film slate: “Without that new news in Spring 2024... we experienced lower levels of both [shipping and retail sales] as anticipated. We also continued to see weakening demand for products from a Q4 2023 film release... supported our retail partners in funding markdowns... and addressing cancelled reorders” .
  • CFO on margins: “Q1 saw a number of negative impacts... unique to Q1... for the balance of the year... a lot of that... bad news is behind us... we still feel we are running a business that will generate a gross margin percentage that starts with a 3” .
  • CEO on capital structure: “For the first time in many years, there are no lenders or other parties restricting the common stockholders’ claim over the entire enterprise... a fantastic starting point” .
  • Strategic pipeline: “We are very excited... supporting two of the bigger film releases planned for Q4... traction... new 2025 initiatives... relentless efforts to expand our international network” .

Q&A Highlights

  • Limited live Q&A; management addressed emailed questions. Margin unpacking: CFO detailed Q1 one-time impacts and price promotion pressure, with expectation of improvement through the year .
  • Product rollout timing: CEO noted ABG skateboards/roller skates targeted for fall 2024; broader outdoor categories in 2025; Simpsons tease in late 2024 with major rollout in 2025 .
  • Liquidity and shipping costs: Given FOB-first mix, rising shipping costs were not a top concern; Europe disruptions more relevant to transit times/capacity .

Estimates Context

  • Wall Street consensus (S&P Global) for Q1 2024 EPS and revenue was unavailable at time of analysis due to a Capital IQ request limit; therefore, we cannot assess beats/misses versus consensus. Values retrieved from S&P Global were unavailable.

Key Takeaways for Investors

  • Q1 2024 was a cleanup quarter with margin compression and markdown support tied to a weak Q4 film release; expect margin normalization as promotional pressure abates and one-time effects roll off .
  • Structural de-risking continues: debt-free and preferred shares retired, increasing flexibility for capital allocation (licenses, M&A, potential capital return) while maintaining liquidity through seasonal troughs .
  • Back-half setup looks favorable: Moana 2 (Disney) and Sonic 3 (Paramount) plus evergreen franchises set to drive Q4 shelf presence; Simpsons and ABG initiatives extend into 2025, diversifying seasonality and categories .
  • International growth is a multiyear lever: expanded EU footprint and strong Latin America momentum (e.g., Mexico) should support distribution and scale; FOB-first model aids working capital efficiency .
  • Near-term P&L sensitivity: smaller quarters amplify timing/SG&A effects; investors should monitor Q2 margin progression, inventory health, and retail sell-through trends to gauge trajectory into H2 .
  • Segment watch: Action Play & Collectibles has secular momentum tied to gaming/IP; Costumes remains sensitive to film slate; Outdoor/Seasonal repositioning with ABG could mitigate historical volatility .
  • With no formal quantitative guidance, focus on execution against back-half content, evergreen placements, and Europe/LATAM distribution to drive FY margins back over 30% per management commentary .