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JAKKS PACIFIC INC (JAKK)·Q3 2024 Earnings Summary

Executive Summary

  • Solid Q3 with broad-based toy strength offsetting costumes softness: net sales $321.6M (+4% YoY), operating income $68.1M (+9% YoY), diluted EPS $4.64 (+2% YoY), gross margin 33.8% (-70 bps YoY). Operating margin expanded 110 bps to 21.2% on lower SG&A mix and strong FOB execution.
  • Toys/Consumer Products grew 7% YoY; all toy divisions posted gains (Dolls/Role Play +5.5%, Action Play & Collectibles +5.4%, Outdoor/Seasonal +42.4%). Costumes declined 10% YoY as retailers recalibrated for lower Halloween demand.
  • Management reiterated confidence in finishing FY as planned and again targeted at least 30% full‑year gross margin; reiterated debt‑free position and no ABL draw at quarter‑end, highlighting balance sheet strength.
  • 2H/FY25 product catalysts in place (Moana 2, Sonic 3, The Simpsons, ABG portfolio) with early positive retail/consumer reception; international mixed with strength in LatAm (+48% YoY in Q3). Potential stock catalysts include sustained margin delivery ≥30%, capital allocation update, and sell‑through on content slate.

What Went Well and What Went Wrong

  • What Went Well

    • Broad toy growth with record shipping quarter in U.S.; operating margin improved to 21.2% on disciplined SG&A and durable 33.8% GM. “US business having its biggest shipping quarter in ten years.”
    • All toy divisions up; Outdoor/Seasonal inflected (+42.4% YoY) as listings and timing improved.
    • Strong balance sheet discipline: remained debt‑free with no credit line draw at quarter‑end; DSO/DSI trending favorable Q3 vs 1H. “We remain debt‑free as a company.”

  • What Went Wrong

    • Costumes down 10% YoY in Q3 and 11.3% YTD as retailers recalibrated for lower Halloween demand; Europe still rebuilding.
    • Gross margin compressed 70 bps YoY on higher product costs and tools/molds amortization; mix/rebate dynamics remained a headwind.
    • Retailer credit risk persists: management cited about 1% sales headwind from bankruptcies/high‑risk accounts and one notable past‑due customer.

Financial Results

Headline P&L – sequential performance

MetricQ1 2024Q2 2024Q3 2024
Revenue ($USD Millions)$90.1 $148.6 $321.6
Gross Margin %23.4% 32.0% 33.8%
Operating Income ($M)$(21.3) $7.6 $68.1
Operating Margin %(23.7%) 5.1% 21.2%
Net Income to Common ($M)$(13.2) $5.3 $52.3
Diluted EPS ($)$(1.27) $0.47 $4.64
Adjusted EBITDA ($M)$(17.2) $12.3 $74.4

Q3 year-over-year comparison

MetricQ3 2023Q3 2024
Revenue ($USD Millions)$309.7 $321.6
Gross Margin %34.5% 33.8%
Operating Income ($M)$62.4 $68.1
Diluted EPS ($)$4.53 $4.64
Adjusted EBITDA ($M)$67.1 $74.4

Segment sales – Q3 2024 vs Q3 2023

SegmentQ3 2023 ($M)Q3 2024 ($M)YoY %
Toys/Consumer Products$246.0 $264.3 7.4%
- Dolls, Role‑Play/Dress Up$139.2 $146.9 5.5%
- Action Play & Collectibles$93.7 $98.8 5.4%
- Outdoor/Seasonal Toys$13.1 $18.7 42.4%
Costumes$63.7 $57.3 (10.1%)
Total$309.7 $321.6 3.8%

Geographic sales – Q3 2024 vs Q3 2023

RegionQ3 2023 ($M)Q3 2024 ($M)YoY %
United States$244.9 $255.3 4.2%
Europe$31.7 $30.0 (5.2%)
Latin America$15.3 $22.6 47.7%
Canada$11.5 $7.1 (38.3%)
Asia$3.2 $2.3 (26.5%)
Australia & New Zealand$2.7 $3.3 24.0%
Middle East & Africa$0.5 $0.9 89.2%

KPIs and balance sheet – sequential

KPIQ1 2024Q2 2024Q3 2024
Cash & Equivalents incl. restricted ($M)$35.5 $17.9 $22.3
Inventory ($M)$46.3 $51.3 $63.5
DSO (days)81 86 83
DSI (days)61 46 27
TTM Adjusted EBITDA ($M)$59.6 $51.2 $58.5
Debt outstanding ($M)$0 (debt‑free) $0 (context) $0 (debt‑free)

Notes:

  • Non‑GAAP definitions and reconciliations provided by the company.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Gross Margin %FY 2024“Gross margin percentage that starts with a 3” (≥30%) “Minimum of 30% gross margins on a full year basis” Maintained
Costumes SalesFY 2024Expected slightly softer vs prior year globally Q3 down 10% YoY; YTD down 11.3% per plan to reflect lower Halloween demand Maintained/updated with actuals
Capital AllocationMulti‑yearEvaluating working capital, M&A, new licenses, and potential capital returns “No new news... getting closer to the point we can be more specific” Maintained status
Media Spend Timing2H 2024Not previously quantifiedShifted ~$2M of planned media into Q4 vs historical New timing detail

Company did not provide formal quantitative revenue/EPS guidance.

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Supply chain & FOB model70%+ FOB; opening EU logistics hubs; some Q2 logistics delays (Italy/Spain); working capital friendly Drove heavy Q3 sell‑in to mitigate FY risk; overcame port issues; building EU hub‑and‑spoke; no ABL draw Stable to improving
Content slate & product pipeline1H content‑light; 2H catalysts: Moana 2, Sonic 3; Simpsons launch; ABG; Dog Man 2025 Early consumer/retail strength for fall intros; Sonic 3, Moana 2 lines; Simpsons ramp; Dog Man interest high Improving into FY25
Costumes/HalloweenExpected slightly softer globally vs 2023 Q3 down 10% YoY; YTD down 11.3%; ex‑US Q3 up 7% Down but manageable
Gross margin & profitabilityQ2 GM 32.0% (best since 2012); aiming ≥30% FY GM 33.8%; reiterated ≥30% FY; operating margin 21.2% Stable to improving
Retailer credit riskLimited prior disclosureCredit quality remains concern; ~1% sales headwind; one notable past‑due NA account Deteriorating
International1H softness; logistics delays; expanding EMEA rights (e.g., Pokémon costumes) LatAm +48% YoY; Europe down modestly but building; costumes ex‑US up 7% Mixed
Private label & retail real estateCVS private label; out‑of‑aisle displays; broader placements Target private label success (cart/cash register/check lane); expanding internationally in 2025 Expanding
Capital allocationPost‑preferred redemption framework under evaluation “Closer to specifics,” no new announcement Advancing

Management Commentary

  • “US business having its biggest shipping quarter in ten years… Our gross margins remained strong at 33.8%… operating margin of 21.2%.” – Stephen Berman (CEO)
  • “We continue to feel that we are running a business that should deliver a minimum of 30% gross margins on a full year basis.” – John Kimble (CFO)
  • “We remain debt‑free as a company… a position of strength as we prepare for next year and evaluate new business opportunities.” – Stephen Berman
  • “Over half of our total company Toy and Consumer Product sales volume is driven by retail price levels of $30 or less… close to 90%… at $50.” – Stephen Berman
  • “Latin America continues to be our biggest asset story… shipped $22.6 million in the quarter, up 48%.” – Stephen Berman

Q&A Highlights

  • Outdoor/ABG ramp: Early Element skateboard sell‑through strong; broader ABG (Quiksilver, Roxy, etc.) launching across seasonal in 2025; outdoor comparisons getting easier and expected to grow in 2025.
  • 2025 IP (Dog Man, Sonic 3 tail, Moana 2): Retail receptivity strong; cautious inventory posture with ability to chase; diversified slate (Minecraft, Snow White, How to Train Your Dragon, Demon Slayer, PAW Patrol, Lilo & Stitch).
  • Private label: Target initiatives (cart, cash register, check lane) performing well; expanding private label programs internationally with announcements in 1H25.
  • Retail ordering behavior: Retailers more cautious upfront on content; JAKKS to protect downside (avoid over‑inventory) but ready to chase upside to maintain shelf space.
  • Gross margin outlook into holiday: Quarterly precision less meaningful given Q4 seasonality; reiterated confidence in ≥30% FY GM.

Estimates Context

  • We attempted to retrieve S&P Global consensus for Q3 2024 EPS and revenue, but data access was unavailable at this time; therefore, we cannot quantify beats/misses versus Wall Street estimates. S&P Global consensus was unavailable.
  • Given the company’s history of limited formal guidance, we expect estimate revisions to focus on: (1) better‑than‑feared costumes drag, (2) durability of 33%+ gross margin in peak quarter, and (3) 2025 revenue inflection from content and ABG execution.

Key Takeaways for Investors

  • Peak‑season execution delivered margin expansion and strong EPS despite costumes drag; sustaining ≥30% FY GM is credible given 33.8% in Q3 and mix levers.
  • Toy portfolio breadth is working: all three toy divisions grew; Outdoor inflection suggests recovery of a lagging category into 2025.
  • Costumes headwinds are calibrated and expected; ex‑US strength and broader IP slate should help mitigate volatility.
  • Balance sheet optionality (debt‑free, undrawn ABL) sets up for capital allocation actions once management finalizes plans; any buyback/dividend/M&A update is a potential catalyst.
  • International is a mixed but improving story (LatAm strength; Europe rebuilding); continued investment in EU logistics should support faster replenishment and sell‑through.
  • 2025 setup constructive: Moana 2 and Sonic 3 tails, Simpsons, Dog Man, and ABG seasonal portfolio broaden distribution and reduce seasonality/volatility.
  • Watch risks: retailer credit quality (≈1% sales impact), promotional environment, and content performance variability.

Other Relevant Q3 2024 Press/Context

  • Nintendo fall product launches and multi‑year license extension underscore durable evergreen drivers (Super Mario, Zelda, Metroid; RC racer, playsets).
  • Walmart Top Toys recognition for Sonic 3 Ultimate Talking Sonic and Wild Manes set supports retail reception to key lines.