Executive Summary

Q4 2023 revenue was $127.4M (-3% YoY), while gross margin expanded 480 bps YoY to 26.5% on better landed product costs and lower inventory obsolescence; GAAP diluted EPS was $(1.12) vs $3.66 in Q4’22, with the YoY swing largely due to a massive tax benefit in Q4’22, not operating deterioration .
Adjusted loss per diluted share improved to $(1.04) from $(1.42) in Q4’22, and adjusted EBITDA improved to $(10.9)M from $(12.1)M; Toys/Consumer Products grew 1% while Costumes fell 40% in the quarter .
Management highlighted structural margin gains (COGS efficiency and mix) and reiterated an FOB-first model (FOB sales mix >70% in 2023); interest expense is expected to be “nominal” in 2024 after eliminating long-term debt in H1’23 .
Outlook/catalysts: 2024 content is back-half weighted (Moana 2, Sonic franchise, The Simpsons toy launch) and European expansion is ramping, but a lighter near-term film slate tempers H1; no quantitative guidance was provided .

What Went Well and What Went Wrong

What Went Well
- Gross margin expanded 480 bps YoY in Q4 (26.5% vs 21.7%), driven by improved landed product costs and reduced inventory obsolescence; full-year gross profit dollars rose 6% despite an 11% sales decline .
- Cost discipline and mix drove operating resilience: full-year operating margin was 8.3% (highest in ~15 years), and interest expense fell to $6.5M in 2023 after debt retirement, with “nominal” interest expected in 2024 .
- Segment mix helped: Action Play & Collectibles rose 27% for FY’23 and Dolls/Role-Play grew 6% in Q4 as the company lapped 2022’s blockbuster comps, supporting margin dollars .
What Went Wrong
- Headline revenue contracted: Q4 sales declined 3% YoY and Costumes fell 40% (54% North America), reflecting weaker Halloween industry demand and customer recalibration post-COVID .
- GAAP optics were noisy: Q4’23 GAAP net loss $(11.3)M vs Q4’22 net income $37.6M due to a large Q4’22 tax valuation allowance release/benefit and derivative fair value swings, obscuring underlying operating improvements .
- Retail caution persists and a lighter near-term tentpole slate could weigh on H1’24 traffic and impulse purchases; management expects more of the 2024 lift in H2 (Moana 2, Sonic) .

Financial Results

Metric	Q4 2022	Q3 2023	Q4 2023
Revenue ($MM)	$131.9	$309.7	$127.4
Gross Margin %	21.7%	34.5%	26.5%
Gross Profit ($MM)	$28.6	$107.0	$33.7
Operating Income ($MM)	$(15.7)	$62.4	$(15.3)
GAAP Diluted EPS ($)	$3.66	$4.53	$(1.12)
Adjusted Diluted EPS ($)	$(1.42)	$4.75	$(1.04)
Adjusted EBITDA ($MM)	$(12.1)	$67.1	$(10.9)

Segment net sales (Q4 2023 vs Q4 2022):

Division	Q4 2022 ($MM)	Q4 2023 ($MM)	YoY %
Toys/Consumer Products	$117.7	$118.9	+1.0%
- Dolls, Role-Play/Dress Up	$68.9	$73.3	+6.3%
- Action Play & Collectibles	$38.9	$35.3	-9.2%
- Outdoor/Seasonal Toys	$9.9	$10.3	+4.0%
Costumes	$14.2	$8.5	-39.7%
Total	$131.9	$127.4	-3.4%

Geographic net sales (Q4 2023 vs Q4 2022):

Region	Q4 2022 ($MM)	Q4 2023 ($MM)	YoY %
United States	$100.9	$96.3	-4.6%
Europe	$19.4	$18.0	-7.5%
Latin America	$2.6	$4.4	+68.8%
Canada	$4.8	$4.7	-2.3%
Asia	$1.7	$2.1	+26.0%
Australia & New Zealand	$1.8	$1.5	-18.4%
Middle East & Africa	$0.6	$0.4	-40.4%
Total	$131.9	$127.4	-3.4%

Key KPIs and balance sheet

KPI	Q3 2023	Q4 2023
Cash & cash equivalents ($MM)	$96.4	$72.6
Total Debt ($MM)	$0.0	$0.0
Inventory ($MM)	$68.8	$52.6
Accounts Receivable DSO (days)	61	89
Inventory Turnover DSI (days)	31	52
FOB sales mix (% of sales, FY)	—	>70% (FY’23)

Non-GAAP adjustments (Q4 snapshot): Adjusted EPS excludes restricted stock comp ($2.06M), preferred stock derivative fair value change ($1.36M), and a tax valuation allowance adjustment (~$2.58M), among other items; adjusted EBITDA reconciles out the same non-cash/non-recurring items .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	FY 2024	—	No quantitative guidance provided	—
Gross/Operating Margins	FY 2024	—	Maintain COGS efficiency; margin discipline emphasized (qualitative)	—
Interest Expense	FY 2024	—	“Nominal” in 2024 following debt retirement	—
Tax Rate	FY 2024	—	Planning assumption historically “low 20s”; Q4’23 included a discrete ~$2.6M tax pickup excluded from adjusted EPS	—
Segment/Other	FY 2024	—	H2-weighted content (Moana 2, Sonic, Simpsons); European expansion ramping (qualitative)	—

Note: The company did not issue formal numerical guidance in the Q4 release or call.

Earnings Call Themes & Trends

Topic	Previous Mentions (Q2’23, Q3’23)	Current Period (Q4’23)	Trend
Supply chain/COGS	Margin tailwinds from freight normalization; product margin +370–420 bps in 1H’23	COGS down to 50.9% FY; Q4 landed cost improvement helped; aim to sustain efficiency	Favorable, sustained
FOB model	Emphasis on FOB-first; retailers cautious, later orders	FOB mix >70% in 2023; model benefits price/value and working capital	Structural advantage
Retail inventory/discounting	Retailers leaning out inventory; cautious buys	Top 3 US retail inventories down HSD YoY exiting Q4; pricing discipline; discounting manageable	Cleaner channel
International expansion	LatAm near-doubling 1H; EU DC/office buildout	Largest Nuremberg presence; new EU leadership; expect growth with expanded footprint	Building momentum
Content/IP slate	Nintendo/Sonic drove 2023; ABG/Simpsons announced (late 2024)	Lighter H1’24 slate; H2 catalysts: Moana 2, Sonic (Prime/Knuckles/Film), Simpsons launch	Back-half weighted
Macro/consumer	Retail cautious; mix shifting; under-$30 sweet spot	Similar themes; H1 lacks tentpoles; core evergreen value positioning emphasized	Cautious H1 stance
Tax/derivatives	2023 non-cash derivative/tax items affected GAAP	~15.2% FY ETR; ~$2.6M tax pickup excluded from adjusted EPS; derivative FV change adjusted out	GAAP/Non-GAAP divergence persists

Management Commentary

“Q4 net sales of $127.4 million were down 3% versus prior year… This improvement generated a 6% increase in gross margin dollars in 2023 compared to prior year… the highest the company has achieved since 2015.” — CEO Stephen Berman .
“On a full year basis [COGS was] 50.9% of net sales… driven by… designing for margin… factory collaboration… and carefully managing owned inventory.” — CFO John Kimble .
“Our FOB sales mix exceeded 70% on a total company basis in 2023… finished goods inventory… $52.6 million, a 35% reduction from last year’s $80.6 million.” — CFO John Kimble .
“We are delighted… Disney plans to release Moana 2… and… three new pieces of entertainment in the world of Sonic… [We] developed custom product lines… in addition to refreshes… of our successful core Sonic… assortments.” — CEO Stephen Berman .
“We… made great progress sharing our new Simpsons line… It’s been over 15 years since The Simpsons toy range has been in the market… we are thrilled to make them available.” — CEO Stephen Berman .

Q&A Highlights

Film slate and consumer impact: Absent “toyrific” tentpoles, fewer traffic-driven impulse buys; strategy leans on evergreen, value-focused portfolio (under $30) until H2 catalysts arrive .
ABG/seasonal timing: Skateboards/roller skates targeted for fall 2024; broader seasonal assortment for spring/summer 2025; retail commitments building .
International growth: New EU DCs/offices (Italy, Belgium, France) and leadership to accelerate growth; momentum strongest in LatAm; expect expansion from a lower base .
Shipping/freight risks: FOB focus limits exposure; Europe routing disruptions monitored but not a top-five concern currently .
Pricing/discounting: Inventory cleanliness helps; majority of assortment under $50 supports value positioning; markdown exposure manageable .

Estimates Context

Wall Street consensus (S&P Global) for Q4’23 was unavailable via API at the time of analysis due to a daily request limit; as a result, we cannot provide vs-consensus comparisons or quantify beats/misses.

Key Takeaways for Investors

Structural margin improvement is real: Q4 GM +480 bps YoY; FY COGS down to ~50.9% on design-for-margin, sourcing, and inventory discipline—an underpin for durable profitability even at lower volumes .
Underlying operating trends are better than GAAP optics: Q4’22 benefited from a massive tax release; on a non-GAAP basis, Q4’23 adjusted EPS and EBITDA improved YoY, reflecting core margin gains .
Clean channel and capital structure de-risk 2024: Retail inventory down HSD at top accounts; company inventory -35% YoY; zero long-term debt; 2024 interest expense expected “nominal” .
Near-term (H1) likely muted by lighter tentpoles; H2 skew with Moana 2, Sonic (Prime/Knuckles/Film), and Simpsons launch creates setup for 2H acceleration and potential estimate revisions later in the year .
International is a multi-year call option: LatAm strength and EU buildout (new DCs/offices, leadership) can diversify seasonality and expand margins via scale and logistics improvements .
Mix matters: Toys/Consumer Products resilience (+1% in Q4) offsets Costumes volatility; Action Play & Collectibles strength (up 27% FY) and evergreen franchises (Disney, Nintendo, Sonic) support sustained sell-through .
Trading angle: With no numeric guidance, the narrative turns on evidence of margin durability in H1 and the H2 content ramp; watch retail inventory data points, order timing, and any early shelf reads on Simpsons and Moana placements .

JAKKS PACIFIC INC (JAKK)·Q4 2023 Earnings Summary