Share price of JAKKS Pacific Inc. (JAKK) surged around 23% on Feb 26, 2014 after it posted narrower year over year loss.
Malibu, Calif.-based toy maker, JAKKS Pacific’s loss of 50 cents per share (adjusted for a one-time non-cash charge related to the impairment of deferred tax assets) in the fourth quarter of 2013 bettered the Zacks Consensus Estimate of a loss of 87 cents per share and the year-ago loss of $1.24. A better-than-expected top line performance and lower expenses boosted the bottom line in the quarter.
JAKKS Pacific’s revenues increased approximately 3.1% year over year to $137.7 million in the fourth quarter and beat the Zacks Consensus Estimate of $127.0 million by 8.4%. Higher sales in the Role Playing, Novelty and Seasonal Toys segment led to the improved top line.
Behind the Headline Numbers
Gross margin in the quarter was 28.1%, up 510 basis points year over year, mainly due to improved sales and lower costs of sales. Selling general and administrative expense ratio declined 660 basis points to 39.8%.
Full-Year Update
In 2013, the company posted a loss of $2.43 per share, better than the year-ago loss of $4.37 as well as the Zacks Consensus Estimate of a loss of $2.51. It was also narrower than management’s guidance of a loss of $2.56 per share. The loss includes inventory impairment and restructuring charges. Excluding these charges, the company posted adjusted loss of 89 cents compared with a loss of 39 cents in 2012.
Total revenue was $632.9 million, down 5.0% year over year. However, it surpassed the Zacks Consensus Estimate of $624.0 million by 1.4% and management’s guidance of $620.0 million.
First Quarter Guidance Up Y/Y
For the first quarter of 2014, the company expects loss in the range of 77 cents and 81 cents, narrower than a loss of $1.26 incurred during the year-ago period. However, the projected figure is wider than the Zacks Consensus Estimate of a loss of 70 cents per share. Revenues are expected in the range of $72.0 million to $75.0 million.
Guidance for 2014
The company expects to return to profitability in 2014 and expects earnings in the range of 30 cents to 40 cents per share. The improved guidance is attributable to cost-saving and other margin improvement initiatives undertaken in 2013.
Given the aggressive retail efforts, the company expects sales to gain momentum in 2014 and beyond. It expects 2014 revenues in the range of $633.0 million to $640.0 million.
Our Take
Despite posting a loss in the quarter, this Zacks Rank #3 (Hold) company performed better than expected on the back of an improved top line performance and cost saving initiatives undertaken during the second half of 2013. These cost saving initiatives include elimination of underperforming units and rightsizing of businesses.
Moreover, the company’s international expansion efforts have started yielding benefits leading to improved margins. Going forward, we remain optimistic about the company’s product launches and organic growth initiatives, which include securing new licenses.
Some better-ranked stocks in the sector include Glu Mobile, Inc. (GLUU) and Take-Two Interactive Software Inc. (TTWO). While Glu Mobile carries a Zacks Rank #1 (Strong Buy), Take-Two Interactive Software Inc. holds a Zacks Rank #2 (Buy).
Another toy company, Hasbro Inc. (HAS) recently posted dismal fourth quarter 2013 results with earnings and revenues missing the Zacks Consensus Estimate.
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