I have to be honest -- I'm not the biggest fan of 4Kids Entertainment (NYSE: KDE ) . I think it has a fun portfolio of marketable properties for the younger set. But therein lies its greatest weakness: the intrinsically fickle nature of the demographic that feeds 4Kids' fortunes. When the company is hitched to a hot fad, shareholders will be happy. When it isn't, happiness is nowhere to be found.
That's the way it is right now. For the second quarter, 4Kids' net sales from continuing operations declined by 28%, coming in at $12 million. The net loss from continuing operations widened to $0.17 per diluted share; last year, the net loss from continuing operations was $0.05 per diluted share.
I have the same feeling about the company this time as I did when I covered the company's fourth-quarter report back in March -- frankly, I'm not too excited. That might be sad to say, considering the reasonably cook properties that 4Kids has. Teenage Mutant Ninja Turtles, Yu-Gi-Oh, and Cabbage Patch Kids aren't slouches when it comes to brand equity. In addition, the company is involved with Microsoft (Nasdaq: MSFT ) and its Viva Pinata universe. 4Kids has a cool strategy for showing off its wares -- it pays News Corp. (NYSE: NWS ) to run its shows on Fox, it distributes home videos, and it uses the Web to get kids into the material. But unless the franchises are on fire, 4Kids' stock won't necessarily going to grow like a weed, cool strategy or not.
Taking a peek at the latest 10-Q, I see that 4Kids has been using a lot more cash for operations these days. For the six-month period, net cash used for continuing operations rose more than 500% to $3.3 million. You know what that means -- no free cash flow. So we've got a business based on being in the right trend at the right time, and it's now reporting losses and a lack of cash generation. You can see why I'm bearish.
Maybe some new stuff will help. The earnings release says something about a Chaotic card property that will have an accompanying website. There's also Sega's cartoon series, Dinosaur King. But who knows whether these will catch on fire?
For child-friendly investments, companies such as Hasbro (NYSE: HAS ) and Mattel (NYSE: MAT ) offer investors better exposure to merchandise properties for kids. Perhaps you should just forgo investing in 4Kids for now.
Further foursquare Foolishness:
Hasbro is on the Motley Fool Stock Advisor recommendation list. Sign up for a free 30-day trial to see how the Gardner brothers can help you construct a long-term, wealth-building portfolio. Microsoft is an Inside Value pick.
Fool contributor Steven Mallas owns none of the companies mentioned. As of this writing, he was ranked 12,056 out of more than 60,000 investors in the Motley Fool CAPS system. Don't know what CAPS is? Check it out. No Pokeball can hold the Fool's disclosure policy.