Why JAKKS Pacific Shares Were Sent to Timeout

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: The fun and games are over for toy and consumer products maker JAKKS Pacific (NASDAQ: JAKK  ) , which saw its shares get mauled by 37% after reporting its second-quarter results.

So what: For the quarter, JAKKS' sales plummeted 27% to $106.2 million as the company reported a whopping $2.14 per share quarterly loss, which included other one-time expenses. Comparatively speaking, Wall Street was expecting a profit of $0.05 per share. Deciding not to renew its licensing for the Pokemon franchise, JAKKS bet the boat on strength from its Monsuno and Winx Club brands, which both performed poorly. Furthermore, JAKKS slashed its full-year revenue guidance to $620 million from its previous forecast of $694 million to $700 million, and it now estimates EPS losses of $2.56 when it had previously anticipated reporting a profit of $0.63-$0.68 per share this year.

If that wasn't enough of a dagger into shareholders' backs, it gets even worse. The company also announced a restructuring set to begin in the third quarter that will see jobs lost, stores closed and/or rental leases not renewed, and other expenses cut. As icing on the cake, JAKKS also suspended its quarterly dividend until the company returns to profitability.

Now what: If Wall Street rated earnings reports like critics rate movies, this earnings report would certainly be rated R because this was a massacre. The toy and game industry is already a competitive battleground, and losing Pokemon will only further heighten the uncertainties surrounding JAKKS Pacific. The seriousness of JAKKS downward spiral is evidenced by the dividend cut -- an action taken only when companies go into cash conservation mode. With so many unanswered questions here, I don't feel you have any choice but to put this stock in timeout and keep your distance until further notice.

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Related Tickers

8/25/2016 10:49 AM
JAKK $9.11 Down -0.05 -0.55%
JAKKS Pacific CAPS Rating: ****