Is JAKKS Pacific Broken Beyond Repair?

After JAKKS Pacific, a big licensee of Walt Disney, reported revenue and earnings for its second quarter, shares got hammered. In spite of this, does the business still have the ability to be an amazing prospect, or would investors be better off with Disney or Mattel?

Jul 23, 2014 at 5:00PM


Source: JAKKS Pacific

After JAKKS Pacific (NASDAQ:JAKK) on July 23 reported revenue that smashed forecasts because of the success of its products from Walt Disney (NYSE:DIS) and earnings that fell short of estimates for the second quarter of its 2014 fiscal year, shares plummeted 13%. In spite of this fall, however, the company's stock is still trading 63% above its 52-week low. Is this a sign that there's still plenty of room for the business to fall, making larger competitors like Mattel (NASDAQ:MAT) more attractive prospects? Or will JAKKS Pacific see a rebound in the long run?

Revenue soared but earnings missed... terribly!
For the quarter, JAKKS Pacific reported revenue of $124.2 million. In addition to coming in 17% above the $106.2 million management reported for the same quarter a year earlier, the company's top line blew past the $112.9 million analysts anticipated. According to the company's press release, this jump in sales was driven, for the most part, by the success of its Frozen product line.

  Last Year's Forecast Actual
Revenue $106.2 million $112.9 million $124.2 million
Earnings per Share -$2.14 -$0.29 -$0.43

Source: Yahoo! Finance and JAKKS Pacific

This was complemented by a general rise in Disney Princess dolls and dress up products, seasonal outdoor products, ride-ons, ball pits, and the business' Disguise Halloween costumes. Despite this success, the company's product sales did see some cannibalization by its Frozen line.

Although management reported blockbuster revenue growth for the quarter, it did suffer on the earnings front. For the quarter, JAKKS Pacific reported a loss per share of $0.43, easily missing the -$0.29 Mr. Market wanted to see. At first glance, this may seem terrible (and it is), but the company's bottom line managed to come in far better than the $2.14 loss per share reported for the second quarter of 2014.


Source: JAKKS Pacific

Even though revenue rose for the quarter, high costs negatively affected JAKKS Pacific's bottom line. Fortunately though, it does appear that costs are declining at a nice pace, with the company's cost of goods sold falling from 69.9% of sales to 55.9% and its royalty expenses dropping from 25.6% of sales to 12.1%.

Strong results are nothing new to Disney!
Over the past five years, Disney's consumer products segment has experienced a nice uptick in sales. Between 2009 and 2013, revenue stemming from the segment's licensing and publishing category (Disney doesn't separate these two activities) shot up 42% from $1.6 billion to $2.3 billion.

It should be noted, however, that not all of this growth has been organic. Although management has reported positive results in its Toy Story, Spider-Man, and Avengers product lines (to name a few), approximately $221 million of this rise in sales between 2009 and 2010 stemmed from Disney's acquisition of Marvel.

($in billions) 2013 2012 2011 2010 2009 Change
Consumer Goods Revenue $3.56 $3.25 $3.05 $2.68 $2.43 47%
Licensing and Publishing $2.25 $2.06 $1.93 $1.73 $1.58 42%
Segment Operating Income $1.11 $0.94 $0.82 $0.68 $0.61 83%

Source: Disney

Looking at profits, Disney's growth in sales has led to improved profits in its consumer products segment. Over the past five years, the company's operating income from this set of operations skyrocketed 83% from $609 million to $1.1 billion.

Unfortunately, these results also include the business' retail and other category, so it's impossible to know for sure exactly how much of the company's bottom-line growth can be attributed to licensing. But, the fact that management attributed its jump in operating income, in part, to its licensing category during four out of the past five years implies that its licensing business is seeing improved profitability.

Should investors ditch JAKKS Pacific in favor of Mattel?
For JAKKS Pacific, the past five years have been something of a disaster. Between 2009 and 2013, revenue at the toy and costume manufacturer dropped 21% from $803.7 million to $632.9 million. Although management attributed some of this decline to the business' role play, novelty, and seasonal toys operations, the biggest contributor to its declining revenue has been JAKKS Pacific's traditional toys and electronics category, which saw revenue free fall 27% from $439.4 million to $320.6 million.

JAKK Revenue (Annual) Chart

Jakks Pacific Revenue (Annual) data by YCharts

Over the same five-year period, larger rival Mattel saw sales shoot up 19% from $5.4 billion to $6.5 billion. According to the company's most recent annual report, this rise in revenue was driven largely by a 31% leap in revenue stemming from the company's Mattel girls and boys brands, which increased from $3.3 billion in 2009 to $4.3 billion by the end of the company's 2013 fiscal year.

JAKK Net Income (Annual) Chart

Jakks Pacific Net Income (Annual) data by YCharts

From a profit standpoint, the disparity between JAKKS Pacific and Mattel is even bigger. Between 2009 and 2013, JAKKS Pacific saw its net loss narrow from $385.5 million to $53.9 million. Although this may seem impressive, when you remove the $428.3 million worth of impairments the business booked in 2009, its net loss would have widened during this time frame. Mattel, on the other hand, reported strong performance over this five-year period, with net income soaring 71% from $528.7 million to $903.9 million, as rising revenue was accompanied by a decline in the company's cost of goods sold from 50% of sales to 46.4%.

Foolish takeaway
Right now, it makes sense that Mr. Market is none too pleased with JAKKS Pacific's quarterly performance, but it's possible that investors' reaction to the news is overblown. Yes, the business did see its bottom line come in worse than anticipated, but its results demonstrated a vast improvement over last year's metrics, and its revenue rose at a very strong clip. While it's possible that the company could make for a good long-term prospect, Mattel or Disney would likely provide the Foolish investor with a greater level of safety because of their size and diversification.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Daniel Jones has no position in any stocks mentioned. The Motley Fool recommends Mattel and Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers