JAKKS Pacific Inc. (JAKK) reported a first quarter 2011 loss of 39 cents per share, an inch narrower than the Zacks Consensus Estimate for a loss of 40 cents. 

The result compares to a 37-cent loss per share in the prior-year quarter.

The company reported a 6.5% year-over-year decrease in revenues to $72.3 million. The quarter’s revenue, however, surpassed the Zacks Consensus Estimate of $67.0 million.

Gross margin expanded 100 bps to 33.6%, despite persistent cost pressures and a shift in product mix. Selling, general and administrative expenses grew 4.7% year over year to $29.2 million.

Financial Position

At quarter-end, JAKKS had cash and cash equivalents and marketable securities of $275.0 million, versus $278.6 million at December 31, 2010. The company’s long-term debt was $90.1 million, versus $89.5 million at December 31, 2010.


For 2011, JAKKS expects adjusted earnings between $1.32 and $1.35 per share, up 4% to 6% year over year. The company’s sales guidance is $770–$775 million, implying a growth of 3% to 4%.

The company expects growth across all units, including role play toys, action figures, Halloween costumes, electronics, kids’ furniture and dolls. Management also appears keen on acquisitions and is looking for possible targets. However, JAKKS expects cost inflation to continue in 2011.

Our Take

We remain optimistic on JAKKS’ long-term growth potential with product launches, possible acquisitions and a strong financial condition. Management expects continued margin improvement for the second half of 2011. However, higher input costs, faltering consumer confidence and a seasonally weak upcoming quarter remain causes for concern. Moreover, JAKKS’ earnings outlook for the 2011 seems conservative. It is below the current Zacks Consensus Estimate of $1.41.

One of JAKKS’ primary competitors Hasbro Inc. (HAS) reported first quarter 2011 results earlier this month. Hasbro lagged our expectation on earnings per share, but topped on revenue. Hasbro also has a strong product line-up in 2011 and beyond.

JAKKS Pacific has a Zacks #3 Rank (short-term ‘Hold’ recommendation). For the long-term, we reiterate an Underperform rating.

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