JAKKS Pacific, Inc. Reports Second Quarter 2013 Results and Revises 2013 Guidance
JAKKS Pacific, Inc. ReportsSecond Quarter 2013 Results and Revises 2013 Guidance
Suspends Dividend
MALIBU, Calif.--(BUSINESS WIRE)-- JAKKS Pacific, Inc. (NAS: JAKK) reported results for the Company's second quarter ended June 30, 2013.
Net sales for the second quarter of 2013 were $106.2 million compared to net sales of $145.4 million reported in the comparable period in 2012. The reported net loss for the second quarter was $46.9 million, or $2.14 per diluted share, which included charges for license minimum guarantee shortfalls of $14.1 million and inventory impairment of $12.2 million. This compares to net income of $0.2 million, or $0.01 per diluted share, reported in the comparable period in 2012, which included $1.7 million, or $0.5 per diluted share, of legal and financial advisory fees and expenses related to the 2011 unsolicited indication of interest.
Net sales for the six months ending June 30, 2013, were $184.3 million compared to $218.8 million in 2012. The net loss reported for the six month period was $74.4 million, or $3.40 per diluted share, which includes $0.8 million, or $0.03 per diluted share, of pre-tax financial and legal advisory fees and expenses relating to the 2011 unsolicited indication of interest, and charges for license minimum guarantee shortfalls of $14.4 million and inventory impairment of $14.9 million. This compares to a net loss for the first six months of 2012 of $15.8 million, or $0.61 per diluted share, which included $3.1 million, or $0.09 per diluted share, of pre-tax financial and legal advisory fees and expenses.
Stephen Berman, President and CEO of JAKKS Pacific, stated, "We are disappointed that JAKKS has not met its second quarter target and will not achieve its full year 2013 forecast. Sales for the second quarter were significantly below expectations due to a variety of factors. Several retailers, both in the United States and in Europe, are struggling and have substantially decreased their orders. In addition, the poor performance of several of our key properties, including Monsuno and the Winx Club, also contributed to the decline, along with unusually cool weather that affected seasonal toy sales leading to more aggressive markdowns at retail as shelves are cleared for back-to-school products. We also believe the decline in sales reflects the continuing change in play patterns of children of all ages, who continue to rely more and more on smart devices for their fun and entertainment. As previously announced, this shift in play patterns has caused companies like JAKKS to evolve to meet the changing demands of its consumers with technologically enhanced product offerings."
Mr. Berman continued, "We are making key, targeted moves to align operations, drive productivity and support innovation with the objective of returning the Company to profitability in 2014. We believe that JAKKS, which has now been in business for almost 18 years, will be able to weather the seismic shift that the toy industry is experiencing due in large part to our commitment to growing a segment of our portfolio that combines the power of digital content with physical product, such as our innovative DreamPlay line of toy products. These initiatives should be seen in this strategic context as we continue to reshape our business to improve innovation and product sales and with it our long-term ability to compete in a rapidly changing industry. Coupled with our core, evergreen business, we expect that JAKKS will be able to solidify its position in 2014 and beyond as one of the leading toy companies in the United States."
2013 Guidance
The Company currently anticipates net sales for the full year of approximately $620.0 million, with revised loss per share in the range of approximately $56.1 million, or $2.56 per diluted share. The revised guidance represents a reduction from the Company's previously anticipated full year net sales of approximately $694 million to $700 million and diluted earnings per share in the range of approximately $0.63 to $0.68, excluding financial and legal advisory fees relating to the 2011 unsolicited indication of interest.
Dividend
The Company also announced that due to business conditions, it has suspended its quarterly dividend, which it will re-evaluate upon a return to profitability.
Restructuring Plan
The Company also announced a restructuring plan to commence in the third quarter, which will include the substantial reduction of leased space, employees and other overhead expenses. Despite the projected loss this year, JAKKS is anticipating a return to profitability in the year 2014.
Conference Call
JAKKS Pacific will webcast its second quarter earnings conference call today, July 17, 2013, at 4:45 p.m. ET (1:45 p.m. PT). To listen to the live webcast, go to www.jakks.com/investors, and click on the earnings webcast link under Events and Presentations at least 10 minutes prior to register, download and install any necessary audio software. A telephonic playback will be available from 6:15 p.m. ET on July 17 through August 16, 2012. The playback can be accessed by calling 1-888-843-7419, or 1-630-652-3042 for international callers, pass code "35263238."
About JAKKS Pacific, Inc.
JAKKS Pacific, Inc. (NAS: JAKK) is a leading designer and marketer of toys and consumer products with a wide range of products that feature popular brands and children's toy licenses. JAKKS' diverse portfolio includes Action Figures, Electronics, Dolls, Dress-Up, Role Play, Halloween Costumes, Kids Furniture, Vehicles, Plush, Art Activity Kits, Seasonal Products, Infant/Pre-School, Construction Toys, Ride-On Vehicles, Wagons, Inflatable Environments and Tents, Impulse Toys and Pet Products sold under various proprietary brands including JAKKS Pacific®, Creative Designs International™, Road Champs®, Funnoodle®, JAKKS Pets™, Plug It In & Play TV Games™, Kids Only!®, Tollytots®, Disguise®, Moose Mountain® and Maui®. JAKKS is also the creator of the underlying Monsuno® property and toy line. JAKKS is an award-winning licensee of several hundred nationally and internationally known trademarks including Nickelodeon®, Warner Bros.®, Ultimate Fighting Championship®, Hello Kitty®, Graco® and Cabbage Patch Kids®. DreamPlay Toys, LLC is a joint venture between JAKKS Pacific, Inc. and NantWorks LLC to develop, market and sell toys and related consumer products incorporating NantWorks' proprietary iD image recognition technology. www.jakks.com
About DreamPlay Toys, LLC
JAKKS Pacific, Inc. and NantWorks LLC formed DreamPlay Toys, LLC, a joint venture company to develop, market and sell toys and related consumer products incorporating NantWorks' proprietary iD image recognition technology. This novel technology enables the consumer to instantly link a physical toy to interactive content, including video, animation and games using a smart phone or tablet device to instantly bringing the toy to life. JAKKS Pacific plans to introduce a broad product line, which will combine this revolutionary technology with exciting new content, including augmented reality, leaving consumers with a memorable and entertaining experience. JAKKS Pacific and NantWorks have also formed DreamPlay LLC, in order to extend image recognition technology to non-toy consumer products and applications.
This press release may contain forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) that are based on current expectations, estimates and projections about JAKKS Pacific's business based partly on assumptions made by its management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such statements due to numerous factors, including, but not limited to, those described above, changes in demand for JAKKS' products, product mix, the timing of customer orders and deliveries, the impact of competitive products and pricing, and difficulties with integrating acquired businesses. The forward-looking statements contained herein speak only as of the date on which they are made, and JAKKS undertakes no obligation to update any of them to reflect events or circumstances after the date of this release.
© 2013 JAKKS Pacific, Inc. All rights reserved.
JAKKS Pacific, Inc. and Subsidiaries | |||||||
Condensed Consolidated Balance Sheets | |||||||
June 30, | December 31, | ||||||
2013 | 2012 | ||||||
(In thousands) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 69,717 | $ | 189,321 | |||
Marketable securities | 220 | 218 | |||||
Accounts receivable, net | 94,915 | 105,455 | |||||
Inventory, net | 56,674 | 59,689 | |||||
Income taxes receivable | 24,008 | 24,008 | |||||
Deferred income taxes | 7,059 | 7,059 | |||||
Prepaid expenses and other current assets | 27,570 | 20,306 | |||||
Total current assets | 280,163 | 406,056 | |||||
Property and equipment | 95,572 | 94,799 | |||||
Less accumulated depreciation and amortization | 80,616 | 78,973 | |||||
Property and equipment, net | 14,956 | 15,826 | |||||
Goodwill | 48,502 | 48,836 | |||||
Trademarks & other assets, net | 69,420 | 73,946 | |||||
Investment in joint venture | 2,046 | 3,161 | |||||
Investment in DreamPlay | 7,000 | 7,000 | |||||
Total assets | $ | 422,087 | $ | 554,825 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable and accrued expenses | $ | 117,276 | $ | 101,470 | |||
Reserve for sales returns and allowances | 27,776 | 34,373 | |||||
Income taxes payable | 18,081 | 12,922 | |||||
Short term debt, net of current portion | - | 70,710 | |||||
Total current liabilities | 163,133 | 219,475 | |||||
Long term debt | 96,283 | 94,918 | |||||
Other liabilities | 18,368 | 18,345 | |||||
Income taxes payable | 4,614 | 4,687 | |||||
Deferred tax liability | 10,181 | 10,180 | |||||
Total liabilities | 292,579 | 347,605 | |||||
Stockholders' equity: | |||||||
Common stock, $.001 par value | 22 | 22 | |||||
Additional paid-in capital | 202,968 | 202,577 | |||||
Retained earnings (Accumulated deficit) | (68,683 | ) | 8,836 | ||||
Accumulated other comprehensive income (loss) | (4,799 | ) | (4,215 | ) | |||
Total stockholders' equity | 129,508 | 207,220 | |||||
Total liabilities and stockholders' equity | $ | 422,087 | $ | 554,825 | |||
Working Capital | $ | 117,030 | $ | 186,581 | |||
JAKKS Pacific, Inc. and Subsidiaries | ||||||||||||||||
Second Quarter Earnings Announcement, 2013 | ||||||||||||||||
Condensed Statements of Income (Unaudited) | ||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
(In thousands, expect per share data) | (In thousands, expect per share data) | |||||||||||||||
Net sales | $ | 106,232 | $ | 145,359 | $ | 184,301 | $ | 218,764 | ||||||||
Less cost of sales | ||||||||||||||||
Cost of goods | 74,248 | 78,472 | 120,533 | 118,717 | ||||||||||||
Royalty expense | 27,222 | 17,449 | 34,576 | 25,794 | ||||||||||||
Amortization of tools and molds | 2,524 | 2,545 | 3,575 | 3,794 | ||||||||||||
Cost of sales | 103,994 | 98,466 | 158,684 | 148,305 | ||||||||||||
Gross profit | 2,238 | 46,893 | 25,617 | 70,459 | ||||||||||||
Direct selling expenses | 6,976 | 9,795 | 17,472 | 19,285 | ||||||||||||
Selling, general and administrative expenses | 37,081 | 34,877 | 72,264 | 67,307 | ||||||||||||
Depreciation and amortization | 2,469 | 2,114 | 4,014 | 3,170 | ||||||||||||
Loss from operations | (44,288 | ) | 107 | (68,133 | ) | (19,303 | ) | |||||||||
Other income (expense): | ||||||||||||||||
Income from video game joint venture | - | 2,000 | - | 2,000 | ||||||||||||
Equity in net income (loss) of joint venture | (806 | ) | (98 | ) | (1,452 | ) | (44 | ) | ||||||||
Interest income | 134 | 314 | 209 | 513 | ||||||||||||
Interest expense, net of benefit | (2,058 | ) | (2,035 | ) | (4,904 | ) | (4,070 | ) | ||||||||
Loss before provision (benefit) for income taxes | (47,018 | ) | 288 | (74,280 | ) | (20,904 | ) | |||||||||
Provision (benefit) for income taxes | (145 | ) | 74 | 155 | (5,118 | ) | ||||||||||
Net loss | $ | (46,873 | ) | $ | 214 | $ | (74,435 | ) | $ | (15,786 | ) | |||||
Loss per share | $ | (2.14 | ) | $ | 0.01 | $ | (3.40 | ) | $ | (0.61 | ) | |||||
Shares used in loss per share | 21,920 | 25,870 | 21,921 | 25,766 | ||||||||||||
JAKKS Pacific, Inc.
Joel Bennett, 310-455-6210
Anne-Marie Feliciano, 310-455-6245
KEYWORDS: United States North America California
INDUSTRY KEYWORDS:
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