MAT Mattel Inc

Toy maker JAKKS Pacific Inc.’s (JAKK) adjusted loss of 65 cents per share in the first quarter of 2012, was considerably wider than the Zacks Consensus Estimate of a loss of 61 cents. The quarterly results also deteriorated considerably from the year-ago earnings of 40 cents per share and was below management’s guidance of 61 cents to 64 cents loss.

On a GAAP basis, reported loss of 62 cents per share was well below the year-ago quarter’s loss of 39 cents. The company’s revenue nudged up 1.5% year over year to $73.4 million in the first quarter.

Losses take into account additional operating expenses associated with the recent acquisition of Moose Mountain, which was also in a seasonally feeble sales volume quarter, as well as marketing expenses associated with the launch of the Monsuno product line.

Total selling, general and administrative expenses in the first quarter of 2012 rose to $43 million, or 58.5% of net sales from $39.1 million, or 54% of net sales, last year. Gross margin in the quarter was 32.1% versus 33.6% in the comparable period last year. The decline in margin can be attributed to a shift in product mix resulting in higher royalty expense. However, lower product cost and tooling amortization compensated the fall to some extent.

Financial Position

At quarter-end, JAKKS had cash and cash equivalents and marketable securities of $254.8 million versus $257.5 million at December 31, 2011. The company also announced a quarterly cash dividend of 10 cents per share, payable on July 2, 2012 to shareholders of record as of June 15.

Guidance

For 2012, JAKKS forecasts adjusted earnings in the range of $1.01 to $1.07 per share. The company expects sales in the range of $720–$728 million, implying a growth of 6.2% to 7.4%.

The company foresees a better retail sales environment in 2012 and remains upbeat regarding its strong product line-up. Management also remains optimistic on the recent re-launch of the Monsuno toy line, which has been greatly accepted at the retail level.

Our Take

We remain optimistic on JAKKS’ long-term growth potential with product launches and strong financial condition. However, cost inflation continues to hurt the company.

JAKKS Pacific currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.

One of JAKKS’ primary competitors, Mattel Inc. (MAT) reported first quarter earnings of 6 cents per share, missing the Zacks Consensus Estimate by a penny.

 
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