JAKKs Pacific (NASDAQ: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. The company, like other toy companies, has been struggling of late despite its large number of offerings to customers. 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. The company 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.
While the company is setting up nicely for the future, the stock has been anything but strong. It has been a target for bears for nearly two years and the stock has been decimated. However, there is evidence that JAKK is turning the corner, and in this article I will highlight the reasons why investors may want to consider coming back to JAKK to do some buying in the name.
Third-Quarter Started the Turn Around
After a dismal second-quarter that crushed shares, the third-quarter saw JAKK beat estimates on the top and bottom line. Sometimes it isn’t enough, and shorts pounded JAKK shares into the ground during the fourth-quarter and recently over the last month. Was it fair? JAKK reported earnings of $1.11 per share in the third-quarter of 2013, beating expectations of $1.06 per share by 4.7 percent and the year-ago quarter earnings of $1.10 by 0.9 percent.
A better-than-expected top line performance and operating margin expansion pulled up earnings in the quarter. Revenue did decrease by nearly 1.2 percent year-over-year to $310.9 million in the third-quarter, but JAKK beat expectations of $298.0 million by 4.3 percent. Higher sales from role-playing, novelty, and seasonal toys were cited as top performers contributing to the beat. Gross margin in the quarter was 29.4 percent, down 140 percentage points year over year, mainly due to weak sales and higher costs. However, operating margin grew about 90 basis points.