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Declining Sales to Hurt JAKKS Pacific (JAKK) in Q1 Earnings

Zacks Equity Research
MGM Resorts International (MGM) and Las Vegas Sands Corp (LVS) reports lower-than-expected quarterly numbers in Q2.

JAKKS Pacific, Inc. JAKK is scheduled to report first-quarter 2019 results on May 9, after the market closes.

Not exempting the fate of all traditional toymakers, the company is facing a dearth of consumer demand for quite some time now. Notably, it has recorded dismal sales over the past few quarters due to the Toys ‘R’ Us liquidation and this trend is likely to have continued in the first quarter of 2019. Also, earnings may have been affected in the to-be-reported quarter due to higher expenses.

Let us see how the company’s top and bottom lines will shape up in the first quarter.

Top Line to Continue to Decline

After the Toys “R” Us liquidation, JAKKS Pacific has been witnessing a sales slump across the majority of brands. In fact, the company’s net revenues in 2018 declined 7.4% year over year primarily due to the liquidation.We believe that the effect of this liquidation will linger further as Toys “R” Us was the last major chain, fully dedicated to selling toys.

Subsequently, the Zacks Consensus Estimate for the company’s first-quarter revenues is pegged at $78.7 million, reflecting a 15.4% decline from the year-ago quarter.

High Costs to Hurt Bottom line

Although JAKKS Pacific’s initiatives, including product launches and the shift toward more technology-driven toys to revive brands for boosting sales, would aid profits in the long term, costs related to those initiatives might prove detrimental in the near term. We expect this trend to have continued in the first quarter of 2019. The Zacks Consensus Estimate pegs first-quarter loss at 56 cents. The company reported loss of 85 cents in the prior-year quarter.

What Does the Zacks Model Predict?

Per the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Stocks carrying a Zacks Rank #4 or 5 (Sell-rated) are best avoided, especially if they have a negative Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

JAKKS Pacific has an Earnings ESP of 0.00% and a Zacks Rank #2, a combination that suggests that the company is unlikely to beat estimates in this quarter. You can see the complete list of today’s Zacks #1 Rank stocks here.

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Here are a few stocks from the Consumer Discretionary sector that investors may consider as our model shows that these have the right combination of elements to post an earnings beat in the first quarter:

Deckers Outdoor DECK has an Earnings ESP of +53.19% and it currently carries a Zacks Rank #3.

H&R Block HRB has an Earnings ESP of +2.31% and a Zacks Rank #3 at present.

Nike NKE currently has an Earnings ESP of +2.13% and a Zacks Rank #3.

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