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Jakks (JAKK) Down 6% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Jakks Pacific (JAKK). Shares have lost about 6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Jakks due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

JAKKS Pacific Q1 Earnings & Revenue Beat Estimates

JAKKS Pacific reported first-quarter 2021 results, wherein the top and the bottom line beat the Zacks Consensus Estimate. The company’s net sales topped the Zacks Consensus Estimate for the fourth straight quarter while earnings topped estimates for the third consecutive quarter.

Nonetheless, the company stated that it is making significant progress in operating performance on the back of cost-saving initiatives and improved inventory management. The company also disclosed that it has delivered the best first-quarter operating results since 2015, with significant improvement in sales, gross margin, adjusted net income and adjusted EBITDA. Notably, the company drove double-digit sales increases in all of its toy divisions: Boys, Girls and Seasonal. Also, the company anticipates more people to return to the normal pattern of shopping, gift-giving and celebrating Halloween.

Q1 Earnings and Revenues

The company reported adjusted loss of $1.77 per share, narrower than the Zacks Consensus Estimate of a loss of $3.50. Also, the metric improved significantly from the prior-year loss of $7.23 per share.

Revenues of $83.8 million beat the consensus mark of $68 million. Moreover, the top line rose 25.8% year over year. This increase was primarily driven by higher sales of video games, including Nintendo, Sonic the Hedgehog and Apex: Legends, Disney Princess, solid initial sales of Raya and the Last Dragon, and continued sales strength in Black & Decker. The company also witnessed strong sales of its own brands like Perfectly Cute and Redo Skateboards.

Net sales at the company’s Toys/Consumer Products segment grew 28% globally on a year-over-year basis.

Net sales at the company’s Disguise (Halloween) remained flat year over year.

Operating Highlights

In the reported quarter, gross margin was 31.1%, up 650 basis points (bps) from the prior-year level. This marked the highest first-quarter gross margin percentage since 2017. Margins benefited from effective cost control and improved inventory management. Adjusted EBITDA was a loss of $2.4 million, improving considerably from the loss of $13.9 million reported in the prior-year quarter.

Balance Sheet

As of Mar 31, 2021, cash and cash equivalents (including restricted cash) were $84.1 million compared with $92.7 million as of Dec 31, 2020. Debt, non-current portion, net as of Mar 31, 2021, was $155 million compared with $150.4 million at the end of 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 23.18% due to these changes.

VGM Scores

Currently, Jakks has a strong Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Jakks has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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