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JAKKS Pacific (JAKK) Benefits From Innovation and Expansion

Zacks Equity Research

JAKKS Pacific, Inc. JAKK gains from strategic acquisitions, solid international footprint, focus on innovation as well as collaborations with popular brands and movie franchisees. These efforts have enabled the company to halt dismal sales trend in third-quarter 2019.

Growth Drivers

JAKKS Pacific has emerged as a diversified consumer products company buoyed by a string of acquisitions over the past several years. We consider the company’s ability to successfully identify, close and integrate acquisitions to be one of its primary competitive advantages. Meanwhile, it has made collaborations with Disney, Skechers, Nickelodeon, Cabbage Patch Kids and Chico to manufacture toys and merchandise related to these brands. Moreover, new licensed properties, notably Aladdin, Godzilla, Toy Story 4 and Nintendo have been doing well.

Moreover, the company is committed to expand its footprint outside the United States. Consistent with its endeavors, the company has opened sales offices and expanded distribution agreements for its products. The partnership with Meisheng is expected to lead to robust growth in Asia. Meanwhile, after launching Tsum Tsum in the key international markets like Latin America and Asia, the company plans to expand its distribution in new territories going forward.

JAKKS Pacific has regularly brought in novelty in its products to cope with the changing play pattern of children and boost demand. Recently, the demand for physical toys has been declining due to younger children’s preference for digital games and other electronic learning tools. Consistent with this trend, the company has introduced a number of mobile gaming apps and digital games along with the physical toys. This is likely to enable the company to cash in on demand for smartphone gaming.

A declining top-line trend, which has been affecting JAKKS Pacific for quite some time, came to a halt after sales growth in third-quarter 2019. Revenues during the quarter increased 18.3% year over year to $280.1 million. The uptick can be attributed to strong sales of Disney Frozen 2, Disguise and Nintendo products. The company witnessed highest sales growth in approximately five years.

During the third-quarter margin also returned to growth. Gross margin increased 170 basis points to 28.9%. The upside was driven by decline in product costs, lower closeout sales and lower amortization of tools as well as molds. In the past three months, the company’s shares have gained 7.6% compared with the industry’s rise of 4.6%.

JAKKS Pacific, which shares space with Glu Mobile Inc GLUU, Hasbro Inc HAS and Activision Blizzard, Inc ATVI, sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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