JAKKS Pacific (JAKK) Rides on Product Launches, Debt High
JAKKS Pacific, Inc. JAKK has been benefiting from strategic acquisitions, solid international footprint, focus on innovation, and collaborations with popular brands and movie franchisees. Also, the company realizes the importance of online retailing and has shifted focus to boosting online sales.
So far this year, shares of JAKKS Pacific have gained 155.4% against the Zacks Toys - Games - Hobbies industry’s 15.9% fall.
However, JAKKS Pacific has been impacted by the challenges related to the coronavirus pandemic. Also, the company’s liquidity position may not be enough to manage the high debt level.
Let’s take a look at the factors influencing this Zacks Rank #3 (Hold) company.
Major Growth Drivers
Acquisitions & Product Launches Aid Sales: JAKKS Pacific depends largely on acquisition of assets and businesses for growth. JAKKS Pacific has collaborations with Disney, Skechers, Nickelodeon, Cabbage Patch Kids and Chico to manufacture toys and merchandise related to these brands.
During the second quarter of 2021, the company extended its contract partnership with BLACK+DECKER. JAKKS Pacific’s current BLACK+DECKER branded toy product lines comprise Tool Belt Set, Electric Power Drill, Power Tool Workshop, and BLACK+DECKER home items like Coffee Maker, Toaster, Mixer and Oven. Also, it witnessed double-digit growth sales in many areas like Nintendo, the Black & Decker in the same period. In the girls and preschool targeted businesses, primarily dolls, dress-up, role play toys, plush and other consumer products, net sales rose 50% year over year to $49.3 million. This was primarily driven by strong sales of Disney Princess and Raya merchandise.
Going forward, the company plans to launch the Encanto product line. The company believes that its core, basic products, popular entertainment licenses with proven play patterns will drive growth in 2021.
International Expansion Continues: JAKKS Pacific is committed toward diversifying its footprint outside the United States. Consistent with its endeavors, the company has opened sales offices and expanded distribution agreements for its products. Its partnership with Meisheng is expected to result in robust growth in Asia. Meanwhile, after launching Tsum Tsum in key international markets like Latin America and Asia, the company plans to expand distribution in new territories. The expansion initiatives are likely to strengthen its international presence as well as customer base. During second-quarter 2021, the company witnessed solid international growth, especially in Europe. For second-quarter 2021, international sales of Toys/Consumer Products grew 45% globally to $81.5 million. The company’s international expansion is currently up 20% and it is expecting robust international orders for the rest of 2021.
Digital Efforts Robust: JAKKS Pacific has regularly brought in novelty in its products to cope with the changing play pattern of children. 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 physical toys, which would help the company cash in on the demand for smartphone gaming. During second-quarter 2021, the company’s gross shipment was driven by the continuation of robust POS for Disney Princess brand, which grew 30% year over year. Also, the company is optimistic about its robust customer demand and is continuously making timely brand development and regular product innovation to drive margins.
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Concerns
Although JAKKS Pacific is actively monitoring the global impact of the pandemic, the Delta variant of coronavirus might hurt sales in the upcoming period.
A strong balance sheet helps a company tide over crisis. However, as of the end of Jun 30, 2021, the company’s long-term debt was $95.7 million. Moreover, the company ended second-quarter 2021 with cash and cash equivalent of $38.3 million, which may not be enough to manage the high debt level.
3 Consumer Discretionary Stocks Worth Buying
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La-Z-Boy has a trailing four-quarter earnings surprise of 20.2%, on average.
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