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Why Is Jakks (JAKK) Down 37.1% Since Last Earnings Report?

Zacks Equity Research
Fortive (FTV) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

It has been about a month since the last earnings report for Jakks Pacific (JAKK). Shares have lost about 37.1% 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 the most recent earnings report in order to get a better handle on the important drivers.

JAKKS Pacific Posts Narrower-Than-Expected Q4 Loss

JAKKS Pacific incurred an adjusted loss of 37 cents per share in fourth-quarter 2018, narrower than the Zacks Consensus Estimate of a loss of 49 cents. The company had incurred a loss of 57 cents per share in the prior-year quarter.

Net sales totaled $132.3 million, which surpassed the Zacks Consensus Estimate of $120.8 million. However, the top line also fell 3.1% on a year-over-year basis. The company expects sales to grow by nearly 5% in 2019.

Notably, the challenging industry scenario for traditional toymakers has hurt JAKKS Pacific’s fourth-quarter results. The Toys ‘R’ Us liquidation was another reason behind its disappointing performance in the quarter under review. Positive contribution of products like Incredibles 2, Harry Potter and Fancy Nancy, and properties like Morf Board, Perfectly Cute and TP Blaster, was overshadowed by the Toys ‘R’ Us bankruptcy. 

Operating Highlights

In the reported quarter, gross margin was 30.6%, up 790 basis points (bps) from the prior-year quarter. The upside can be attributed to non-recurring items recorded in fourth-quarter   2017 due to minimum guarantee shortfalls as well as inventory charges.

Adjusted EBITDA was a negative of $1.6 million compared with a negative of $6.8 million in the prior-year quarter.

Balance Sheet

As of Dec 31, 2018, cash and cash equivalents amounted to $58.2 million compared with $65 million as of Dec 31, 2017. Inventory increased to $53.9 million from $58.4 million at the end of Dec 31, 2017. Long-term debt, as on Dec 31, 2018, totaled $139.8 million, up from $133.5 million at the end of 2017.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -5.5% due to these changes.

VGM Scores

At this time, Jakks has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, 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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