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Why Is Jakks (JAKK) Down 29% Since Last Earnings Report?

It has been about a month since the last earnings report for Jakks Pacific (JAKK). Shares have lost about 29% 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 catalysts.

JAKKS Pacific Q2 Earnings Lag Estimates, Revenues Beat

JAKKS Pacific reported mixed second-quarter 2020 results, wherein the bottom line missed the Zacks Consensus Estimate but the top line surpassed the same. Notably, earnings missed the consensus mark for the third straight quarter.

The company reported adjusted loss of $4.38 per share, wider than the Zacks Consensus Estimate of a loss of $3.87. However, the figure was narrower the year-ago loss of $8.27 per share.

Revenues of $78.8 million beat the consensus mark of $70 million. However, the top line declined 17% year over year. The decline can primarily be attributed to store closure during the stay-at-home mandates both in the United States and Europe.

Net sales in the company’s Toys/Consumer Products segment decreased 4% year over year. Rise in sales of Boys’ and Girls’ toys was offset by declines in Seasonal products. Net sales of Toys/Consumer Products in North America declined 2% year over year. Moreover, outside of North America, net sales of Toys/Consumer Products were down 14%.

Net sales in the company’s Disguise (Halloween) segment were down 38% year over year owing to uncertainty among retailers regarding the impact that COVID-19 may have on Halloween merchandise sales.

Operating Highlights

In the reported quarter, gross margin was 21.3%, up 270 basis points (bps) from the prior-year level. Margins benefited from lower product cost as a percent of sales. Adjusted EBITDA came in at a negative $4.6 million compared with a negative of $11.5 million reported in the prior-year quarter.

Balance Sheet

As of Jun 30, 2020, cash and cash equivalents were $52.7 million compared with $37 million as of Jun 30, 2019. Inventory decreased to $57.7 million from $54.3 million at 2019 end. Debt, non-current portion, net as of Jun 30 totaled $174.2 million, up from $175 million at the end of 2019.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 31.91% due to these changes.

VGM Scores

Currently, Jakks has a great Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile 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. Notably, Jakks has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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