April 23, 2009 / 10:42 AM / 10 years ago

UPDATE 2-Jakks Pacific cuts '09 profit outlook, shares plunge

* Q1 loss/shr $0.40 vs est -$0.34

* Net sales $108.7 mln vs est $109.4 mln

* Still sees ‘09 sales of $920 mln

* Shares fall 21 pct

By Amitha Rajan

BANGALORE, April 23 (Reuters) - Toymaker Jakks Pacific Inc (JAKK.O) posted a wider-than-expected quarterly loss, hurt by higher overhead costs and close-out sales, and cut its fiscal 2009 profit outlook due to continuing margin pressures, sending its shares tumbling 21 percent.

“We are feeling some margin pressure particularly from the retailers fighting for every penny and we did have in the first quarter some close-out merchandise that we had to get rid of,” Chairman and Co-CEO Jack Friedman said on a conference call with analysts.

Jakks’ announcement comes as a disappointment to investors, who were expecting the company to reaffirm its fiscal 2009 earnings outlook as well.

As toys are increasingly viewed as unnecessary amid a financial turmoil, retailers have been reducing inventories to avoid selling toys at huge discounts and piling up merchandise.

Though the retail environment for toys is challenging, rivals such as Mattel Inc MAT.N RC2 Corp RCRC.O are holding out better than Jakks.

“Jakks is more affected because the products that they have are not as broad or interesting as some of the peer companies like Mattel,” analyst Edward Woo of Wedbush Morgan Securities told Reuters.

The maker of Cabbage Patch Kids and Care Bears toys is also witnessing higher costs related to recent acquisitions, product-testing and labor costs.

Selling, general and administrative expenses rose 16 percent in the latest first quarter.

Analyst Gerrick Johnson of BMO Capital Markets said while other toy companies like Mattel and RC2 are talking about how they can control costs, Jakks may seem like it is not doing much to keep a lid on costs.

Rivals Mattel and RC2, also struggling with rising costs, have undertaken measures such as cutting jobs and increasing prices to mitigate costs.


The company’s stock has been battered in the past 12 months, with the shares losing about 63 percent of their value from their 52-week high.

“It is more of a ‘show-me’ stock. Investors want to see the performance before they give the company the benefit of doubt. They are going to have to show that they can grow sales and earnings,” BMO’s Johnson said.

Analyst Drew Crum of Stifel Nicolaus downgraded Jakks’ stock to “hold” from “buy,” saying the shares lack near-term catalyst.

For fiscal 2009, the company now sees earnings of $1.70 to $2.00 a share, down from its prior outlook of $2.25 a share.

“We hope we can do better than our revised forecast. We are just taking a precautionary outlook and we want to beat numbers, not miss numbers,” Jakks’ Friedman said.

Going forward, the company, whose new products include a hand-held EyeClops video projector, and MXS and NASCAR vehicles, expects gross margins to be in the range of 36 percent to 37 percent.

For the first quarter, the company posted a net loss of $10.8 million, or 40 cents a share, compared with a profit of $877,000, or 3 cents a share, a year ago.

Gross margin for the quarter fell to 34 percent from 36.2 percent a year earlier.

The Malibu, California-based company’s shares, which hit a low of $10.66 earlier in the day, were down $2.25 at $11.18 in afternoon trade on Nasdaq. (Additional reporting by Aarthi Sivaraman in New York; Editing by Vinu Pilakkott, Anil D’Silva)

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