Release Date: February 20, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Jakks Pacific Inc (NASDAQ:JAKK) reported a 4.8% growth in the second half of 2024 compared to 2023, indicating positive momentum.
• The company increased its US market leadership position by a couple of points, despite a smaller overall market.
• International growth continues, with the disguised business reaching an all-time high outside North America for the fourth consecutive year.
• Jakks Pacific Inc (NASDAQ:JAKK) has no long-term debt, providing a strong financial position for future growth.
• The company initiated a quarterly dividend of $0.25 per share, reflecting confidence in its financial stability and future prospects.

Negative Points

• The touring consumer products business was down 1.8% for the full year, with each division down around 12%.
• The costume business experienced a 7.5% decline for the full year, driven by softness in the US market.
• Operating margin declined by 260 basis points to 5.7% from 8.3% in 2023, highlighting challenges in maintaining profitability.
• Adjusted earnings per share decreased to $3.79 from $4.62 in the prior year, indicating a drop in profitability.
• Inventory obsolescence was a persistent issue throughout 2024, affecting gross margins.

Q & A Highlights

• Warning! GuruFocus has detected 5 Warning Signs with JAKK.

Q: Congratulations on the dividend. Does that, do you still have the flexibility if you so desire to potentially pick up other properties here even with the dividend and the desire to maintain cash in terms of changes here in the potential economy? A: Steven Berman, CEO: Yes, we had deep discussions about the dividend and capital allocation over the past 8 months. We are comfortable with the dividend initiative, generating ample cash flow, which allows us to pursue other opportunities, such as acquiring new IP or potential acquisitions, without handcuffing the company.

Q: Could you remind us here, so the movie, when it historically, what is kind of the coattails for the holiday movies? A: Steven Berman, CEO: Historically, movies like Frozen and Moana have long tails, especially when streaming begins, which boosts momentum. For instance, Sonic 3, released in December, will gain momentum with streaming in the second quarter. Strong IPs like Sonic and Moana continue to perform well over time.

Q: Inventories were well controlled. Is it possible to get the FOB even higher than it is now? A: Steven Berman, CEO: We manage inventory methodically, with about 75% on an FOB basis. We aim to maintain this level, focusing on evergreen inventory rather than speculative inventory. Cash is crucial for dividends and new opportunities, so we manage inventory tightly.

Q: Based on my observations, it seems like more physical retailers are devoting incremental floor space to toys. Are you seeing the same thing? A: Steven Berman, CEO: Yes, we are seeing more placement for our evergreen products across various segments. Our broad array of products and strong IPs make our items less risky for retailers, leading to increased shelf space globally.

Q: The number of major sales in the e-commerce space has increased. What are the implications for you? A: Steven Berman, CEO: Sales events like Amazon Prime Day and Alibaba's Singles Day present opportunities for us. These events encourage spending, and our sales team plans special initiatives to capitalize on them, benefiting our industry and enhancing sales.

Q: Can you remind me about your percent of sales outside the US and your percent of costs outside the US and if you had your currency exposure at all? A: John Campbell, CFO: We have limited FX exposure as most of our sales are US dollar-denominated, and our costs are negotiated in USD or Hong Kong dollars. This insulates us from significant currency fluctuations.

Q: Can you give me your current thoughts on what box office performance of your license or potentially license IP means today as it relates to your strategy? A: Steven Berman, CEO: Box office performance enhances our year, but we have many initiatives that don't rely on it. Streaming will likely boost sales more than box office this year. Our broad mix and diversification reduce dependency on box office success.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.