Following reports from Mattel and Hasbro in the past week, Jakks Pacific weighed in with its second quarter earnings for what will no doubt be remembered as one of the most challenging years on record.
The company reported a 17% decline in Q2 sales versus the same period last year thanks to the spread of the COVID-19 pandemic and the closure of retail partners around the world. In the U.S., net sales for toys and other consumer products were down just 2%, while sales in the company’s Disguise Costumes division — which had been a pre-pandemic strong point — dropped 38%. At the same time, gross margin increased to 21.3% from 18.6% and operating expenses declined.
“Over the past quarter, our organization like everyone else was challenged daily by the negative ramifications of the COVID-19 pandemic on both a personal and professional level, says Stephen Berman, CEO, Jakks Pacific. “With that in mind, I’m extremely pleased with our financial results, especially considering that essentially all of our retailer customers were either shuttered for part of the quarter or operating with reduced hours and consumer access. We benefited from strong sales of Frozen 2, Fly Wheels, Minnie Mouse, Nintendo and ReDo skateboards, offset by declines from two Spring 2019 films: Disney’s Aladdin and Godzilla: King of the Monsters. In addition, we had reduced volumes in certain low margin seasonal products which we have been selectively pruning to improve our overall profitability. In fact, excluding these lines we exited at the end of 2019, sales in our toy segment were up compared to last year, and roughly flat through the first half of 2020.”
Jakks reports that it’s seeing the same double-digit increases at POS that many in the toy industry have seen this summer. That, combined with a lighter-than-usual inventory at retail should help the company in the long term.
“Our goal for the second half of 2020 is to focus on our proven, evergreen brands and categories, keep costs low, preserve cash, and set up the company for a strong 2021,” Berman says.
One concern in the short term is that no one knows what this Halloween season will look like. A recent Harris Poll stated that just 27% of parents surveyed believe that their kids will trick or treat this year. With this in mind, Jakks has preemptively scaled-back Disguise shipments to some retailers anticipating lighter demand for costumes and accessories.
In the back half of the year, Jakks has some strong items in its lineup, including new items from Nintendo and Cute Girls Hairstyles, seasonal items based on Elf and Gremlins, and the debut of its 6-inch scale Apex Legends action figures and an accompanying costume line from Disguise.