JAKKS Pacific reports loss, stock is not having fun

Posted Apr 23rd 2009 3:30PM by Steven Mallas
Filed under: Earnings Reports

JAKKS Pacific (NASDAQ: JAKK), which competes with fellow toymakers Hasbro (NYSE: HAS) and Mattel (NYSE: MAT) for the attention span of all the kids out there, reported a very unattractive first quarter. JAKKS said it lost $0.40 per share. According to this source, JAKKS was expected to lose four pennies less.

Whoa! That is very unattractive indeed. I mean, last year at this time, JAKKS Pacific had earned $0.03 per share. I know we're out of the Christmas season and all, but come on, that's a huge difference. If you look at the earnings release, you'll see that it's readily apparent that consumers didn't take too kindly to the company's current product mix. The company said that closeout sales exerted a negative effect. Also, acquisition costs bruised the bottom line a bit.

JAKKS Pacific is really having its difficulties. Margins aren't good, and the company doesn't have the kind of brand strength that a Hasbro or a Mattel does. Plus, the business needed to use cash for operations during Q1 instead of generating it. Still, I've always found the company to be a competent licensing entity. In addition, the business tends to know how to exploit little niches in the toy industry.

The bad first quarter, however, follows a bad Christmas quarter. JAKKS Pacific isn't on a hot streak, there can be no argument about that. And as for its stock, well, the shares are being obliterated today. As I write this, the company is down over 17% on big volume.

The market is telling you something: don't buy JAKKS Pacific. I would recommend that you strongly consider agreeing with the market on this one. Yes, it is tempting to go for a quick trade on the name. Buy today, maybe sell higher tomorrow on a bounce. Sure, that might happen. It's too risky for me, however. JAKKS Pacific probably will make patient value investors some money at these levels once the recession rolls away, but I just don't see a reason to rush into the stock at this time.

Disclosure: I don't own any company mentioned; positions can change without notice.

Tags: featured, HAS, Hasbro, JAKK, jakks pacific, JakksPacific, MAT, Mattel, toymakers