JAKKS Pacific (NASDAQ: JAKK) reported Q1 EPS of ($0.72), $0.12 worse than the analyst estimate of ($0.60). Revenue for the quarter came in at $66.6 million versus the consensus estimate of $77.6 million.

First Quarter 2020 Overview vs. Same Period Last Year:

• Net sales were $66.6 million, down 6% compared to $70.8 million reported in the comparable period in 2019, with strong sales of Disney Frozen 2 products offset by declines in other lines.
• Gross margin was 24.6%, compared to 20.2% in Q1 of last year, benefiting from improved product margins as a percent of sales, partially offset by higher royalty costs.
• Net loss attributable to common stockholders was $12.3 million, or $0.41 per basic and diluted share, including non-cash gains of $9.8 million attributable to the change in fair value of our convertible senior notes and preferred stock derivative liability. This compares to a net loss attributable to common stockholders of $29.2 million, or $1.24 per basic and diluted share, including $5.3 million in non-cash charges for the change in the fair value of our convertible senior notes and acquisition-related expenses in the first quarter of 2019.
• Adjusted EBITDA (a non-GAAP measure) was negative $13.9 million, compared to negative $17.1 million in the first quarter of 2019. See note below on “Use of Non-GAAP Financial Information.”
• Adjusted net loss attributable to common stockholders (a non-GAAP measure) was $0.72 per basic and diluted share, an improvement of $0.26 compared to the first quarter of 2019. See note below on “Use of Non-GAAP Financial Information.”

Management Commentary

JAKKS Chairman and CEO Stephen Berman stated, “The first quarter has been a challenge for most companies, including JAKKS, having to manage strains on the supply-chain early in the quarter and a volatile environment in March as consumer shopping patterns and retail logistics were upended by the effects of the COVID-19 pandemic. In spite of these unprecedented challenges, our net sales were down only 6% percent, and our supply chain has now almost completely returned to normal levels of activity. We have taken extensive steps to mitigate the impact of the disruption, including reducing operating expenses, conserving cash and shifting our marketing efforts to product categories less likely to be adversely affected by the disruption.

“During the quarter, we saw strong sales of products tied to Frozen 2, Sonic the Hedgehog and Nintendo, as well as our own brands such as Fly Wheels, Kitten Catfe, Maui Wave Hoop, and Disguise Halloween costumes, which were offset by declines in some of our older products especially those tied to older licenses. Although the quarter finished down in sales, we are pleased to continue to see improving gross margins as that continues to be a key priority for the Company.

“In times of economic uncertainty, toy sales have generally proven to be resilient, and we are fortunate to have so many evergreen product lines such as ball pits, play tents and ride-ons. In addition, we benefit from such brands as Disney Princess Style Collection and other role play toys, including Nintendo Super Mario and Redo skateboards, which are particularly well suited for young consumers spending more time at home.

“Looking toward the second half of the year, we expect retail disruption to continue, but to ease as the stay-at-home guidelines and orders are lifted. Our retail POS trends were positive during the first quarter and have continued to be positive in recent weeks. We will focus on products that remain in demand even with the disruption to normal buying patterns, and we expect to benefit from pent-up demand and clean retail inventories later in the year.

“Among JAKKS key strengths has always been our strong relationships with key licensors and manufacturing partners, as well as our valued retail partners, who have been working with us to give consumers access to our products amid these recent global challenges. We believe we can emerge from this crisis ready to strengthen our operations as businesses emerge from the global crisis, and are grateful to our employees, suppliers and retail partners for all of their efforts during these times.”

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