JAKKS Pacific (NASDAQ: JAKK) reported Q4 EPS of ($0.80), $0.83 better than the analyst estimate of ($1.63). Revenue for the quarter came in at $128.3 million versus the consensus estimate of $127.33 million.

Fourth Quarter 2020

• Net sales were $128.3 million compared to $152.5 million last year
• Net sales were up 16% excluding declines in Frozen
• Gross margin of 32.8%, up 240 basis points vs. Q4 2019 driven by lower royalties and improved inventory management
• Highest Q4 gross margin percentage in ten years
• Net loss attributable to common stockholders of $11.7 million, improved from $20.6 million in Q4 2019

Management Commentary

“Since JAKKS was founded over 26 years ago, we have focused on proven play patterns and working with license partners with highly recognizable brands, and we believe this focus served us well in 2020 as parents of kids spending so much more time at home were looking for products they knew and brands they trust,” said Stephen Berman, JAKKS Pacific’s Chairman and CEO. “As was the case throughout 2020, our fourth quarter results exceeded our expectations for sales, gross margin, operating income and adjusted EBITDA. We saw very strong sales increases in Disney Princess, Nintendo, Sonic the Hedgehog and Disguise costumes.

“Our efforts during the quarter, as they were all year, were directed at managing costs, ending 2020 with clean inventory, and preserving cash. This discipline allowed us to post the highest full year gross margin rate since 2016, and the highest fourth quarter gross margin rate in ten years. Despite lower sales, our higher gross margins and reduced SG&A expenses allowed us to post a fourth quarter operating profit for the first time since 2014. Our top three US customers in aggregate reported a double-digit increase in sell-through for 2020, and a reduction in retail inventories of over 25%. The decrease in our inventory and receivables, coupled with our significantly higher adjusted EBITDA allowed us to end the year with the lowest level of net debt since 2013.

“We expect that toy sales in 2021 will get a boost from a robust slate of entertainment content from our licensing partners, especially Disney. We will be releasing toys in support of Disney’s Raya and the Last Dragon and Encanto. In addition, we believe that the extraordinary success of Disney+ has given families all over the world year-round access to Disney content, which will help keep kids connected to the characters they love and to cherish the toys we make based on those characters. We expect 2021 to see a return to more normal patterns of shopping, gift-giving and celebrating Halloween. We believe our continued emphasis on core products, margin improvement and cash preservation will lead to improved results in 2021.”

Net sales for the fourth quarter 2020 were $128.3 million down 16% versus $152.5 million last year. The decline was driven primarily by lower sales of products related to Disney’s Frozen and Frozen 2, which were strong contributors to sales in the fourth quarter 2019. Net sales in the Toys/Consumer Products segment were down 19% globally, and were up 13% excluding Frozen merchandise. Net sales of Disguise Halloween costumes increased 91%.

Despite the sales decline, the net loss attributable to common stockholders improved to a loss of $11.7 million, or $2.55 per diluted share, compared to a loss of $20.6 million, or $6.95 per diluted share in the fourth quarter of 2019. Net loss in the fourth quarter of both 2020 and 2019 included several significant adjustments, including those related to changes in fair value of convertible senior notes and preferred stock derivative liability, intangibles impairment and other charges. Excluding such adjustments in both years, the adjusted net loss attributable to common stockholders (a non-GAAP measure) was a loss of $3.6 million, or $0.80 per diluted share in the fourth quarter of 2020 versus a loss of $7.8 million or $2.62 per diluted share in the fourth quarter of 2019.

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