JAKKS Pacific (JAKK) has seen a drop in shares by about 20% following a Q1 loss of $1.09 per share, which was higher than the expected 85-cent deficit. This loss was mainly due to weaker demand for products related to the Thanksgiving 2023 film release Wish by Walt Disney Animation Studios. JAKK had to support retail partners in funding markdowns to move the stock and address cancelled reorders, resulting in a decrease in net sales by 16.2% year-over-year to $90.1 million.
Despite the challenges faced in Q1, JAKK has focused on shedding underperforming merchandise quickly and replacing it with items with better consumer prospects, such as its core evergreen product lines which saw a sales increase of 12.3% in the quarter. The company entered the second quarter with a leaner inventory position, down 28% from the previous year, setting it up to fulfill demand and reduce the risk of having to slash prices during its primary selling periods in Q2 and Q3. With upcoming releases of popular films and brand campaigns, a return to growth in the second half of the year is anticipated.
Even with a $20 million payment for the redemption of its Series A Senior Preferred Stock and other cash outflows, JAKK ended the quarter with a net cash position of $35.5 million, the most at the end of any first quarter since 2012. The company’s preferred share redemption eliminates a recurring obligation, allowing future earnings to accrue to the common. JAKK has also made progress in sharing its new Simpsons line with retailers and expanding its Disney business, along with a successful multi-brand partnership that calls for the introduction of new products in 2025.
JAKKS Pacific (JAKK) is recommended in the Forbes Investor newsletter, known for identifying undervalued stocks with significant upside potential. The company has a year-round offering that accounted for over 70% of sales in Q1, with partnerships and expansions into new product categories promising sustained growth in the future. The stock is currently trading at less than 6 times the consensus estimate for the current year, offering an attractive opportunity for investors looking to capitalize on the short-sighted slide in the stock price following the recent performance.
Julius Juenemann, CFA, an equity analyst and associate editor of the Forbes Special Situation Survey and Forbes Investor newsletters, highlights JAKKS Pacific (JAKK) as a recommendation in the Forbes Investor. The company’s strategic initiatives, financial stability, and product diversification efforts position it well for future growth and profitability. Investors interested in accessing the recommendations and insights provided by Forbes Investor can subscribe to the newsletter for further information on stocks like JAKK.