Jakks Net Soars on Strong Sales
Malibu toy maker Jakks Pacific Inc. said Tuesday that net income grew almost sixfold on strong sales of its TV Games, Care Bear and Cabbage Patch products.
However, uncertainty over a pending lawsuit by World Wrestling Entertainment Inc. and a request by the Securities and Exchange Commission to restate its 2002 and 2003 earnings cast a pall over the quarter’s results.
Shares of Jakks, which had risen as high as $23 early in the day, closed up 17 cents to $20.98 on Nasdaq. In after-hours trading, the stock declined 8 cents.
“People are still wary” of investing in Jakks, said Garrett Edson, an analyst with Monarch Research in New York, who rates the stock a hold. “The lawsuit is a major overhang for the company and doesn’t appear to be going away anytime soon.”
In late October, WWE filed a civil suit against Jakks, claiming the toy company paid bribes to a former WWE executive and an outside licensing agent to secure a video game deal with WWE. That executive, James K. Bell, recently pleaded guilty to one count of mail fraud for accepting kickbacks in exchange for WWE licenses. No companies involved in that bribery scheme have been named.
Jakks executives declined to comment on the matter during a conference call with analysts. The U.S. attorney in Connecticut, the FBI and the Internal Revenue Service continue to investigate Bell’s involvement with other companies.
Legal troubles aside, the company’s core business appears to be strong, analysts said, with the company’s TV Games controllers and dolls selling well.
Net income for Jakks’ fourth quarter is expected to be $11.1 million, or 37 cents a share, including pretax noncash compensation charges of $5.1 million and amortization charges of $8.6 million related to the acquisition last year of the Play Along Inc. toy firm.
The results reported Tuesday are preliminary, pending the restatement of 2002 and 2003 earnings, Jakks said.
Fourth-quarter results were up from $1.9 million, or 8 cents, in the same period last year, and a penny above the 36 cents expected by the two analysts surveyed by Thomson First Call.
Sales more than doubled in the quarter to $184.8 million from $84.4 million in the same period last year.
“We are extremely pleased with our record results,” said Jack Friedman, Jakks chairman and chief executive. “In what was a challenging retail environment for many of our peers, we increased sales 119%.”
Sales for the year ended Dec. 31 increased 82% to $574.3 million from $315.8 million in 2003. Earnings including items are expected to reach $45.9 million, or $1.57 a share.
The SEC told Jakks last week that a portion of the purchase price paid for Toymax International Inc., Trendmasters Inc. and P&M; Products USA during those years should be counted as intangible assets, rather than goodwill. The change could affect net income, but not sales for those years, the company said.
This year, Friedman said sales of its products should continue to grow, as new titles and products such as its TV Games Game Key expansion packs are introduced. Friedman forecast that 2005 net income would increase to $70 million, or $2.28 a share, and predicted that sales would reach $660 million.
