Challenges Remain in 2011 for Jakks Pacific, CEO Says

Jakks Pacific is “on track for a positive 2011,” but is “still mindful” of lingering challenges, CEO Stephen Berman said in a Tuesday earnings call. He pointed to Asian manufacturing issues including “expected labor shortages” and possible “increased pricing pressures,” though he later said he didn’t expect further pricing pressure this year.

The company “reduced operating costs in 2010,” but “we continue to be challenged with increases in labor, raw materials and transportation,” said Chief Financial Officer Joel Bennett. But, “barring any further substantial increases,” he said, “we believe we will be able to keep these pressures in line with our expectations for the year.”

The maker of TV Games plug-and-play electronic games started 2010 “in the midst of a difficult but necessary companywide restructuring” that included “deep layoffs,” Berman said. The job cuts were “painful and far-reaching, but we knew they were necessary to right-size the business given the state of the business at that time,” he said. Jakks last year was also “faced with the loss of two areas of business” that had been significant for it -- World Wrestling Entertainment and Hannah Montana products -- “coupled with the continuing overall economic downturn and a few other” unspecified product lines that were “were just not meeting our expectations.”

"There were challenges seemingly at every turn” for Jakks last year, including “shrinking retail shelf space for toys, container shortages, labor issues, capacity constraint and production delays,” as well as the death of Jakks co-founder Jack Friedman, said Berman.

But the CEO expressed confidence in his company’s 2011 product line that’s being shown by Jakks at the American International Toy Fair in New York this week. The company is planning “promising initiatives” around its traditional toys and electronics category this year, including new TV Games title Golden Tee Golf, he said. Jakks continues to “closely manage our supply chain and maintain momentum on the development and placement of our product lines for 2011, giving us cautious optimism for this year,” Berman said. The company’s 2011 product lines “has been well-received and is broadly placed in virtually all retail channels,” he said. Jakks is “expecting to achieve growth this year, with the contributions coming from across all Jakks divisions,” including electronics, he said.

Jakks expects to have an especially strong year with its Pokemon products, it said. Coinciding with the planned March 6 U.S. release of the Pokemon Black Version and Pokemon White Version videogames for the Nintendo DS and the new TV animation series Pokemon: Black & White, Jakks said it will ship a new Pokemon toy line to capitalize on those introductions. The Nintendo games were released in Japan in September and sales “shattered all existing sales records in the country, making them the fastest-selling Nintendo DS games in history with 5 million copies sold to date,” Jakks said, citing Famitsu sales data from last month.

Jakks recently “realigned” its product lines into two new categories “to better reflect our business,” said Bennett. Its products are now divided into traditional toys and electronics, including TV Games, as well as role-play, novelty and seasonal items.

The company swung to an $8.9 million, 30 cents a share, profit for Q4 ended Dec. 31 from a $1.9 million, 7 cents, loss in Q4 2009. It swung to a $47 million profit for the fiscal year from a loss of $385.5 million in 2009.

But Q4 sales dipped to $198 million from $198.8 million in Q4 2009 and revenue for the year fell to $747.3 million from $803.7 million. Global sales from the company’s traditional toys and electronics category fell to $107.3 million in Q4 from $119.6 million in Q4 2009, Bennett said. For the year, revenue in the category tumbled to $358.4 million from $439.4 million. Among the best-selling Jakks products were items in its SpyNet and TV Games electronics lines, Bennett said.

Jakks continues to “actively evaluate potential acquisition targets and apply our disciplined approach to obtain the best deal for” the company and its stockholders, Bennett said.

The company expects to grow annual revenue 3-4 percent in 2011 to about $770 million-$775 million, it said. It expects to report earnings per share of $1.32-$1.35 for the year, growth of 4-6 percent. Q1 sales are expected to come in at $60 million-$65 million, with a loss per share of 39-45 cents, versus revenue of $77.3 million and a 19 cent loss per share in Q1 2009.