JAKKS Pacific (JAKK) Down 15.5% Since Earnings Report: Can It Rebound?

About a month has gone by since the last earnings report for JAKKS Pacific, Inc. JAKK. Shares have lost about 15.5% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

JAKKS Pacific Lags Q3 Earnings & Sales Estimates

JAKKS Pacific reported lower-than-expected numbers in the third quarter of 2017.

The company’s earnings of 53 cents per share were lower than the year-ago quarter figure of 82 cents by 35.4% and the Zacks Consensus Estimate of 85 cents by 37.7%.

JAKKS Pacific’s revenues also declined more than 13% year over year to $262.4 million, primarily owing to the pause in shipments to Toys ‘R’ Us as a result of the retailer’s bankruptcy filing. The top line lagged the Zacks Consensus Estimate of $289.3 million by 9.3% as well.

Behind the Headline Numbers

Adjusted gross margin in the third quarter was 29.7%, down 170 basis points (bps) year over year, given the impact of closeout and other low-margin sales in the period.

Adjusted EBITDA was $38.6 million compared with $42.8 million in the quarter a year ago.

2017 View

For 2017, JAKKS Pacific expects to incur a net loss as well as negative earnings per share. Moreover, though the company continues to expect positive adjusted EBITDA for the year, the figure is anticipated to decline year over year, on lower net sales.

Markedly, the company had issued this above-mentioned altered guidance on Sep 20, 2017, taking into consideration the impact of bankruptcy declared by Toys ‘R’ Us.

Meanwhile, JAKKS Pacific continues to anticipate future growth and profitability through its efforts to enter new categories, create a strong portfolio of new and existing licenses, develop owned IP and content coupled with the ongoing margin enhancement and operating cost containment initiatives.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been two revisions lower for the current quarter.

VGM Scores

At this time, the stock has a subpar Growth Score of D, though it is lagging a bit on the momentum front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate investors will probably be better served looking elsewhere.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of this revision also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #4 (Sell). We are expecting a below average return from the stock in the next few months.

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