JAKKS Jumps Rope

Tag : Spandex Material

It's a great time to be a kid again. Following on the heels of positive earnings reports from both Mattel (NYSE: MAT ) and Hasbro (NYSE: HAS ) , toymaker JAKKS Pacific (Nasdaq: JAKK ) also reported earnings today that show sales on the rise. Thatmeans that parents are once again shelling out the bucks toentertain their spawn.
Yet while JAKKS reported higher revenues in the quarter -- up 12%to $145.3 million -- earnings took a hit as rising fuel andraw-material costs, along with its continuing litigation withspandex-wearing grapplers at World Wrestling Entertainment (NYSE: WWE ) put margins in a headlock.
With a portfolio of brands that enjoy a broad cachet with kids --names that include Hannah Montana, NASCAR, Neopets, and its owntoo-cool EyeClops night-vision goggles -- JAKKS is looking to thosebrands to help drive growth to record levels this year. Yetanalysts are expecting more. Where Wall Street is forecasting salesof $906 million for 2008, JAKKS has reiterated that it will realizejust $891 million. That's a 4% increase, to be sure, but itrecognizes the tough economic reality, too.
JAKKS took a hit earlier this year , when sales and earnings fell below expectations. I welcomed thefall, because it made what seemed like high-priced shares -- orfairly priced, at least -- much more attractive. At less than eighttimes analyst forward estimates (and even at 8.5 times JAKKS' ownguidance), the toymaker represents a better deal than either Mattel and Hasbro, which are valued at 50% and 100%higher premiums, respectively. Even though smaller than its rivals,JAKKS has a star-studded lineup that can hold its own.
Motley Fool Hidden Gems recommendation RC2 (Nasdaq: RCRC ) holds a similar valuation to JAKKS, yet I'm not certain that RC2is similarly situated. Although it renewed its license agreementwith HIT Entertainment for the wildly popular "Thomas and Friends"line of toys and made a recent acquisition of the children'spublishing division from Publications International -- a move thatought to help revenues down the line -- management is expectingsales to fall in the immediate future and is looking to experiencehigher costs related to last year's recalls .
It seems the common threads holding the toymaker together right noware the higher cost inputs for fuel, transportation, and rawmaterials, as well as parents' desires to be cautious during aperiod of economic uncertainty. Yet those parents did spring fortoys in the second quarter to placate their little darlings, andwith the back half of the year typically the strongest, we maycontinue to see Jack-in-the-box surprises next time out, too.