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Jakks not fretting the holidays
Unlike larger rivals Mattel and Hasbro, Jakks' CEO is expecting robust sales for the holidays.
October 19, 2004: 3:32 PM EDT
By Parija Bhatnagar, CNN/Money staff writer

NEW YORK (CNN/Money) - With its stellar quarterly results and surprisingly bullish holiday forecast, toymaker Jakks Pacific delivered a one-two punch Tuesday that threatened to make industry big guns Mattel and Hasbro sound like a pair of whiners.

Jakks Pacific chairman and CEO Jack Friedman  
Jakks Pacific chairman and CEO Jack Friedman

Malibu, Calif.-based Jakks Pacific (Research), whose toy chest contains popular licenses such as Care Bears, Cabbage Patch Kids, Justice League and World Wrestling Entertainment (WWE) action figures, logged a third-quarter profit that nearly tripled to 95 cents a share from 35 cents a year earlier.

Analysts had forecast a profit of 67 cents a share, according to First Call.

Sales jumped 128 percent to $206 million in 2004, boosted by Jakks' TV plug-and-play units of classic video games introduced late last year.

Despite the good news, Jakks shares fell sharply on profit-taking and concerns over ongoing legal issues related to some toy license agreements.

The results follow disappointing numbers from Mattel (Research) and Hasbro (Research), the nation's No. 1 and 2 toymakers, both of which said that they were bracing for potentially weak sales in November and December -- when about half of annual toy sales come during the holiday season.

Jakks, however, said it's "very encouraged by the upcoming holiday season."

In an interview, Chairman and CEO Jack Friedman went so far as to say he was expecting holiday sales to be "robust."

Consequently, the toymaker upped its full-year profit and sales outlook. Jakks now expects 2004 profits to be $1.85 to $1.90 a share, before stock-based compensation charges, up from its earlier forecast of $1.75 to $1.80.

Sales should be about $500 million, it said, up from a previous estimate of $440 million. Analysts had forecast profits of $1.79 a share, excluding items, on revenue of $459 million, according to surveys by First Call, which tracks estimates.

"We think we're being prudent with our guidance, although we could have been more optimistic," Friedman said.

So what is Jakks' doing differently from its competitors?

Batman, Spiderman and World Poker Tour are among the 20 new plug-and-play TV titles Jakks plans to introduce over the holidays and early next year.  
Batman, Spiderman and World Poker Tour are among the 20 new plug-and-play TV titles Jakks plans to introduce over the holidays and early next year.

"In this business, you have to have good products, good partners, be nimble as a company, financially sound and hungry to innovate, otherwise you're not going to grow your business," Friedman said.

"The toy industry is mature, it isn't growing. But we want a bigger piece of the pie," he added. "We're growing through new partnerships with retailers and through acquisitions. If I were CEO of Mattel, I would be looking for a significant acquisition to improve the business."

Sean McGowan, analyst at Harris Nesbitt, agreed with Friedman.

"If you look at their history, Jakks didn't set out with this grand strategy of creating hot toys," said McGowan. "Their big successes, such as the plug-and-play TV units, Care Bears and Cabbage Patch Kids, were toys that belonged to other companies that Jakks acquired over the last three years."

"Jakks is a good example of how the toy industry can have one player doing well while others aren't," added McGowan. "So when some manufacturers complain that weak sales are an industry-wide issue, it's not entirely true. Yes, retailers are cautious about ordering products, but not the ones that they're sure about."

While traditional toys account for about 50 percent of its sales, Jakks is betting on the TV games as the growth driver going forward.

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After a successful run last season, Jakks' retro games should do well again this year, according to analysts. In fact, Jakks' Ms. Pac-Man game was recently picked as one of the hot dozen toys for the holidays.

"The TV games are our latest success story. We've secured shelf space for this product in over 200 retailers," said Friedman. "This is a fashionable electronic product that's a great value at $20. Kids are very into it, and parents like it too."

Spiderman, World Poker Tour and EA Sports are some of the new plug-and-play games the company will debut over the holidays, with 20 new titles, including Star Wars, Mortal Combat and Batman, slated for next year.

"We're very excited about the opportunities ahead. TV games have performed outstandingly but overall we're not even close to the innovative things we can still do with technology and licenses," Friedman told CNN/Money. "At Jakks we have a paranoia that we have to be diversified and appeal to everybody. That's what we're focused on."

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Jakks shares fell 15 percent Tuesday.

"Part of the reason is the stock's had a decent run-up this year and investors are selling on the news," said McGowan, noting the stock was up 82 percent through Monday. Another culprit: Jakks has an ongoing legal tussle over restructuring its toy license with WWE but did not offer any details about the matter, he added.

Jakks Pacific declined to comment on the stock.  Top of page

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