JAKKS PACIFIC INC Q2 FY2025 earnings call

• Sales in the second quarter were negatively impacted by U.S. business cost increases and tariff fluctuations, but the first half of the year had a total company sales decline of 3%.
• Collaborated with vendors and customers to mitigate costs, with a diversified manufacturing strategy including duplicate tool initiatives and exploration of U.S. domestic manufacturing.
• Strong product margins in Q2, with adjusted EBITDA at $2.3M in the quarter and $2.7M for the first half. Gross margins were 32.8% in Q2.
• Planning for the holiday season and 2026 product line, with a focus on inventory planning and working capital efficiency. Non-U.S. sales were up 33% in the first half, with Canadian and Mexican customers showing interest in FOB product.
• New product launches like Disney Darlings baby doll nurturing brand, and continued expansion of private label offerings. Acknowledged the passing of Alan Hassenfeld.

Worldwide Toy and Consumer business was down 23% in the quarter and roughly flat year-to-date. The Costumes business was down 12% in the quarter and down 13% year-to-date. International growth was led by Europe, which grew by 65% in the first half of the year. U.S. sales were down 10% compared to the prior year, while all other markets were up 33% in total.

• Cautious outlook for the second half due to uncertain consumer and customer behavior. Focus on margin dollars over sales revenue.
• Board approved a $0.25 per share dividend for the third quarter. Prudent inventory planning, focusing on FOB and working capital efficiency.

• Tariff fluctuations and uncertainty impacting U.S. sales and cost of doing business.
• Uncertain consumer and customer behavior affecting margins and sales projections.
• Potential for retail shelf shortages during the holiday season due to current challenges.

Q: Do you have any short-term levers you can pull to mitigate the impact of tariffs?

A: Duplicate tool initiative, leveraging existing manufacturing in Vietnam, China, etc., but tariff fluctuations remain a challenge.

Q: Are you suggesting that you're going to have the ability to manufacture the same items inside outside of China or your intent is to manufacture certain products outside of China?

A: Majority of manufacturers in other countries are Chinese manufacturers that set up in these territories years ago; balancing costs and tariffs in China (30% tariff) vs. Vietnam (approx. 20% tariff).

Q: Can you remind me of your upcoming license releases over the next 12 to 18 months?

A: Focus on generating cash, prudent inventory management, and being opportunistic but cautious due to current market conditions.

Q: How do you think about the third quarter of '25 as it relates to full year '25?

A: Cautious due to uncertain market conditions, focus on profitability and cash generation.

Q: How quickly did it ramp up at the end of Q2 for the FOB situation?

A: Ramped up by leveraging bonded warehouses, flexible manufacturing in Vietnam and China, working closely with factories.

Q: How long do you think it takes to normalize this so that the consumer impact is spread or further and you kind of maximize the ability to make higher margins and higher returns on that?

A: Uncertain, but company is planning ahead, acting and reacting quickly with tariff in mind as the new norm.

Q: You've done a tremendous job with the financials; how do you see that as a potential longer-term opportunity to continue to pick up a, either great licensed brands or potentially pick up your own brands?

A: Licensors are nervous, opportunities exist but company will be cautious in selection based on new environment with higher tariffs.