JAKKS PACIFIC INC Q3 FY2025 earnings call

Tariff Impact and Business Approach - Tariffs varied significantly, causing delays in holiday purchase orders and shifting seasonal programs. JAKKS took a conservative approach, prioritizing margins, pricing discipline, cost controls, and profitable product opportunities. - Direct import FOB orders were affected by retailers pushing back Halloween and fall toy set dates, reducing Q3 sales orders. ### Inventory and P&L - Lean inventory management, target lower inventory levels. Gross margin was 32% in the quarter, down from 33.8% last year but still strong. SG&A in the quarter was down 6% and flat year-to-date. Adjusted EBITDA was $36.5 million in the quarter, down from $74.4 million last year. ### International Business - International business was roughly flat year-to-date minus 0.3%, but non-U.S. markets excluding Canada were up 4%. Bullish on international growth, with different markets at various stages of maturity. ### Product Line Performance - Sell-in for Disney's Moana 2 was favorable year-to-date. Saga's Sonic and DC-Sonic mashup did well. New owned brand/private label launches were delayed. ### Partnerships and Initiatives - Worked with global licensors to grow mutual businesses, e.g., Disney Darling baby doll line. Redoubled efforts in private label, Target role-play business is strong. Finalizing licensing agreement extensions. Started new business pillar leveraging IP, with product expected to ship in 2026-2027.

For the quarter, Toys and Consumer Products was down 41% to $156.1 million, accounting for 24% of revenue. Costumes were only down 4% to $55.1 million, making up 8% of revenue. Year-to-date, net sales in overall business are down 21% versus last year, with Toys/Consumer Products down 24% and Costumes down 8%.

Forward-Looking Statements - Continue conservative approach, focusing on margins and cost controls. - Expect retailers to learn from holiday season on consumer price tolerance, aiding order placement. - Confident in 2026-2027 product pipeline to support long-term brand growth. - Anticipate less uncertainty in 2026 compared to 2025.

Operational and Market Risks - Tariff variations causing uncertainty for retailers and manufacturers. - Delayed holiday purchase orders shifting selling months. - Retail price increases negatively impacting unit sell-throughs. - Complexities in European business replenishment and inventory management. - Uncertainty in licensing agreements and new product launches.

Q: What are the key drivers for the business model moving forward and how does the new tariff norm affect FOB business?

A: Retailers are adapting to the new tariff norm. FOB business has more certainty now. JAKKS is conservative, building cash, keeping overhead low, and focusing on 2026-2027 product pipeline.

Q: How should we think about the Super Mario Bros. movie as an opportunity?

A: Excited for the movie, which will bring excitement to a toyrific platform lacking real excitement this year. Retailers and Nintendo are also excited.

Q: How to think about DC collaboration and future collaborations?

A: DC collaboration enhanced awareness of Sonic and DC, bringing new eyeballs. Looking forward to more such collaborations.

Q: Recap of tariff-related impact on Q1, Q2, Q3?

A: Q1 had nominal impact. Q2 had material cancellations due to tariffs. Q3 had retracted business with tariff impact on sell-throughs and unit sales.

Q: Impact of tariffs vs tough licensing comparisons in 2025 vs 2024?

A: Difficult to precisely compare, but tariffs are a significant new norm impact, with 2026 new initiatives expected to drive growth.

Q: Thoughts on strategic M&A?

A: Seeing opportunities, but focusing on getting through 2025 and evaluating opportunities post-year-end as companies may be cheaper in 2026 due to cash needs and licensor concerns.