Q4 2025 JAKKS Pacific Inc EarningsCall [BACKUP]
<unk> Jackson disguise showroom at the Nuremberg toy fair market, a significant milestone in how we present, our global portfolio to the marketplace. The.
The response from customers and partners was overwhelmingly positive as they experience firsthand the full breadth depth and quality of our offerings.
Powered by best in class licensing relationships from around the world.
This successful debut reinforces our confidence in the strength of our strategy and our ability to win across multiple categories and regions.
We see a substantial runway for integrated growth across Europe, with particularly strong momentum as we expand further into eastern Europe and the middle East.
With a unified go to market approach.
Deep retail partnerships and a world class product pipeline, we are well positioned to build sustained leadership and capture meaningful share of these high growth markets throughout the season and beyond.
2025 has certainly been a disappointing year when we think of what could have been but I remain pleased by how we adapted evaluated and reactive without overreacting to a volatile operating environment.
We executed in a year and perhaps more importantly at the same time remain focused on creating new growth opportunities for the company.
We protected our core business by not chasing top line at the expense of margin.
While prudently controlling discretionary spending.
We finished the full fiscal year with a gross margin of 32, 4% our highest full year level in over 15 years.
Our gross margin dollars were up in fourth quarter year over year through a combination of better costume from our factories and improved inventory management on.
On a full year basis, our SG&A expenses were down 1%.
This is a business where upfront investments are made over 12 to 18 months with the goal of future sales volumes and scaling driving larger profits. Although volumes were not as originally planned for the year. We nonetheless managed to reduce our fourth quarter adjusted EBITDA loss to $3 8 million versus $10 2 million in the.
Same quarter last year.
That increased our trailing 12 months EBITDA to $35 4 million for the full year of 2025.
Down from $59 3 million in the prior year, where we generated 120 million more in sales.
I will now pass it over to John for some comments after which I will come back and share a bit more about where were focus moving forward.
John.
Thank you Steven and Hello, everyone.
Quarter here to wrap up of mostly in decent year from a financial perspective.
As Stephen mentioned sales stabilized a bit with the tariff shocks of Q2 and Q3 behind Us Q.
Q4 benefited from F&B shipments of our product for the Super Mario Galaxy film, which led our action play and collectibles business to a 19% year over year increase with growth from both North America and internationally.
Beyond that I would say that most of Q4 sales results ended up being the squeeze from whatever happened or didn't happen in Q3 and didn't really suggest any meaningful change in trend or customer behavior.
Gross margin dollars grew by 11% versus prior year, driven by a slightly better margin percentage. This.
This result is a good outcome and generally consistent with prior quarters in 2025.
Full year gross margin ended at 32, 4% better than last year's 38% and a bit more consistent with 2020 Three's 31, 4%.
Product costs were held in check through persistent and consistent collaboration with our long term factor in network, along with tighter management of inventory, reducing our obsolescence expense.
<unk> expenses crept up a bit significant sales reductions have driven some minimum unearned royalty payments along with some mix impact.
We paid roughly $12 million in U S tariffs in 2025, which we feel we recovered through increased pricing.
Higher price accompanied by a 1% to one cost addition has the math impact of a lower margin percentage, but that amount was not really material on an enterprise level.
Tariffs were far more impactful and reducing sales we.
We estimate that our U S fob customers paid nearly $50 million in tariffs on Jackson disguise product in 2025.
We feel that $50 million would have otherwise been allocated towards more actual product and by extension generate more JAKKS revenue than any other year.
That amount would be in addition to the additional reduction in units sold compared with our original plans as customers understandably derisk their year.
That gives you a bit of insight into the financial implications of last year's actions on our company. Although it may not be readily apparent simply looking at the financial statements.
Moving onto more controllable parts of the P&L Q4 benefited from our actions taken earlier in the year to keep SG&A spending on a tighter leash.
Selling expense ended the year down, 8% and G&A roughly flat.
With the strength and flexibility of our balance sheet. We did this without handicapping any of the product development or new initiatives, we have been working on for 2026 and 2027.
Our operating loss and adjusted EBITDA for the quarter were both improvements versus prior year, but not enough to overcome the financial carnage of Q2 and Q3.
Full year operating margin dropped to two 5% down from five 7% last year adjusted.
Adjusted EBITDA margin was six 2% down from eight 6%.
It is a significant focus as we start the new year to revisit our processes to continued gross margin expansion, while containing SG&A. We know we have the potential to do better from a margin perspective without relying on topline improvement the ambition would be to do both which would by extension generate meaningful value.
Our moral if not economic victory of note to offset our margin challenges calendar year 2025 was the first year, our interest income exceeded our interest expense for a very long time.
Remembering that in 2020, we paid $21 6 million and interest expense with our full year adjusted EBITDA of $28 1 million helps to put 2025 in context a bit.
These results all tally to an adjusted quarterly loss of <unk> 18 per share an improvement from a 67 loss in Q4 2024, but nonetheless still dragging down our full year adjusted EPS to $1 62 down from $3 79 for full year 2024.
The diluted share count is based on roughly $11 5 million shares.
Turning to the balance sheet, we finished the year with $54 million in cash down from $70 million last year, obviously impacted by the drop in sales.
Our inventory was up slightly at a bit less than $60 million up from $53 million last year at.
That change is driven by our expanded distribution footprint in Europe, and Mexico or U S held inventory was actually down 18% year over year to the lowest level. We finished the year in over 10 years.
Inventory management remains a focus and opportunity for us.
Broadly speaking, we feel we read the second half of the year in the U S about as well as we could have hoped in terms of forecasting consumer and customer behavior.
The hottest of product continue to move fast as hot products do with the bar essentially raise for everything else with more lukewarm results.
We don't feel we missed sales in Q4, and we feel good about our U S inventory on hand.
We also obviously feel good that imported product from China is now tax to 20% compared to the 30% we were paying for a lot of the year and we didn't have to import any more of that higher cost and we did.
The company remains committed to the path of being a meaningful and consistent dividend payer. Despite a somewhat softer year financially we did manage to generate over $8 million in cash flow from operations, while also funding $11 2 million and common dividend payments.
As mentioned in our release the board approved a Q1 payment of 25 per common share payable at the end of Q1. The record date is February 27th and the payable date will be March 30th.
I think the pressures of the past year have pushed us to find new areas for incremental improvement and that will be a lot of our focus this year to see what we can figure out.
And a company of our size, we have the ability to make decisions faster and by extension capture opportunities sooner. So that's what I hope we can do.
And now back to Stephen for some more comments about the year ahead.
Thank you John.
The biggest story for us at the start of this year is certainly the theatrical release of the Super Mario Galaxy movie from illumination. We are extremely excited for this new product launch, which will be available for purchase late February.
The best <unk> five inch scale figures are back in line, along with new scale of many figures new place at <unk>.
And more to.
The film releases April one in our line gives fans of all ages the chance to recreate their favorite film moments in the movie.
This is a follow up to the Super Mario Brothers movie, which went on to generate the largest theatrical box office of 2023. So you can imagine we're beyond thrilled to be back in the mix again here supporting this launch.
Our Sonic DC crossover product launch received a great response, and fourth quarter with exclusive retailer launches in both the U S and in Europe.
Distribution of that line is going wide in the new year with new items like the DC Sonic Batmobile being added at key retailers.
<unk> is celebrating the <unk> anniversary of Sonic all year with various Activations, we are participating by launching special packaging commemorating this event along with some exclusive items.
Other exciting news and plans around Sonic in 2026, but we're not ready to share those today, but stay tuned moving.
Moving over to our Disney Doll business will leave the holiday season, and toy fair season, with solid momentum behind Disney Darlings.
Our latest homegrown Disney IP and the strong position of style collection and Disney's Ely.
For those of you unfamiliar with Disney Darlings, our launch and the Neutering doll category similar to our early line. These are not simply character chairs and figure a form but an approach we've developed a partnership with Disney to bring new and innovative ways for our consumers to engage with the Disney brand the.
<unk> is despite the emotional response consumers feel when engaging with Disney the joy and happiness with engaging experiences a bit of the Disney Magic.
These are truly beautiful dolls delivered with premium quality and what's even more magical is that unlike other baby dolls, they are 100% joyful and happy and Theres, No tears and no crime.
Our soft launch of this line sold through well in fall, leading us to expand listings in the U S. This year as well as a lot of interest and commitments internationally coming out of this past months toy fair.
We've seen enough positive feedback to feel that we have a winner here that can steadily build this year and into the next into being another solid foundational piece of business for us congratulations to the team on this one.
We're also supporting the live action theatrical release of Moana in early July this year <unk>.
<unk> has been a steady part of our business for over the past 10 years going back to the original animated release in 2026.
We're happy to be able to bring back some of the most popular toys, we've created over the years as a new audience engages with this story this summer.
Our focus items include Moana as necklace Maui Fisher, all the more aspirational with Iraq reprice at his role to the film.
Our hay Hay, the screaming chicken and our Super popular Moana large dolls.
We also have a couple of additional exciting developments coming on their Disney Dol front later this year.
And the other part of our Doll Division, we continually steady build our private label business with major retailers in the U S and expanding into Europe.
It's an extremely broad array of dolls role play toys and related subcategories that allow the retailers to make additional margin while the consumers get a high quality on trend design product at a much lower price.
In this area, we have several new launches that we will discuss in the following quarters there'll be launched during the fall holiday season.
In 2025, the company saw momentum across its action sports portfolio with element emerging as a powerful growth engine in the second half of the year expanded distribution and deepen retail partnerships, most notably with Walmart, Amazon and Academy sports and outdoors <unk>.
Secondly, increased brand visibility strengthens shelf presence and drove meaningful gains in sell through during the critical holiday period.
These results reflect the company's disciplined execution strategic product innovation and unwavering focus on aligning with leading retail partners to deliver compelling value within the active an early play category.
Looking ahead, we are highly encouraged by rising retail confidence and growing consumer engagement across Astra sports as industry builds towards the 2028 summer Olympic games.
Skateboard sales trends are once again approaching elevated levels seen in 2020 and 21, securing the renewed demand is sustained category momentum.
This strengthening trajectory across skateboards, and the adjacent action sports segments positions the company to further accelerate investment and innovation <unk>.
Strategic partnerships and drive durable long term brand growth and shareholder value.
With our disguise business, we're supporting a wide range of new theatrical releases, we're excited to support toy story, five which debuts in late June as each installment of this franchise has been great for the costume business.
Also from Disney will be the moana release, and the latest descendants installment Wicked Wonderland.
The second half of this year also has new movies coming from minions as well as Paw patrol we.
We'll have some exciting new additions to the lineup coming from some new license or relationships, we've been busy establishing so keep an eye out for these announcements coming soon.
Finally, Halloween is once again on the weekend in 2026 Saturday to be specific so ideally that drives more energy and activity beyond traditional trick or treating.
Those give you some highlights we are seeing coming into the market in the first half of the year.
We remain very focused on some additional launches that we will have more in 2027 impact.
Even if we can drop and some initial exclusives before the end of this year, although a lot has changed in the past 12 months, we feel we are stronger and positioned today with more path to grow than a year ago.
Currently we see this year as a low to mid single digit topline growth year with a continued focus on expanding margins, while we set up to maximize the potential of several potentially impactful new launches in 2027.
There's still a lot of work to do but I am pleased with our progress to date and being able to share more publicly about some of the exciting things we've been working on.
And with that we'll take a couple of questions operator.
Thank you.
Reminder, to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
And by while we compile the Q&A roster.
Okay Eric.
And our first question comes from Eric better small cap consumer research LLC.
Okay.
Good afternoon.
Hello.
Lot going on here.
Yeah.
Let's talk a little bit about.
The whole <unk> model when.
When you look.
Obviously that got disrupted last year with the tariffs and other pieces then ramping it back up when you look at that model and your retailers are seeing for <unk> six and beyond is it back to the way the model was and what kind of tweaks you Julien it's not and it's not what we are they are being done.
And the model in terms of how the retailers and yourselves are handling <unk> model.
Firstly, thank you Eric we're continuing to focus on an Fob first business. That's been since inception last year, we stayed very focused on it as well, but we had to adapt based on where we manufactured whether it was in China, Indonesia, and so on and so forth in southeast Asia. So we had a slight decrease in <unk>, but not.
Materially back in 2026, and seven we will be moving forward again on a <unk> b first basis at the same time a lot of the major retailers in the U S have a.
First cost of sales program that we work with them to have the impact of the therapy are less of an impact to them and ourselves at the same time. So we're working through some of the major customers and secondary customers on our first sale basis. So we've learned a lot through this tariff.
Todd congestion and confusion throughout last year, but we have a pretty good handle on it with our retail partners, who we've worked extremely closely with our sales teams that are really.
And tried with our major retailers have worked very hand in hand, with the buyers as well as the financial side of our retailers to make sure that we stay focused on an fob basis, because it behooves, both the retailer for them to make more margin. It behooves, Jack as a set of cost of capital and it allows us to hopefully the consumer to have a.
A little bit low over priced and bringing them on a domestic basis.
How should we be thinking about the international opportunity with <unk> I know that you mentioned the inventory rose a little bit.
Primarily because of the international players and some of them March I guess physically fiscally big enough to do this.
Kind of the thought process there.
Again, as a company and hold not just in North America, but worldwide. We are primarily focused Fob company, but in order for this to expand and see the growth that we are achieving both in Latin America and EMEA.
<unk> new focus his additional focus is southeast Asia, we do need to have distribution centers across strategic areas in order for us to achieve the customer base that is less.
The size of the major retailers that you see in Europe, there's a lot of smaller customers that make up a lot of the business. So we have a mixed on an fob basis first and then follow up with domestic inventory in order for us to achieve growth.
As required in those territories. Many of the customers are not large enough to do an fob and order a container or are so on and so forth. So we adapt to that and work with them by each of the segments in which were in whether its the Disney segment. The voice segment seasonal and so on so where appropriate we work.
Correctly with the retailer on the size of the product pricing of the product and the bulk of the item in order to best to have the best shipping.
Cost for them and price points of them. So we have warehouses of five different parts of the EMEA, we have it in Latin America and we've.
Now as you see at the end of this year, we brought in inventory to help us grow those areas, whether therefore be first basis as well as the backup inventory on a domestic basis.
Okay.
Obviously this year was a tough for the entire toy industry.
You guys manage to maintain your cash no debt basis lots of cash.
How have you have you have you been able to lever that it sounds like you have based on.
Seven how are you able to lever that in terms of adding new licenses and expanding the relationships and kind of moving up the ladder in terms of kind of be a license fee of choice going forward.
One being healthy and clean and having a strong balance sheet. The license ores appreciate it very much.
And companies that have financial issues and they don't want to take the risk of somebody ruining their opportunities within their own. The IP. So we with that have been very focused not given away topline revenue.
To erode our profit we took what was right approach with retail retail inventory at our own inventory to not push for higher sales and have that Iran. Erode margin, we focused on margin with healthy sales and as you can see I think we're up 380 basis points for the year for the quarter.
As for.
I will go back to give you the exact numbers.
But we are focused on margin enhancement and retailers and licensed stores like that at the same time, we've done an extensive amount of travelling worldwide working on new initiatives and we have some really exciting.
<unk> coming forward and we'll be excited to talk about as soon as some of these deals get all accomplished but.
During this period of time, we are focused on building, 26% 27 aggressively and licensed stores.
Have all fallen in line with us and are very supportive.
Okay. I know you don't give financial guidance, but just conceptually.
Q1 last year was an extremely strong quarter. It was also a quarter I believe where you had a significant amount of product that was shipped early because people wanted to get in front of terrorists, how should we be thinking.
Given that the flows in the quarters or so up and down last year.
Separately in terms of how this year has gone up.
Yeah, I'll jump in on that a little bit.
To your point.
Q1 was a really robust quarter for us.
This year this past year and.
On one hand, we have some momentum shipping product for Super Mario Galaxy.
We pointed out in the call.
But at the same time too.
<unk> is.
Longtime listeners know Q1 is always our smallest quarter and so I've made the comment in the past.
Q1 for us or maybe for everyone in the industry is like a Q1 or a basketball game don't get three files at the end of the first quarter and you'll kind of be okay.
So really we're probably thinking more first half second half and as to whether it is a line gets drawn at the end of Q1 to be honest, we're not really overly fixated on it.
Okay. Good.
Look for more normalized 2006.
Thanks, we'll take that.
Thank you.
Okay.
And our next question comes from Derek Johnston of Seaport Research Partners. Your line is open.
Sure.
Hi, good afternoon.
Welcome back soon thank you Eric.
Thank you very much good to be back.
So one.
Pos.
What was that in the quarter, how did it trend and evolved through the quarter.
And then inventory at retail what is yours look like but also more broadly the industry is there any pockets of inventory that could clutter.
In effect the industry that way.
Yeah. So I'll take the first part of that and Steven can circle back on the inventory piece from a Pos point of view you can read into the fact that we werent bragging about it is that we weren't thrilled with it.
As we mentioned on the call the Super Hot like new launch items blew through in a way that we were happy to see and give us confidence that broadly what we're doing but I think broadly speaking with where we saw higher retailer prices.
That slowed down Pos.
For those segments.
So.
Notwithstanding all the other <unk>.
Hair on the topic of Pos in terms of what is the underlying margin for that Pos.
I think that's kind of what we would have on that.
From a retail inventory point of view Stephens will be closer to that I'll, let him go.
Some of the two major retailers in the U S were down at one of them down 21% year over year and down about 4% on another so our inventory at retail is very tight for us which is good.
Again, as I said earlier in the.
Eric asked the question is we did not want to chase topline and worry about the inventory levels. After the holiday season. So we're really focused on shipping what was appropriate and focusing on profitability and.
And to answer what I think I mentioned earlier I want to make sure I clarify, we were 380 basis points higher and margin for fourth quarter than the year. Prior so to make sure I got that out there.
Yes, no that's impressive.
So how would you describe the promotional activity and perhaps sales allowances in the fourth quarter.
For us they were quite normal or a little bit less than normal for that I think a lot of the major competitors put a lot of heavy in discounting and promotional.
But to me looking at what we have seen throughout the year. It was a very cautionary year because of the tariffs and not knowing what the consumer kind of apps.
Appetite was so again.
We're pretty close to what we do we sit with the factories, we sit with the retailers. So we did here theres a lot of promotion activity that was done heavily in November December but for us there wasn't much.
Okay. Okay very good thank you Susan.
Thank you Karen welcome back seriously.
Good thanks.
Thank you. This concludes our question and answer session I would like to turn it back to Stephen Berman for closing remarks.
Ladies and gentlemen, thank you for today, and finalizing and finishing 2025 and we are extremely excited for 26% and 27 and look forward to our next call.
Thank you again.
This concludes today's conference call. Thank you for participating and you may now disconnect.