When Mattel Inc. unveiled a line of action figures based on the pumped-up stars of World Wrestling Entertainment, some might have seen it as a smackdown for its smaller crosstown rival Jakks Pacific Inc., the previous WWE licensee.

But it turns out the Malibu company, which grew to be one of the top U.S. toymakers on the burly shoulders of its WWE action figures, wasn’t even in the ring.

Jakks has already launched lines based on two edgier, up-and-coming sports franchises: the mixed-martial arts UFC (Ultimate Fighting Championship) and pro wrestling TNA (Total Nonstop Action) – both of which are gaining in popularity as WWE’s TV ratings conversely fall.

And last week, the company announced a strategic partnership with Japanese animator Dentsu Inc. to produce an original animated TV series called “Monsuno,” for which Jakks can market action figures and other products. The toymaker’s creative staff developed the show’s concept.

“We did lose what was a crown jewel of our licensing portfolio, but we’ve been able take the skill set that we had accumulated to build new lines,” said Chief Financial Officer Joel Bennett.

Moreover, through acquisitions, the company has branched into new businesses such as children and adult Halloween and role-playing costumes, many based on Walt Disney Co. and other licensed brands. In addition, in recent years it has created in-house products not reliant on licensed characters, from night-vision binoculars to cupcake-making kits.

All in all, it’s a formula that generally has Wall Street analysts either bullish or at least comfortable recommending that investors hold the stock, which has lost about half its value since the financial crisis but has been on a holding pattern since March. Shares closed at $12.79 on Jan. 7.

The company’s adjusted third quarter profit fell 38 percent to $33.7 million as sales fell 2 percent to $351 million, but both figures beat Wall Street expectations. Still, no one doubts the company is in a competitive situation.

“Toys are a fashion business,” said BMO Capital market analyst Gerrick Johnson, who has the equivalent of a “buy” rating on Jakks. “You have to keep reinventing yourself, balancing taking chances with preserving your existing lines. That’s going to be the challenge for Jakks post-WWE.”

Sales slumps

The company was founded in 1995 by two toy industry executives, Jack Friedman and Stephen Berman, who continue to serve as co-chief executives. They started out by focusing on products tied to characters and brands created by others, with WWE (then called World Wrestling Federation) the first big hit. The company, which had more than $903 million in net sales in 2008, continues to be best known for its licensed products, such as dolls and accessories based on Disney’s popular “Hannah Montana” TV series, but also makes branded play furniture and toy electronics.

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