Malibu toymaker Jakks Pacific Inc. had a rough last year, and the coming months don’t look much better. But before the end of the year, the company expects to start fighting its way back with a little help from some new friends.
The struggling company announced three new licensing deals last month to make toys based on high-profile characters such as Darth Vader and the Mario Brothers. It’s also preparing to launch the first products from its joint venture of new interactive toys with billionaire Patrick Soon-Shiong.
A 31-inch Darth Vader action figure, along with other themed toys and the new interactive toys, will be on sale at major U.S. toy retailers in the second half of the year. Jakks extended and expanded a 2005 licensing agreement with George Lucas’ Lucasfilm Ltd. in San Francisco earlier this year after the studio was acquired by Walt Disney Co. of Burbank in a $4 billion deal.
The toymaker also recently announced that it has forged a licensing partnership with Nintendo of America Inc. in Redmond, Wash., and Univision Communications Inc. in New York. The Nintendo deal allows Jakks to make toys and costumes based on various video game characters, including Mario and Luigi, Donkey Kong and Princess Peach. The Univision deal allows Jakks to make toys based on the Spanish-language comedy series “El Chavo.”
Jakks Chief Executive Stephen Berman said the slew of strong new licensing agreements should help solidify the company’s core business while it simultaneously works to launch DreamPlay Toys, its partnership with Soon-Shiong’s company NantWorks LLC that features his image-recognition technology.
The Business Journal in May estimated that Soon-Shiong had a net worth of $8 billion, making him the wealthiest resident of Los Angeles.
“This year will be a period of focused transition as we build the infrastructure for our DreamPlay venture,” Berman said in a conference call with investors last week.
But the toy company faces a long road to recovery.
Shares of Jakks slid steadily over the last year as the company grappled with major shifts in the toy industry and warded off the threat of a takeover from downtown L.A. private-equity firm Oaktree Capital Management LP.
Jakks was one of the biggest losers on the LABJ Stock Index, closing down 7 percent for the week to close at $12.13 on Feb. 27. Jakks stock has fallen more than 22 percent in the last year. (See page 22.)
The stock fell last week after the company reported a net loss in the fourth quarter of almost $120 million compared with a loss of $20 million in the same period a year earlier. However, the $120 million loss included a one-time noncash charge of $91.7 million. Revenue fell 5.3 percent to less than $134 million.
Drew Crum at Stifel Nicolaus & Co. in Cleveland downgraded his rating of Jakks stock from “buy” to “hold” after earnings were announced, citing his belief that sales will remain weak through the first half of the year.
Jakks started selling 31-inch action figures last year, including a tall Batman and a line of 31-inch Power Rangers. It plans to sell a 31-inch Storm Trooper figure alongside Darth Vader at nationwide retailers such as Toys R Us and Wal-Mart. Prices for the action figures will vary by retailer from $29.99 to $34.99.
Edward Woo, an analyst at Ascendiant Capital Markets LLC in Irvine, said that the success of the partnership with Soon-Shiong is more important for the company than the tall toys.
“It’s a good product that does reasonably well, but it’s not a big enough product to potentially move the needle the way that DreamPlay promises to,” he said. “The figures make money for Jakks, but it’s not going to be even 10 percent of sales.”
Many of the new toys Jakks has announced it will make won’t be for sale in stores until the later half of the year and early 2014.
The new toys, including “Star Wars”-themed flashlights, play tents and arcade games, have the potential to boost sales for Jakks because a new movie in the science-fiction franchise is in the works, and the three original movies are expected to be released in 3-D in coming years.
Meanwhile, DreamPlay will launch its first line of interactive toys in major U.S. retailers this fall and internationally in 2014. Berman said he considers investing in the technology a smart long-term move for the company, considering sales in the toy industry have been sluggish as kids start to play more with smartphones and tablets.
“We believe our focus on the long-term growth of the company really bodes well with consumers and retailers,” he said.
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