Toys R Us Inc.’s move to seek bankruptcy protection at the onset of the holiday season is expected to add to the recent woes of two of L.A.’s largest toymakers, Jakks Pacific Inc. and Mattel Inc.
Santa Monica-based Jakks, which manufactures many Disney products, and El Segundo-based Mattel, a household name with its Barbie and Hot Wheels toys, both sell their products at the retailer.
Jakks said in a news release after the bankruptcy announcement that it is expecting a net loss and negative earnings per share for 2017 as a result of the recent filing.
“Sales to Toys R Us were anticipated to account for approximately 5 percent to 6 percent of the company’s net sales for the third and fourth quarters, but the company does not know what amount of such sales will be realized,” Jakks said.
The toymaker also said it has accounts receivable due from Toys R Us that might not be paid, representing less than 3 percent of its outstanding accounts.
The company reported that net sales fell in the second quarter to $119.6 million from $141 million a year ago. It attributed the decline to underperforming licensed film-related properties as well as the suspension of sales with a retailer. The company reported a loss of $16.7 million in the second quarter.
The second-quarter sales decline marked a continuation of a dip that took Jakks’ annual net sales down to $706 million from $745 million in 2015. Its net income dropped to $1.2 million from $23 million over the same period.
Mattel depends even more on Toys R Us, which accounts for 11 percent of its net sales, according to a 2016 filing with the Securities and Exchange Commission.
The manufacturer didn’t directly acknowledge the impact of the Toys R Us bankruptcy.
Stephanie Wissink, senior analyst at New York equity research firm Jeffries, said in a report that the retail chain’s bankruptcy filing hits the toymaker at a stressful time.
Mattel reported net sales increased to $974 million in the second quarter from $957 million in the same period last year. The company posted a loss of $56.1 million in the second quarter.
Like Jakks, however, the company’s annual sales declined in 2016, falling to $5.4 billion from $5.7 billion in 2015 while net income dropped to $318 million from $369 million. Mattel attributed the decline to several factors, including declining sales of its Barbie line last year and a shortfall on a goal of $300 million in sales in toys related to the “Cars” movie franchise.
The company has also been hurt by the loss of Walt Disney Co.’s Princess line to arch rival Hasbro Inc. in 2014
Mattel and Jakks did not respond to calls for comment last week.
Jakks, at least, has a more positive future outlook.
Stephen Berman, chief executive of the company, said in a statement that it does not anticipate any long-term material adverse impact from the Toys R Us bankruptcy filing.
Linda Bolton Weiser, senior analyst at Great Falls, Mont., financial investment firm D.A. Davidson Equity Capital Markets, wrote in a research note that she expects Jakks to get squeezed on sales for the holiday season, but the company indicated its outlook will improve.
“Jakks’ shipments to Toys R Us were light due to uncertainty over getting paid,” she said. “Now that (Toys R Us) will operate under bankruptcy protection and suppliers will be assured of receiving payment, Jakks expects potentially less of an impact on 4Q17 sales and earnings.”
Privately held Toy R Us, based in Wayne, N.J., is looking to restructure long-term debt of $5 billion in order to provide “greater financial flexibility to invest in our business and strengthen our competitive position in an increasingly challenging and rapidly changing retail marketplace worldwide,” Chief Executive Dave Brandon said in a news release.
Mattel, led by new Chief Executive Margo Georgiadis, fell from No. 7 in 2016 to No. 15 this year on the Business Journal’s list of public companies ranked by market capitalization. Its market cap decreased to $5.4 billion from $5.7 billion as of June 30.
Jakks fell four spots to No. 104 on this year’s list with a market cap of $107.9 million.
Mattel and Jakks are key companies in the region’s toy industry, which includes the Toy District east of downtown Los Angeles. The toy sector in Los Angeles and Orange counties was worth $450 million and accounted for 4,700 jobs in 2015, according to a report released this summer by Westchester’s Otis College of Art and Design, which offers a toy design program.
Jakks closed at $2.98 a share Sept. 27, down 5.6 percent from a week earlier. Mattel was unchanged from the week before at $15.01 a share.
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