JAKKS Pacific, Inc. (NASDAQ:JAKK) Q3 2018 Earnings Conference Call Transcript

Oct 25, 2018 • 09:00 am ET

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JAKKS Pacific, Inc. (NASDAQ:JAKK) Q3 2018 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good morning, and welcome to the Third Quarter 2018 JAKKS Pacific, Inc. Earnings Conference Call. My name is Brandon, and I'll be your operator for today. On the call today are Stephen Berman, CEO; and Brent Novak, CFO. At this time all participants are in a listen-only mode. Later we'll conduct a question-and-answer session. (Operator Instructions)

(Forward-Looking Cautionary Statements)

For details concerning these and other such risks and uncertainties, you should consult JAKKS' most recent 10-K and 10-Q filings with the SEC as well as the company's other reports subsequently filed with the SEC from time to time.

As a reminder, this conference is being recorded. And I will now turn it over to Stephen Berman, CEO. You may begin, sir.

Executive
Stephen Berman

Good morning, everyone, and thank you for joining us today. This morning, we are going to review our performance during the third quarter 2018. I will talk about how our brands and products performed in the quarter compared to last year and to our expectations. In addition, I will talk about the steps we are taking to reduce our costs and improve our profit potential for the future.

After my comments, Brent will discuss our financial performance. After that, I will review some of the things that we are looking forward to over the course of the rest of 2018 and beyond, provide an update on the process JAKKS is going through with respects to the expression of interest received from Meisheng earlier this year, and then we will take questions.

Our net sales for the quarter declined approximately 10%, primarily due to the loss of sales to Toys R Us compared to last year. Although the liquidation of Toys R Us was completed before the third quarter began, it has continued to impact the industry. Not only did the industry lose a significant customer, but the actions taken by its competitors during the liquidation and since had led to some uncertainty. Obviously, the other major toy retailers such as Walmart, Target and Amazon are going to do their best to pick up the market share formerly held by Toys R Us, as are some other small retailers looking to capture some of the share as well such as Kohl's, JCPenney, Party City, T.J. Maxx and others.

While we believe the loss of Toys R Us share will eventually be picked up by other retailers. As we said previously, we were not expecting to see this happen in the third quarter. We currently expect the disruption in the fourth quarter to be less than in the third quarter, but we do not expect our sales or our industry sales to see anything like a full transfer of these sales until next year. It is difficult to exaggerate the impact this retail disruption is having on the industry. Even as retailers are positioning themselves to capture as much of the Toys R Us business as possible, they are exercising caution in their ordering.

With the above said, we have executed relatively