On Thursday, Jakks Pacific (NASDAQ:JAKK) discussed first-quarter financial results during its earnings call. The full transcript is provided below.

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Summary

Jakks Pacific is confident about achieving its goals for the year and setting up for a stronger 2027, with a significant focus on the anime product line launching in 2027 and some shipments in 2026.

The company is expanding its product lines with successful tie-ins to major movie franchises like Super Mario, Toy Story, and Paw Patrol, and is experiencing strong sales in its Disney product lines.

International growth is a priority, with significant expansion in Europe and Latin America, supported by new distribution centers.

Jakks Pacific is focused on maintaining the right price points for different markets, with a majority of products in the $10 to $30 range, while preparing for high-demand holiday products.

Management is considering capital allocation carefully, with a focus on potential acquisitions and supporting new initiatives, while maintaining cash reserves due to market uncertainties.

Full Transcript

OPERATOR

Launch expected in 2027. We are only a third of the way through the year and although it continues to be very dynamic, we feel confident we are still on track to achieve our goals for this year, inclusive of setting up for an even better and stronger 2027 and beyond. And with that we will take a couple questions. Operator, thank you very much.

Thomas Forte (Equity Analyst)

Great, thanks Steven and John, thanks for taking my questions. I'll limit myself to three and I'll go one at a time. So Steven, the anime product line sounds amazing. Can you give just high level comments on what success could look like, including the relative gross margin and contribution margin for that product versus your other efforts?

Steven

Good afternoon Tom, and thank you. So firstly, this initiative that we undertook has been well over two years working with many of these companies that are in Japan and the way that the companies oversee their IP is very stringent and very strict. So we went to them to various large enterprises. Aniplex, which is Demon Slayer, Viz Media, Naruto, Kodansha which is Attack on Titan and several others from KADOKAWA Corp. And Crunchyroll. It's been a long time process of making sure that when you create products in this genre it has a very strong fan base that you got to really focus on and cannot veer from. So we had put together a plan. We hired across the board a very young passionate group in the anime manga and called Digital Marketers and we put together a plan of products from collectibles to kid adults which is very strong, to somewhat of some of the other properties to tech accessories areas that the fan base really likes. In fact, for the VTubers and digital marketers, we created light sticks for them to use at concerts, but all with the authenticity of the actual IP and directed toward the fan. So the launch itself is starting in 27. We will get some of it shipped in 26. It's a very broad launch to various initiatives of retail basis. So think of Miniso, GameStop, independent retailers as well as venue sales. A lot of these concerts, movies and initiatives are done in venues and there's never been real authentic merchandise at the venue. So we have structured and working with several different partners to do the Venue sales as what you would see at concerts, like at a Taylor Swift concert or a Kendrick Amar where you have the merchandise that goes straight to the consumer. So all these initiatives are all being really launched together at one time in various segmentations and with various collective initiatives with each of the IP holders, but inclusive, you will see a broad array of product of totality of all the strong anime, manga and VTube IP in one segmentation. At retail, instead of having one licensor do one IP and another one, we've collectively worked with these IP holders to make sure that they were present and they were present and focused together so the consumer knows where to buy them. On the part of margin enhancement, because they're somewhat more focused on kid adult, the price points will be slightly higher and the margin in our area for Jakks Pacific will be slightly higher.

Thomas Forte (Equity Analyst)

Excellent. All right, so then, second of three. I recognize a lot of your product releases are coinciding with movie premieres, but was wondering for your other SKUs, how should we think about the timing of new product rollouts and if you're holding anything back given the current market challenges?

Steven

First, the market challenges. As we mentioned in our prerecorded we're used to these challenges. It happens. It's happened. Jax has been public 30 years. We've been around 31 years. So you have to kind of work through them, work with manufacturers, work with container companies, work with the retailers and work very closely and very entrepreneurial to get through these different times. But with these different times there's also very strong opportunities. So as we mentioned in our call, the Super Mario Movie itself is done phenomenally well. The product line is expansive, the sell throughs are great. We will have the forthcoming or upcoming streaming release whenever Nintendo and Universal announce it. So that will have its legs and continue with big tailwinds behind it. Then there's a lot of different initiatives that happen in our disguise business. You have the Super Mario movie, Toy Story 5, Descendants 5 Paw Patrol movie Minions Movie and Demon Slayer, which is the anime that we mentioned, which is from Aniplex. So in each of our segments we have some great excitement, but at the same time some of our basic evergreen business is what's doing extremely well in our Disney area. Our Disney darlings, our Disney style collection, our Disney Princess has seen sell through strong and profit dollars up. So that's exciting. Then you going into the year we also have various other movies that are coming out that we have nice product behind which is Moana Live Action, some Minions and other IP that's coming out. But that on top of our evergreen business is really what's keeping us going and strong when we start building throughout the year and going into 27 and 28, our lineup, I couldn't be more proud as a CEO, a co founder. It is so strong in the majority of all of our categories from our seasonal business with abg, with which we have elements and Roxy and Quicksilver, which is now just starting to take some real traction getting out to the spring and summer retailers, it's a really exciting time, but at the same time it's a cautious time because of oil prices and things that are just unknowns, but those unknowns to us. It's just part and parcel of our business. But we're really excited. I'm really excited to get through the year. This is a quiet first quarter. I even mentioned to John it's a very quiet period to talk about because there's so many things that are happening through the year. But as the year goes by, we will be going out on the road speaking with retailers, investors. It's really an exciting time at Jakks Pacific.

Thomas Forte (Equity Analyst)

Excellent. All right, and the last one, thanks for taking my questions. So another high level question. So there are some people who believe that AI will lead to an explosion in video content which could materially increase your opportunity set for licensing. We'd appreciate your thoughts on that.

Steven

With our IP holders, our licensors, many of them are obviously very strong and very focused in the what AI could do in the call it the production, call it the quickness to market for digital animation and various initiatives. So I think it's going to be very much pick and choose by each of the large scale entertainment companies, whether it's the Walt Disney Company, Netflix, Amazon, we're there to help them out in what they do. And the one thing that we've seen, because these things are coming quick to market now because of the time it takes to develop is much less than in the past. The one thing that Jakks Pacific is great at is go to market and doing things very quickly. And I think that's where we're going to behoove with working with these companies to get things into the market quicker than a normal company can, just based on our scale and what our DNA is. Great. Thanks, Steven. Thanks, John. Thank you, Tom.

OPERATOR

Thank you very much. Our next question comes from the line of Eric Better of Small Cap Consumer Research. Eric, your line is open.

Eric Better (Equity Analyst)

Good morning. Congratulations on the solid start to the quarter. Thank you. Good morning. Good morning. Good morning. Excuse me. When you look at it in terms of the consumer, in terms of normalizing in the U.S. how should we think about kind of how the flows are going to happen here and when will we know kind of what is going to be the new market or what is the market we're going to see? Post all the disruptions we had last year in the U.S. I think at

Steven

the end of the day, product is king. So if you have the right product and you have the right price points, the consumer will be there. Especially in our area of business to where, whether it's a holiday, whether it's a birthday, people and parents and grandparents and relatives spend on children, spend on toys. But in this environment, I think price points are very much a focus during the first nine months of the year and ensuring that we have the right price points and the majority of our products are in the 10 to $30 range. And then during the fall period, during the holiday period, you need to have the WOW ip, the WOW item, the WOW product to get that bigger purchase. And I think we have all that accustomed in the majority of our divisions. Remember, primarily we are an FOB company, so we plan very far ahead differently than a real domestic company. So we have things in line with all of our major retailers worldwide to enhance whether it's exclusivity on products and categories so they could actually enhance their margin dollars and also market those products directly to consumers at the same time not having price comparisons done by other retailers. So that's a very big enhancement. I don't know if I mentioned earlier, but we had our best ema quarter since 2015 and our best ups in France and Spain in over 15 years. So we're talking us and I'm talking worldwide. We see growth international as we're expanding with more IP that goes appropriately in specific territories and countries. Both in EMEA Latin America and now really focused on Asia Pacific for the next few years. So that's great. And in the US you just have to make sure you have the right product for the consumer at the right price point. And we monitor that very, very closely on a week by week basis.

Eric Better (Equity Analyst)

You kind of hinted at this. How do you look upon this anime Mancha thing too in terms of international, are you getting worldwide rights to most of these players? And how can that help drive international even further?

Steven

So for the IP is really selected by each territory and country. So in the anime, and I'm speaking broadly for anime, manga and then the Vtubers and digital entertainers, each country is vastly different. So for instance in emea, France is Number one for anime. It's known throughout the world as they have such a huge fan base in France and then it goes in Italy and then goes uk and after France, actually it's Latin America. Mexico is very big. So you have to really pick and choose. You can't just think that each of these IPs are going to work in all these territories. So we look at the fan base, we speak to the content holder, the IP holder, and we work closely with them as they have such decades and decades of information of where their fans are, where they're growing. And we follow what they say is they know their IP better than anyone. And then we take our team and really cultivate it per the market and what's appropriate, price point wise, item wise and content wise. Because some of the items that we make for America may not be appropriate for Europe or for Latin America and vice versa. So we really are focused in each of these areas and segmentations. The right product, the right territory, the right ip.

Eric Better (Equity Analyst)

Great. And when you look at international, it keeps on growing as a percentage of the business. I believe Q1, it was about 30%. Longer term, what should we be thinking of the goal for international versus US penetration?

Steven

Well, the goal is growth, but the growth won't keep up at that 30, 40%. Always going. It's growing per each of the areas. The reason why EMA has grown significantly, we opened up five different distribution centers in various territories to allow us to hit much more and penetrate into the retail market. It's much smaller accounts throughout Europe than it is in America. So you need this distribution platform. Our domestic business has grown internationally because we have to have backup inventory for all these smaller customers. So we are looking for growth. We are looking for growth in market share. Also garnishing new IP that's appropriate for the marketplace. So it's a combination. And each of these countries will have different growth than than the others because certain IPs work great. In the UK, for instance, France is very, very strong in anime, UK is strong, but not as strong. So you'll see a much faster growth in anime in France and you'll see a much stronger growth in our general toy business in UK versus France just because of the size and shape. So it's really a really dissective approach by each of the country's territories and and the correct ip. But you'll see that enhance the growth. But not all throughout Europe because some of the IP does not work in Europe.

Eric Better (Equity Analyst)

Okay, and last question. You paid out a dollar dividend last year and Cash continues to rise. How do you leverage that and how do we should we look upon that as, you know, take competitive advantage and being able to expend capital when you.

Steven

So with capital allocation, we bring this up during our board meeting. In fact, we just had one and something that we review and based on the environment where cash is king right now in this kind of environment and we are investing capital more than normal with regards to the anime initiatives, the tooling, all these new initiatives, it's costing us capital. Not material, but it does cost us capital. And with that, we're going to be doing much more marketing, more influential marketing to the consumer in some of these areas. And we have some very surprising new initiatives that we'll announce later in the year that will cost capital, but nothing to where it's a huge expenditure, but it's more than we normally spend in tooling, marketing and overhead for these areas and new initiatives. That being said, we will look at what we generate in cash through the year and and look at what's appropriate. We are seeing opportunities on the acquisition front. We're getting more inbound calls of companies that are looking to sell. So there's a really nice, good opportunity out there. We just want to make sure when we utilize our cash, we utilize it on an accretive basis and not just to use the cash, to use it.

Eric Better (Equity Analyst)

Great. Thank you and look forward to the rest of the year.

OPERATOR

Thank you very much. This concludes the question and answer session. I would now like to turn it back to Stephen Berman for closing remarks.

Stephen Berman (CEO and Co-Founder)

Thank you very much. I'm sorry for the brief call and also my voice during the prerecorded. I had a cold. But we're looking forward to speaking shortly and getting on the road and seeing some of the investors throughout the summer and going right into fall. So thank you very much.

OPERATOR

Thank you for your participation in today's conference. This does conclude the program.

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