JAKKS Pacific Stock is Recovering

Entertainment and toy products maker JAKKS Pacific NASDAQ: JAKK stock is awakening and recovering as it surges through pre-COVID price levels. The licensor of popular brands like Sonic the Hedgehog, Super Mario Brothers, Apex Legends, Disney NYSE: DIS Frozen, Mulan, Princess, and Raya IPs is experiencing a growth spurt as new content returns. The resumptions filming, theatrical releases, and streaming content are all a powerful reopening and recovering tailwind for JAKKS. With the acceleration of COVID vaccinations, the Company should continue to see improvement in both the top and bottom lines as it is a reopening play. Despite potential disruptions in the 2^nd half due to shipping container shortages, chip shortages, supply chain disruption, and the rise in raw materials costs, JAKKS is still positioned as a post-pandemic winner riding on the tails of its popular brands heading into the holiday season. Prudent investors looking for a reopening play can watch shares of JAKKS pacific for opportunistic pullback levels to gain exposure. 

Q2 Fiscal 2021 Earnings Release

On July 28, 2021, JAKKS released its second-quarter fiscal 2021 results for the quarter ending June 2021. The Company reported earnings of (-$0.38) per beating consensus analyst estimates by $1.11.   Revenues grew 43% to $112.35 million year-over-year (YoY) beating analyst estimates by $25.8 million. The Company generated the highest 1^st half sales since 2018. Gross margins rose 28.4% YoY representing the highest gross margins since 2016. The Company also accelerated the maturity of convertible debt to September 2021, $2.9 million currently outstanding.

JAKKS Pacific CEO Stephen Berman stated, “It has been well-publicized within our industry and others the challenges being faced with the supply-chain and logistics, stretching from Asia to the U.S. and Europe. Nonetheless, our teams worked together across offices to deliver product to our customers as well as build up our domestic inventory in preparation for the second half of the year. The focus of the organization as it continues to navigate the pandemic is extremely gratifying and a testament to our agility as a hands-on, customer-focused company.” He continued, “"From a sales perspective, we saw excellent results across our Toys/Consumer Products and our Costumes businesses, both in North America and Internationally. Strong consumer demand continues to fuel our Toy business and we anticipate strong results from several programs we are initiating for this Holiday season with our largest customers. In addition, we are on track for what we anticipate will be a great Halloween season with a wide range of new introductions including Jurassic World®, Minions®, Ghostbusters® and The Paw Patrol Movie.”

Conference Call Takeaways

CEO Berman set the tone, “Our bottom line has increased materially over the last 18 months and we continue to push the business forward on the stronger foundation. Our adjusted EBITDA in the quarter was $5 million, our first profitable second quarter since 2016. Our performance was driven by strong sales across the core business categories as we continue to focus on the priorities we have previously discussed, expanding gross margins, improving profitability by reducing costs, and driving down debt.” The recurring theme is the focus on lowering debt and servicing fees. He also touched upon the problem with the lack of shipping containers resulting in extensive port delays and closures. Additionally, rolling blackouts have led to a reduction in production times along with supply chain issues from the chip shortage. He expects these problems to impact the 2^nd half of the year notably heading into the holiday season. To offset some impact, the Company has bolstered inventory levels by $60 million ahead of the typical June 30 levels. He concluded, “As the economic opening continues, we are gradually seeing improvements in retail traffic and audience returning to theaters. Streaming dominated during the pandemic and production filming is ramping up to meet the rise demand for content across new and established channels. We feel we are well-positioned with the timeless brands be delivered directly into households via streaming and gaming platforms, while still working with all the leading content creators.”

JAKK Price Trajectories

Using the rifle charts on the weekly and daily time frames provides a broader view of the landscape for JAKK stock. The weekly rifle chart peaked at the $15.30 Fibonacci (fib) level. The weekly rifle chart is uptrending with a potential pup breakout. The rising 5-period moving average (MA) is at $11.35 with a rising 15-period MA at the $10.33 fib. The confirmation of the pup breakout forms on the cross up of the weekly stochastic. The weekly market structure low (MSL) buy triggered on the breakout above $9.50. The weekly upper Bollinger Bands (BBs) sit at $14.65. The daily rifle chart is uptrending with a rising 5-period MA at $13.09. The daily market structure high (MSH) sell triggers on a breakdown under the $13.01 level, which is just below the daily 5-period MA. The daily upper BBs sit at $15.15. The daily MSH trigger level should be defended by the bulls, but if it triggers then was for reversion towards the daily 15-period MA. Prudent investors can watch for opportunistic pullback levels at the $12.28 fib, $11.70 fib, $10.71 fib, $10.33 fib, $9.47 fib, and the $8.61 fib.