DA Davidson Cuts JAKKS Pacific Price Target After Disappointing Q1 EBITDA, Gross Margin Decline

JAKKS Pacific, Inc. (NASDAQ: JAKK) missed first-quarter EBITDA expectations last week — mainly due to a sharp decline in gross margins — and reduced its full-year EBITDA guidance, according to D.A. Davidson.

The Analyst

Linda Bolton Weiser maintained a Neutral rating on JAKKS Pacific and lowered the price target from $1.50 to $1. 

The Thesis

JAKKS Pacific reported quarterly sales of $71 million on May 9, representing a 24-percent decline and short of the consensus estimate of $76 million.

The miss was far worse on the EBITDA front, with a negative $17.1-million figure versus the consensus estimate of negative $12.8

The miss was driven by higher inventory obsolescence that affected the company’s gross margins, Bolton Weiser said in a Tuesday note. (See her track record here.) 

JAKKS Pacific lowered its 2019 EBITDA guidance from $27 million to $22 million, projecting continuing gross margin pressure in the second quarter.

D.A. Davidson reduced its 2019 EBITDA estimate from $27 million to $22.3 million.

About 27 percent of sales for the year are expected to occur in the first half of 2019, implying a second-quarter sales decline of about 15 percent, Bolton Weiser said. 

Price Action

Shares of JAKKS Pacific rose close to 3 percent to $0.93 at the time of publishing on Tuesday morning.

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