Jakks Pacific Inc (JAKK) Q3 2026 Earnings Call Transcript

the JAX specific third quarter earnings conference call with management who will review financial results for the quarter ending September 30th, 2026. JAX issued its earnings press release earlier today. The earnings release and presentation slides related to today's call are available on the company's website in the investor section. On the call this afternoon are Stephen Berman, Chairman and Chief Executive Officer, and John Kimball, Chief Financial Officer. Ceylon will first provide an overview of the quarter and year to date, along with the highlights of recent performance and current business trends. Then John will provide some additional comments about Jack Pacific's financial and operational results. Mr. Berman will then return with comments about the balance of the year and beyond prior to opening the call for questions. E-line will be placed on mute for the first portion of the call. If you would like to be placed in the queue to ask questions, please press star 1-1 on your telephone keypad. Before we begin, the company would like to point out that any comments made about Jack Pacific's future performance events or circumstances include the estimates of sales, margins, and earnings and or adjusted EBITDA in 2026, 2027, and beyond, as well as any other forward-looking statements concerning 2026, 2027, and beyond, are subject to safe harbor protection under federal securities laws. These statements reflect the company's best judgment based on current market trends and conditions today and are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected in forward-looking statements. For details concerning these and other such risks and uncertainties, you should consult Jack's most recent 10K and 10Q findings with the SEC, as well as the company's other reports subsequently followed with the SEC from time to time. In addition, today's comments made by management will refer to non-GAAP financial measures, such as adjusted EBITDA and adjusted earnings per share. Unless stated otherwise, the most directly comparable GAAP financial metric has been reconciled to the associated non-GAAP financial measure within the company's earnings press release issued today or previously. As a reminder, this call is being recorded. With that, I would like to turn the call over to Stephen Berman.

Good afternoon, and thank you for joining us. We are roughly two months from the end of 2026 and feeling positive about our execution this year, as well as feeling positive about the possibilities that lie ahead. Q3 shipping generated $254 million in net sales, a 20% increase over a prior year that featured delayed planogram sets and higher U.S. tariffs. Year-to-date, our sales are up 13% ahead of last year. The FOB business model is alive and well, representing over 75% of sales for the first nine months of the year. We're also seeing buying patterns return to pre-tariff quarterly seasonality. With much of the year now behind us, we are now working with customers to ensure solid sell-through and firming up plans for what we feel can be a great 2027. Although we're not supporting any new entertainment releases in the toy business this holiday season, growth was nonetheless driven by North America, which was up 28% in the quarter and is now plus 14% year-to-date. international took a breath after a strong first half of the year europe was marginally up with the other regions in total down netting out four percent down in the quarter but international is still up seven percent year to date and queued up for a solid fourth quarter our dolls role play dress-up business led the quarter with 29 growth and is now plus seven percent year to date we are seeing great growth here with our Disney business leading the way. Retail point of sale rates at our two largest accounts continue to track up in the double digits here, both in the quarter and year to date. The action play and collectibles division continued its strong year as well, with a 19% growth in the quarter, driven by the success of the Super Mario Galaxy film and our core Nintendo evergreen business. Converable POS data was roughly flat in the quarter as we compare against the Sonic 3 and Sonic DC crossover initiatives from last year. It's up mid single digits year to date. Overall, toys and consumer products shipping was up 23% in the quarter and plus 13% year to date. So we feel we've done a solid job maximizing this year's opportunities for a robust holiday selling season. Our costumes business had a solid quarter as it continues to recover from last year's disruptions. At $62 million in the quarter and $111 million year-to-date, we are tracking slightly ahead of 2024. Most of our U.S. accounts were up double digits this year, but we also are pleased with the traction we're seeing in Europe opening new accounts and generating more of a year-round business given the broad different selling opportunities there. Having just returned from parts of Asia last week, I can speak firsthand about the challenges factories are facing from higher resin prices putting pressure on product costs and higher diesel prices impacting the supply chain both for ocean and land freight. We are prioritizing shipments and continuing to scrutinize our inventory management to mitigate these higher cost of doing business. We have been working extremely closely with our manufacturing partners in Asia, allowing us to work through these various issues. Many of these factories have been partners of Jaxx for decades, and these longstanding relationships allow Jaxx to work expeditiously through these events when they occur. I will now pass it over to John for some comments, after which I will come back and discuss some product initiatives and areas of focus moving forward. John.

Thank you, Stephen. And hi, everybody. It's an interesting quarter to report on here, as the numbers have come together pretty much as we would have hoped they would. Some Q4 sales worked their way into Q3 this year, but as a FOB-centric business, that will happen and just means we'll get paid that much faster. In some respects, our fiscal year should almost be November through October, but we're not going to make that change and punish ourselves or anyone else with that exercise. Overall, we continue to collectively color within the lines as it relates to the full year plan. It may not be the biggest or best this or that, but it's a considerably better year than 2025 and a really good year on the financial front as far as the printed results. As of late October, we're getting close to the finish line of delivering in 2026 a profitable, cash-generating, dividend-paying fiscal year. What is harder to measure and often communicate is that we're doing a better job seeing downfield and building towards a bigger and more efficient business. Admittedly, there's always steady dialogue around potentially acquiring new licenses or launching new brands, but I think we're spending more time every quarter figuring out ways to run the business better, for lack of a better word. We are tuning the organization and our internal processes to increase efficiency and execute globally while maintaining a fast decision-making culture and hopefully some thoughtful precision around the financial implications. People who think that the only value generated in a particular year is reflected in that year's financial statements don't really understand how businesses like this function. And although I felt 2025 was a very productive year, despite its short-term financial challenges, I think you're starting to see some of the financial results this year and next, and ideally we can keep accelerating this momentum. 20% higher sales delivered 20% more gross margin dollars, so we're pleased with that. As a reminder, there isn't really a lot of gross margin scale to be had with our business. Tooling is a relatively tiny part of gross margins, and you don't get scale from royalty shortfalls unless you avoid them. As Stephen mentioned, there continues to be pressure on product and freight costs. Although the U.S. tariff discussion seems to be trending in a favorable direction, definitive guidance on that front is still pending, so we are navigating as best as we can and managing for dollars, as I've said before. Gross margins held up well in the quarter at 32.1%, slightly higher than last year's 32%. Selling expenses were a bit higher in the quarter, as they likely will be next as we dial up our promotional activity, particularly compared to last year when we were pulling back given sales volumes. G&A costs were higher in aggregate, but sheathed some scale on higher volumes. We are continuously reevaluating overhead spending, vendor by vendor, to self-fund new initiatives and needs, but the overall higher cost of doing business is relatively unavoidable. Adjusted EBITDA in the quarter was $44.4 million, an improvement over $36.5 million in Q3 last year. That increases our 12-month trailing adjusted EBITDA to $45.7 million, up from $37.8 million last quarter. Adjusted EPS for the quarter was $2.68. That compares favorably to $1.80 at this time last year. Year-to-date, we are at $2.81 versus $1.79 year-to-date last year. On the balance sheet, we finished the quarter at $45 million in restricted and unrestricted cash compared to $28 million at the same time last year. Our inventory balance at the end of the quarter was $64 million compared to $71 million last year. that reflects a slightly higher balance outside the U.S. than it did at this time last year. Lastly, the board has approved the quarterly cash dividend of $0.25 per share. The dividend will be payable to shareholders of record as of November 27th and will be paid on December 28th. And now, back to Stephen for some additional commentary.

Thank you, John. We're about a week away from Halloween, so we should lead off with the costume business. Retail buyers were energized after last year's disruption while also being optimistic about a robust film slate and Halloween falling on the weekend. To no one's surprise, Netflix's K-pop Demon Hunters has been in high demand and is a property that retailers are chasing. We have also seen a content lift from Disney's Descendants 5 and Pixar's Toy Story 5, while our core Super Mario line is also up considerably as it's been a very big year for Nintendo across all categories. We're seeing growth in Sonic the Hedgehogs as its robust content slate continues to increase the size of the Sonic franchise base. We're also seeing some solid demand for Harry Potter as Warner Brothers commemorates the 25th anniversary of the first theatrical release and begins the promotion of the HBO series that is launching this December. We are steadily adding rights to our costume and cosplay portfolio where it makes strategic sense, especially as licensors listen to the retailer's feedback that we are the vendor they prefer to work with. Our Disney Princess and Disney Frozen business continues to have a strong year. They are exceeding our expectations more than anything else in our portfolio in 2026. Our ages and stages large doll lines, style collection, role play toys and dress up are all performing well key customers have been going deeper with our line this year and it's paying off for both of us we can also see where some lower retail price points compared to last year are coinciding with increased unit sales which is great and bodes well going into the holiday season we're also seeing a very strong initial numbers for our Disney Princess, Magical Light, and Style Rapunzel. This toy from a large doll subcategory is on path to be a hot item this holiday season, so get yours early. On the extra figure front, we are continuing to support the Super Mario Galaxy film with retailers' exclusive products and out-of-a-isle placement for key SKUs. The Bowser Jr. Pandit playset, Yum Yoshi, and Donkey Kong playset are the key drivers that we are supporting with paid media. The film has been available on Peacock TV since late July and will debut on Netflix in early December to further extend its reach. As mentioned last quarter, we are continuing to celebrate Sonic's 35th anniversary with a variety of products in special packaging. Among the toys we have developed, the giant metal Sonic vs. Sonic play set, launched in Q3 and is featured at retailers globally and in holiday gift guides. You can find the commercials online to get a better sense of the fun factor in this toy. And obviously we'll have more to say about Sonic next quarter as we get closer to the March 2027 theatrical release of Sonic the Hedgehog 4. Fashion dolls have played an important role in Jack's history, dating back to our success with Disney's Hannah Montana, Taylor Swift, Disney Fairies, which is Tinkerbell and her friends, and Wigs Club, just to name a few. As we mentioned last quarter, we introduced a new collector doll segment in May, partnership with Warner Brothers. The next collection just dropped with slightly different inspirations, titled Dollhouse of Dread. It introduces a bold new line that transforms horror's most feared figures into high-style, display-worthy collectibles. Launching exclusively at Walmart and Walmart.com, this horror fandom reimagined, awakened some of the most powerful, vocal, and obsessive fanbases. The lineup featured dolls inspired by four chilling icons. Ghostface, as seen in the motion picture Scream, Billy the Puppet from Saw, Jason from Jason's Universe franchise, and Pinhead from Hellraiser. The line was introduced this month at New York Comic Con, selling out inventory following a live video sale in Walmart collector booth in a collaboration with a celebrity named Jamie Kennedy. The Warner Brothers Doll Collection and Dollhouse of Dread mark the first chapter in a broader vision for Dollhouse as a unified collector destination. Beyond these debut collections, Dollhouse will expand into a house of subcategories spanning fandom-driven properties, exclusive entertainment collections, and powerful collaborations all designed to build a lifestyle destination for collectors rather than a single product line. As the platform grows, Jack's plans to deepen the collector experience throughout direct-to-consumer exclusives, behind-the-scenes content, and a growing presence at conventions and events. the website spelled d-o-l-l-h-a-u-s-h-q.com launched this month alongside social channels separately a private label business with walmart through my sweet love and my life as brands has been steadily expanding a new assortment set this quarter with four basic and deluxe fashions in my Life As, and six nurturing role-play items and baby doll fashions in My Sweet Love, doubling the list rings from prior year. All three new items are in our top 20 items at Walmart, and a stroller is our number one overall new item there for fall 2026. As we look ahead to 2027 and beyond, we couldn't be prouder or more excited about the lineup across our categories and divisions. Our recent fall 2027 previews drew an enthusiastic response from customers around the globe. We have several exciting announcements coming soon, and 2027 brings a slate of strong theatrical tentpoles, including Sonic the Hedgehog 4 in March, the new Simpson movie in September, and Frozen 3 in November. In addition, our Halloween roleplay and cosplay division, Disguise, has a powerful lineup built on strong IP for 2027 and beyond. Jack Specific is also launching a long-term strategic initiative focused on immersive IP across anime, manga, VTubers, and digital entertainers. The IP partners and titles debuting next year are simply the best in class. We have held numerous retail meetings across the United States, Europe, and Latin America in preparation for our initial launch. Feedback from both partners in retail and customers has been highly enthusiastic and extremely encouraging. This year is yet another reminder that a lot can change in a short period of time in our industry. Although events outside our industry continue to be intriguing to make the business of making and selling toys more complicated than perhaps it needs be, we are heading into the end of the year with solid momentum both in terms of our commercial performance today and the foundation building for 2027 and 28 and beyond. I continue to feel extremely confident in our business today, where we are headed, and the opportunities we see both ahead of us and within reach. And now I'll take a couple questions. Operator?

Thank you. At this we'll conduct a question and answer session. As a reminder to ask a question, you need to press star 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 again. One more for our first question. Our first question comes from Eric Bader from Small Cap Consumer Research. Your line is open.

Good morning. Congratulations. Excuse me. Good afternoon. Congratulations on the corridor.

Thank you, Eric. Good afternoon.

Can you talk a little bit about what you're seeing in terms of the international opportunities to both add accounts, and how should we be thinking about the regions in terms of the potential for expansion there?

Thank you for the call, Eric. The expansion is happening quite aggressively. We already have a phenomenal footprint in the MEA, but we're growing deeper in certain territories and we're staffing up for it as we have been this year. The main opportunities are obviously in EMEA, and then it grows in Latin America and Southeast Asia. But for the time being, we've been growing strong in both LATAM, with offices in Mexico, Chile, and various other countries and territories, with our staffing that is just specifically for JAX and focuses on JAX products. And we're expanding in that area in Latin America through various initiatives. The mass market, which are main retailers, and then the informal market, which is, call it the outer skirts market. That's a very big market with lower price items. So it's taken us a year and a half to develop the items that were necessary for the value chain and work with our licensors and our retailers. And that has started to bear some very strong fruits, and looking into 27 will grow quite strong. The same for Europe and outside of Europe. We are expanding with further staffing required with regards to getting growth as we've really penetrated through the mass market in those countries. But the further growth is going through all the secondary and value channels in those territories. So we've opened up warehouses further deep in our reach and further in Italy, Spain, Germany, UK, Rotterdam. we have warehouses and distribution centers that allow us then to be able to make quick deliveries to the individual markets where the products are being sold. So those areas are seeing expansion and the rights that we are obtaining through our licensors are including a lot of these new territories that we never had before. So you have the new territory distribution or enhanced distribution plus more IP and products that are deliverable to those territories. So that will enhance the growth in those areas immensely going in 27 and 28.

And structurally, how, you know, is this business as FOB driven as kind of our domestic business is? And how should we be thinking about both the margin opportunity and kind of the ability to kind of even out the quarters a little more?

So, for instance, there's a, the way that the international works is slightly different than the States. So we have in North America Disguise, which is really a Halloween-centric business. But in Europe, in Latin America, it's everyday play. So it gives us full year of dress-up, vastly different than we do in America through Disguise. In America, we utilize each of our segmentations to do the dress-up. So our Disney group does their own, and each of our individual areas does their own. But in Europe, we do it vastly different based off of the criteria because Halloween isn't strong in certain areas, and you have Boxing Day, you have Kids Day, you have various carnival that really attracts the consumers in EMEA more so. And then primarily on the international business is about, I'm going to, John can correct me if I'm wrong, about 90% FOB or 85% FOB, but the difference is we're building domestic capabilities as the lead times to shift FOB to Europe and certain areas take longer than it does to get to America. So the backup inventory that we have on the main core business is helping us get additional growth in those territories where an FOB business can only do so much that when you get to the holiday season, you do need some backup. On the margin, I think I'll leave that to John. I believe it's equal, but I'll leave it to John.

Yeah, hi, Eric. Yeah, I think on the margin front, the simplest way to think about it is that it's comparable to the U.S. You know, it's not unlike the U.S. You have some retailers who operate on a tighter margin than others, and part of our playbook for the states to begin with is to make sure that we're, you know, developing great product for the consumer that's also kind of working for the customer in the form of the retailer in terms of what their margin requirements are. As we've gone deeper in that direction over the past couple of years, particularly to sort of capture more of the value channel opportunity, which is such an emerging force in U.S. retail, you know, that kind of serves us well when it comes to international markets, both in terms of markets that have kind of lower GDP per capita, as well as, even before, you know, there's a sort of cursory way of entering a market where you're hitting a few big kind of mass market accounts and calling it a day. I think we are getting much deeper into a more credible and persistent presence in a lot of these markets where we can have product appropriate for multiple channels and still doing that while making nice margins.

Great. And maybe just to follow up, in terms of, so we've been talking a lot about how you have an incredibly strong balance sheet. Are we starting to see some of the benefits of that through some of these new licenses and expansion opportunities and other pieces now that kind of the, I guess, noise from the tariffs is kind of abating? And she would be thinking about the ability and desire for you to add even more properties going forward in addition to kind of the anime which is going to roll out in the 2027. Thank you.

Well, we believe that what we're seeing in the market, and again, this company is 32 years old, so we have a lot of history in what we've seen and the changes that we're seeing. We're getting, I'd say, more of the appropriate licenses that we're looking to acquire for the areas in which we're in that help benefit both the licensor as well as jacks our shareholders and our retailers and consumers but we we are getting extremely strong growth in areas that are the properties are becoming more fulfilling and they're doing more with less so at the same time while requiring licenses we're getting i would say hopefully the best in class from what we're looking at as a company and what i'm seeing going on now is a lot of people are heavily focusing on the adult and collectible business, and it's been stated in various conversations through various different companies in our forum. As for JAX, we are still a kid-centric business, and there's still a very big appetite for items for children six months to seven years. At the same time, we are in the adult and adult collectible business in various businesses that we've been in for decades. We've been that way with Nintendo has a collectible business, Sonic has a collectible business, Bendy, Simpson, a lot of these areas have cadult. Then you go into the anime, which has a very big focus of cadult, adult collectibles, both male and female. So we're in those categories of business, but a lot of our industry is moving away from kids where we're getting more heavily involved in kids, which has given us much more appeal to the licensors that we're still a very kids-focused business, So it's enhancing our business going forward.

Congratulations, and good luck for the holiday season.

Thank you. Thanks, Eric.

Thank you. And our next question will come from the line of Thomas Fort from Maxim Group. Your line is open.

Stephen and John, congratulations. I have four questions, and depending on your answers, I may have follow-ups. So the first one is actually a follow-up to the question you just answered. The not supporting any new entertainment in the fourth quarter, Is that a reflection of timing, or are you just being more picky?

That's a great question, and thank you, Tom. It's just more of timing. We knew where we were at this year. It was just there was nothing, in a sense, toy-rific of coming out this year that was really like what we're going to see next year with the Sonic and Frozen, and you have the Harry Potter show coming out and all those things. But what we're proud about, we saw that going into the year well before it was here, and all of the different segmentations that we're focusing on are seeing you know healthy business go you know majority of them all seeing growth in our company a lot of it was from the segmentations and what the teams have developed um the private label business has grown immensely our our core disney business you know disney princess and frozen there hasn't been any real ip uh movies or content behind it and it's seen tremendous growth and that has to do with the partnership with the walt disney company and with jack's working on uh Just general IP that enhances the Disney portfolio, such as our style collection that we launched years back, seven years ago, and now it's a very impactful line to our company. You have Disney Darlings, which is a brand new initiative between the Walt Disney Company and Jaxx that focuses on a nurturing baby doll lineup that is doing exceptionally well both in the U.S. and abroad. So what we've done is we made sure that during a less popular year of movies or content, our business will have healthy growth. And then when you see a content year that's coming forward in 27, 28, that just enhances the whole pool to what we're looking at doing as Jax.

Excellent. All right. And then when I look at the performance in the third quarter of 26, sorry, third quarter 26, and I compare it against the third quarter of 24, high level, what would it take to get back to U24?

Well, I think the easiest way to think about that is kind of what you were just touching upon the last question. In the back half of 2024, we had kind of some meaningful entertainment tentpoles that we were rallying behind, right? Like, for memory, there was the Moana 2 movie that came out during that time and also a Sonic 3 movie that came out during that time. And so if you reference the chart that we do in the supplemental earnings deck, which kind of breaks out the content piece from the evergreen piece, you see how Q3 this quarter was pretty solid and pretty nice evergreen growth. But, you know, to the earlier point, you know, it's just not the case that we're supporting a huge movie in the fall other than we obviously are still supporting Mario Galaxy in a big way.

All right. And then I think I know the answer, but I'll ask anyway. So are we done with tariffs refunds? All right. And then the last one, I'm just going to say the name of a company. And then depending on Stephen's response, I might have a follow-up. So last question is Toys R Us.

Toys R Us is a lovely name and a lovely company and is doing – it's being licensed out to a company that we're very familiar with, the name, and they're opening up the stores throughout the holiday. And it's wonderful to see it back and back in the right format. But it's still relatively a small area. I think it's 120 stores that are being opened this year. we're rooting for you know it to come back in the way it should be in today's environment and the people that are running it are doing a you know a well done job so we're very close with them we're selling them but they're hopefully they'll be able to get further depth and they won't just be pop-ups they'll be full-time year-round but a lot of them right now are pop-ups okay thank you Stephen thank you John thank you thanks Tom thank you this concludes the question-and-answer session.

I would like to turn it back over to Stephen for closing remarks.

Ladies and gentlemen, thank you for the call today. We'll be doing a lot of follow-ups right after this conversation and we're excited and looking forward to 27 and resuming speaking to our investors. Thank you very much.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.