As it reported Q1 results, Jakks Pacific cited the effects of the Toys R Us liquidation in dropping an earlier forecast for “modest” sales growth and a return to profit this year. CEO Stephen Berman earlier had projected a sales increase for 2018, about a month before Toys R Us shifted plans from bankruptcy reorganization to liquidation.

Fairfax Financial Holdings received bankruptcy court approval on Tuesday to acquire Toys R Us’ 82 stores in Canada, and Smyths Toys has made an offer to acquire 93 in Europe, but “we don’t have fix yet on how much” of the lost Toys R Us business “we will pick up,” Berman said.

Jakks has received interest from “a lot of retailers” in products that were exclusive to Toys R Us, and it is gearing up production to supply them, Berman said.

The company’s net loss in Q1 ended March 31 nearly doubled to $36.2 million, due largely to Toys R Us’ liquidation, which resulted in Jakks writing off $13.7 million in bad debt. Net sales were down 2% to $93 million, as “areas of strength” in toys tied to Incredibles 2, Harry Potter, Fancy Nancy, Tangled: The Series and Mega Man offset a downturn in those related to Moana and Beauty and the Beast. Jakks sales on Amazon rose 25% in Q1.

Q1 gross margin fell to 24.7% from 31.8% a year earlier due reserves taken for expected royalty shortfalls tied to Toys R Us and higher royalties linked to a “shift in product mix,” the company said. Jakks had $3.4 million in expected minimum guarantee shortfalls as of March 31, the company said.

Sales of girls’ products dropped 4% to $44.5 million on a decrease in Beauty and The Beast, Moana and Zsum Zsum-licensed products. The boys business reported a 28.9% gain to $20.5 million, benefitting from the first shipments of toys tied to Incredibles 2, which is being released June 15. Sales of seasonal products fell 21.4% to $21.6 million, while the Disguise costume business reported a 40% increase to $5.2 million. Jakks also recorded a small amount of revenue from the launch of its C’est Moi beauty products, which are exclusive to Target for the first half of the year, Berman said.

Sales in North America declined less than 1% to $70.1 million, while those in international markets decreased 13% to $17.3 million due to lower sales of Smurfs- and Tsum Tsum-related products.

Contact:

Jakks Pcific, Brent Novak, Chief Financial Officer, 424-268-9444, bnovak@jakks.net