JAKKS Pacific, Inc. - Q1 2026 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended March 31, 2026. JAKKS Pacific, Inc. is a worldwide producer and marketer of children's toys and consumer products, operating through two primary segments: Toys/Consumer Products (TCP) and Costumes. The company is classified as an accelerated filer and a smaller reporting company.
Key Financial Metrics
| Metric | Q1 2026 | Q1 2025 |
|---|---|---|
| Net Sales | $106.7 million | $113.3 million |
| Gross Profit | $35.6 million (33.4% margin) | $39.0 million (34.4% margin) |
| Operating Loss | $(5.6) million | $(3.8) million |
| Net Loss | $(4.3) million | $(2.4) million |
| Diluted Loss Per Share | $(0.37) | $(0.21) |
| Cash from Operations | $21.8 million | $(1.7) million |
| Cash & Equivalents (End of Period) | $64.0 million | $59.4 million |
| Debt Outstanding | $0 | $0 |
| Available Credit Facility | $68.3 million | N/A |
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased 5.8% year-over-year. The TCP segment saw a 6.8% decline driven by lower North American sales, specifically a 32.4% drop in Dolls/Role-Play due to the end of the "Moana 2" and Disney Princess product cycles. This was partially offset by a 28.9% increase in Action Play & Collectibles (Super Mario Movie 2) and a 13.8% increase in the Costumes segment (Nintendo costumes).
- Margin Compression: Gross margin decreased 100 basis points to 33.4%. The TCP segment margin declined due to higher product costs and tolling amortization.
- Operating Performance: Operating loss widened to $5.6 million from $3.8 million, primarily due to lower gross profit and slightly elevated SG&A expenses as a percentage of sales (38.6% vs 37.7%).
- Cash Flow Improvement: Operating cash flow turned strongly positive at $21.8 million, a significant improvement from a $1.7 million outflow in Q1 2025. This was driven by higher receivable collections, lower inventory purchases, and a $6.9 million income tax refund.
- Customer Concentration: Sales to Walmart and Target combined accounted for 50.4% of total net sales, down from 58.4% in the prior year.
Outlook, Risks, and Unusual Items
- Credit Facility Update: In June 2025, the company replaced its JPMorgan facility with a new $70.0 million senior secured revolving credit facility with BMO Bank, N.A., maturing in 2030. As of March 31, 2026, there were no borrowings outstanding, and the company was in compliance with all financial covenants.
- Dividends: The company declared a quarterly dividend of $0.25 per share in Q1 2026 and another $0.25 per share on April 28, 2026, payable in June 2026.
- Tariff Refund Claim: Following a Supreme Court decision, the company has submitted a claim for refunds of certain tariffs deemed unlawful. The timing and amount of recovery remain uncertain, and no gain has been recognized.
- Seasonality: Management notes that the toy industry is highly seasonal, with sales typically peaking in Q2 and Q3. Q1 results are not indicative of full-year performance.
- Risks: Key risks include dependency on a limited number of large customers (Walmart, Target), reliance on licensed characters, and exposure to foreign currency exchange rates (though no hedging is currently utilized).
Investor Verification Checklist
- Product Mix Sustainability: Verify the durability of the "Super Mario Movie 2" sales spike and the trajectory of the "Moana 2" decline in future quarters.
- Customer Concentration: Monitor the 50.4% revenue reliance on Walmart and Target and any potential changes in their ordering patterns.
- Tariff Recovery: Track the status of the submitted tariff refund claim and potential impact on future margins.
- Working Capital Management: Assess the sustainability of the strong operating cash flow, which was aided by a one-time tax refund and inventory drawdown.
- Cost Structure: Evaluate the impact of rising product costs and tolling amortization on gross margins in the upcoming peak seasons.