Jakks Pacific Inc 2026 Q3 Earnings Call

Good afternoon, and thank you for joining us. We are roughly 2 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 9 months of the year. We are 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 are 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 +14% year to date. International took a breath after a strong first half of the year. Europe was marginally up with the other regions and total down, netting out 4% down in the quarter, but international is still up 7% year to date and cued up for a solid fourth quarter. Our dolls, role play, dress up business led the quarter with 29% growth and is now +7% year to date. We are seeing great growth here with our Disney business leading the way. Retail POS 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. Comparable POS data was roughly flat in the quarter as we compare against the Sonic the Hedgehog 3 and DC x Sonic the Hedgehog crossover initiatives from last year. It is up mid-single digits year to date. Overall, toys and consumer product shipping was up 23% in the quarter and +13% year to date. We feel we have 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 are 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 cost 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 costs 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 JAKKS for decades, and these long-standing relationships allow JAKKS 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, Steven, and hi, everybody.

It is 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 an FOB-centric business, that will happen and just means we will get paid that much faster. In some respects, our fiscal year should almost be November through October, but we are 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 is 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 are 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 are doing a better job seeing downfield and building towards a bigger and more efficient business. Admittedly, there is always steady dialogue around potentially acquiring new licenses or launching new brands, but I think we are 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 do not really understand how businesses like this function.

Although I felt 2025 was a very productive year, despite its short-term financial challenges, I think you are 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 are pleased with that. As a reminder, there is not really a lot of gross margin scale to be had with our business. Tooling is a relatively tiny part of gross margins, and you do not get scale from royalty shortfalls unless you avoid them. As Steven 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 have 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 achieved 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 27 and will be paid on December 28. Now, back to Stephen for some additional commentary.