JAKKS Pacific's Q3 2025 Earnings Call: Contradictions Emerge on Tariff Mitigation, Sales Strategies, and International Expansion

Date of Call: October 30, 2025

Financials Results

• Revenue: $211.2M total for the quarter (Toys/Consumer Products $156.1M, down 41% YOY; Costumes $55.1M, down 4% YOY); year-to-date net sales down 21% YOY
• EPS: $1.80 adjusted diluted EPS for Q3, down from $4.79 in the prior-year quarter (YTD $1.79 vs $4.50 prior year)
• Gross Margin: 32% in the quarter, down from 33.8% in the prior year (YTD 32.8%)

Business Commentary:

• Impact of Tariffs and Economic Uncertainty:
• JAKKS Pacific's net sales for the year-to-date are down 21% versus last year, with Toys/Consumer Products down 24% and Costumes down 8%.

• This decline is primarily due to tariffs varying significantly from 10% to over 140%, affecting purchase orders and retailer confidence.

• Gross Margin and Pricing Strategy:

• The company's gross margin held reasonably well at 32% in Q3, despite eroding by a percentage due to tariff costs.

• This is attributed to pricing for tariffs and maintaining tight cost controls, although it did not prevent a decline in margins compared to the previous year.

• International Sales and Diversification:

• International sales are reported to be roughly flat year-to-date, with Canada excluded, showing 4% growth.

• The international market's sophistication is increasing, and efforts are underway to expand into regions like Eastern Europe, Central and South America, and Asia.

• Cost Management and Cash Preservation:

• SG&A expenses were down 6% in the quarter and flat year-to-date, contributing to an adjusted EBITDA of $36.5 million.

• This is due to reduced spending, delayed projects, and lower work levels in the U.S. warehouse, emphasizing cash preservation amid reduced sales.

• Specialty Product Performance and Licensing:

• Sell-in for Disney's Moana 2 showed favorable comparisons, while Saga's Sonic and DC-Sonic mashup have performed well, indicating strong brand appeal.
• However, lacking significant second-half 2025 film releases and delayed planogram sets for newer proprietary launches have impacted overall sales.

Sentiment Analysis:

Overall Tone: Neutral

• Company reported significant top-line declines (YTD net sales down 21%; Q3 adjusted EBITDA $36.5M vs $74.4M prior year) while emphasizing cash preservation, tight inventory management and a conservative approach heading into 2026 with optimism about a stronger product pipeline.

Q&A:

• Question from Eric Beder (Small Cap Consumer Research, LLC): What are the key long-term drivers for JAKKS' business model and how should we think about the 'new normal' given FOB issues and tariffs?
  Response: Management's core takeaway: tariffs create a new-but-more-certain cost environment; JAKKS is prioritizing margins, cash preservation and low domestic inventory now while investing in a stronger 2026–27 product pipeline.

• Question from Eric Beder (Small Cap Consumer Research, LLC): How should we think about the Super Mario Bros. movie opportunity for normalization and demand in early 2026?
  Response: Management expects the Super Mario movie to re-energize the toy platform and drive retailer and consumer demand in 2026, with factories and partners prepared.

• Question from Eric Beder (Small Cap Consumer Research, LLC): The DC-Sonic mashup seems unique—how should investors think about these cross-IP collaborations and their broader potential?
  Response: Management: cross-IP collaborations broaden audiences and boost sell-through (including collectors) without theatrical support; they view this as a repeatable, valuable strategy.

• Question from Thomas Forte (Maxim Group LLC, Research Division): Can you recap tariff-related impacts across Q1, Q2 and Q3 for comparison?
  Response: Management: Q1 nominal impact, Q2 severe (material cancellations during ~145% tariff window), Q3 meaningful sell-through pressure as retail prices rose, prompting a conservative posture into 2026 (cash and inventory focus).

• Question from Thomas Forte (Maxim Group LLC, Research Division): How much of 2025 sales decline is tariffs versus tough licensing comps (e.g., 75/25 split)?
  Response: Management declined to quantify the split; they estimated the tariff effect roughly '20%-30%' and offered to follow up offline rather than allocate a definitive percentage now.

• Question from Thomas Forte (Maxim Group LLC, Research Division): Thoughts on strategic M&A and opportunities for accretive acquisitions given industry stress?
  Response: Management sees numerous opportunities but will defer action until after year-end to assess targets and expects more attractive opportunities in 2026; priority is navigating the current year.

Contradiction Point 1

Impact and Mitigation of Tariffs

It highlights the company's approach to mitigating the impact of tariffs, which has significant implications for their cost structure and profitability.

Can you summarize the tariff impact on your business for Q1, Q2, and Q3? - Thomas Forte (Maxim Group LLC, Research Division)

2025Q3: We've been doing all we can to offset the tariffs, but it's almost impossible to offset them, given what we are seeing in freight costs and the inability to reduce costs on FOB. - Stephen G. Berman(CEO)

Are there short-term actions to mitigate tariff impacts, such as holding inventory in Asia instead of shipping at higher rates? - Thomas Ferris Forte (Maxim Group LLC, Research Division)

2025Q2: We implemented a duplicate tool initiative to minimize the impact of tariffs. Rather than moving manufacturing to Vietnam and Cambodia, we duplicated tools, which allows us to choose where to manufacture goods. - Stephen G. Berman(CEO)

Contradiction Point 2

Focus on Cash Generation and Inventory Management

It reflects the company's strategic focus on cash generation and inventory management, which are critical for financial stability and operational efficiency.

How will tariffs versus licensing challenges impact 2025 sales compared to 2024? - Thomas Forte (Maxim Group LLC, Research Division)

2025Q3: We are focusing on cash generation and prudent inventory management. We are being cautious in expanding our product lines and licenses due to economic uncertainty. We are looking for opportunities but are maintaining a conservative approach to inventory planning. - Stephen G. Berman(CEO)

Can you provide comments on how Q3 '25 compares to the full year '25, considering Q3 is typically your largest quarter? - Thomas Ferris Forte (Maxim Group LLC, Research Division)

2025Q2: We are focused on profitability and cash generation. Our goal is to remain flexible and adaptable to any changes in market conditions. - Stephen G. Berman(CEO)

Contradiction Point 3

Tariff Impact on Sales

It directly impacts the understanding of how tariffs have affected JAKKS' sales performance and pricing strategy, which is crucial for investors and stakeholders to assess the company's financial health.

Can you summarize the tariff-related impact on your business for Q1–Q3? - Thomas Forte (Maxim Group LLC, Research Division)

2025Q3: Q3 experienced a material impact on sell-throughs and unit sales due to price increases. - Stephen Berman(CEO)

If tariffs remain unchanged, what will holiday product offerings across different price points look like? - Eric Beder (Small Cap Consumer Research)

2025Q1: If the China tariff of approximately 144% is maintained, lower-priced products will be at higher prices in U.S. retail chains and value trade channels. - Stephen Berman(CEO)

Contradiction Point 4

International Sales Strategy

It involves the company's strategic focus on international sales to mitigate tariff impacts, which is essential for understanding JAKKS' growth strategy in the face of trade uncertainties.

What was the tariff impact on your business in Q1-Q3? - Thomas Forte (Maxim Group LLC, Research Division)

2025Q3: JAKKS is moving aggressively to offset U.S. tariff risks by focusing on international markets. - Stephen Berman(CEO)

How will this situation affect your international sales and the long-term U.S. vs. international sales balance? - Thomas Forte (Maxim Group)

2025Q1: JAKKS is moving aggressively to offset U.S. tariff risks by focusing on international markets. The Latin America and EMEA businesses have grown exceptionally. - Stephen Berman(CEO)

Contradiction Point 5

Tariff Impact and Sales Strategy

It highlights differences in the perceived impact of tariffs on sales strategy and operational adjustments, which are crucial for business planning and investor expectations.

Can you summarize the tariff impact on your business for Q1, Q2, and Q3? - Thomas Forte (Maxim Group LLC, Research Division)

2025Q3: In Q2, we saw a significant number of customer cancellations as a result of the tariffs. In Q3, we saw a material impact, most notably in the toy and activity category with our teen, tween and youth lines. - Stephen Berman(CEO)

How can high FOB percentages impact inventory expansion, and what role do tariffs and other factors play in inventory strategy? - Eric Beder (Small Cap Consumer Research)

2024Q4: As an example, the cancellation of a large order by a major customer was directly related to the 25% tariff that went into effect on August 1st. - Stephen Berman(CEO)