While the toy business has taken an ugly turn since the Toys 'R' Us bankruptcy along with some less than stellar earnings results and general decline of former juggernaut Mattel (MAT) , and smaller name JAKKS Pacific (JAKK) , there have been some signs of life over the past couple of weeks.
This is yet another industry that the markets have deemed to be dying off (with the notable exception of Hasbro (HAS) , which has held up fairly well). While things have not been pretty, we may be at the beginning of the realization that the punishment doled out to some of the names was too severe. It may not be to the level of what we've witnessed in the specialty retail space since last summer, or as compelling, but opportunity is opportunity.
I chose to play it via JAKKS Pacific, and initiated a position in early February. I'd considered Mattel, but perhaps not surprisingly, went with the lesser-known, more speculative play. JAKK had been dead money for months, but is up 33% over the past couple of weeks following the release of fourth-quarter results.
While the fourth quarter was nothing special, with a worse-than-expected loss on better-than-expected revenue, some new product offerings are hopeful. The one that seems potentially compelling to me is a line of Incredibles 2 merchandise, which the company says is selling well so far. The movie opens on June 15th, but success here of course, is dependent on the movie's popularity and success. That's one of the difficult aspects of the toy market; sales are driven by the whims and ever-changing tastes of kids.
What we still don't know is the state of the offer JAKK received back in January from current 18% stakeholder Hong Kong Meisheng, to acquire 51% of the company for $2.95. The company said little about this on the earnings call, other than that a "special committee" of independent board members is evaluating the offer. Yesterday, JAKK broke through that $2.95 price level, to close above $3 for the first time in seven months. Volume has also been heavier than normal the past couple of days, perhaps driven by some recent speculation that there may be some upcoming M&A activity in the sector as a result of the Toys 'R' Us fiasco.
Interestingly, today is a big day for one of the more iconic toy lines in recent history; Mattel's Hot Wheels line turns 50 today.