Jakks Pacific’s Q4 net loss narrowed slightly to $7.6 million on a slight gain in sales to $167 million despite “weakness in some key licenses” including Star Wars and Frozen, company executives told analysts.

The downturn in revenue from Star Wars and Frozen products came as the overall retail business turned “sharply negative” for most of December, reversing what had been “strong momentum” early in Q4, Jakks CEO Stephen Berman Berman said. Jakks also suffered lower-then-expected revenue from movie-related products including Warcraft and Alice through the Looking Glass.

As a result, and with retailers holding inventory, Jakks forecast a decline in annual sales in 2017 despite a line of products tied to Guardians of the Galaxy Vol. 2, Beauty and the Beast, Cars 3 and Power Rangers films and DC Super Hero Girls. Jakks also recently secured a license for Minecraft costumes.

While retailers continue to post “steady sell-through” of products, Jakks is taking “a more conservative approach” to forecasting annual sales, Berman said. Jakks will seek to spread revenue across its line of owned and licensed IP products and reduce reliance on major licenses such as Star Wars and Frozen to carry the business. While Jakks’ Disney Princess sales increased overall in Q4, the Frozen-related revenue declined, Berman said. Licensed products account for about 70% of Jakks annual revenue.

““We expect Jakks to continue to be a partner of choice for major entertainment companies, especially Disney, but for the company to more selectively take on license risk and to more widely distribute license potential across more consumer goods categories,” says Piper Jaffray’s Stephanie Wissink

Among Jakks new initiatives in 2017 will be the launch this fall of a new 30-SKU line of children’s cosmetics and skincare products by recently acquired C’est Moi. Jakks hasn’t released details, but there aren’t any immediate plans for licensing the brands, a company spokeswoman said. Jakks struck an agreement with two major retailers to carry C’est Moi products starting in November, Berman said. A spokeswoman declined to identify the retailers.

In adding C’est Moi, Jakks is expanding its stable of owned IP. It is shipping a line of Little Mighty Gym children’s fitness products and will increase its assortment of Gift‘ems collectible figures which they launched in 2016. It also unveiled 3.5-inch Cuppatinis dolls earlier this year, that are being sold exclusively through Walmart.  The owned IP will deliver higher margins than licensed products and be free of royalty payments, Chief Financial Officer Joel Bennett said.

In Q4, Jakks’ revenue from the girls segment rose 16% to $103.3 million, while the boys segment posted a 35% decline to $25.1 million. The seasonal business, which includes swimming pool products, reported a 6% decline in sales to $25.5 million, while Halloween-related revenue jumped 56% to $5 million. The pre-school group logged a 53% gain in revenue to $8.1 million, due partly to strong sales of Daniel Tiger’s Neighborhood-related products.

“We had a tough year last year and we don’t want to repeat it,” Berman said.

Jakks Pacific, Joel Bennett, Chief Financial Officer, 909-594-7771, jbennett@jakks.net

Piper Jaffray, Stephanie Wissink, Senior Research Analyst, 612-303-5543, stephanie.s.wissink@pjc.com