NEW YORK (AP) — Shares of Jakks Pacific Inc. are falling on Friday, after a Stifel Nicolaus analyst downgraded the stock to "Hold" from "Buy" as the toy company grapples with major shifts in the industry.
THE SPARK: Drew E. Crum lowered his rating on Jakks shares because he believes weak sales will continue through at least the first half of the year. He cited weak sales of Jakks' new Monsuno boys action figure line. Crum also believes that shoppers will cut back on toy spending as they deal with the payroll tax hike of 2 percentage points that hit in January.
The downgrade comes as Jakks, which makes toys under such brands as Cabbage Patch Kids and Hello Kitty, reported Thursday that its loss widened to $119.5 million, or $5.45 per share, in the quarter ended Dec. 31. That compares with a loss of $20.02 million, or 77 cents, in the year-ago period.
Revenue fell 5.3 percent to $133.5 million in the quarter, down from $141.1 million in the year-ago period.
"We are disappointed by our performance in the fourth quarter," Jakks President and CEO Stephen Berman said in a statement. "The difficult and challenging toy environment did not generate the sales that had been anticipated and several of our key products did not achieve the sales levels that we had planned for, also resulting in license royalty minimum guarantee shortfalls."
THE BIG PICTURE: Like many toy companies, Jakks, based in Malibu, Calif., is facing seismic change in playland. An increasing number of children are shifting to tablets and smartphone devices to play games and do other activities and are moving away from traditional toys. That's forcing toy companies to add technology to their products. Jakks has teamed up with NantWorks to create its DreamPlay line of toys using the technology company's recognition technology.
SHARE ACTION: Jakks' shares fell nearly 5 percent, or 63 cents, to $12.11. Shares have traded between $11.45 per share and $19.39 over the past year.