JAKKS Pacific, Skechers Ink Deal - Analyst Blog

In an attempt to revive its business amid shrinking demand for toys in the U.S., JAKKS Pacific, Inc. JAKK inked a long-term licensing agreement with California-based leading lifestyle footwear manufacturer, Skechers USA Inc. SKX. Under the deal, JAKKS Pacific will manufacture a series of toys and products inspired by the Skechers brand, and its children's footwear brand – Twinkle Toes.

The deal includes the launch of toys under JAKKS' multiple product groups including collectibles, dress-up and role play, JAKKS' miWorld line of miniature play environments, and a series of Twinkle Toes-themed Cabbage Patch Kids. These products will be launched next month.

JAKKS will launch a miWorld Skechers playset, compatible with the miWorld Mall DreamPlay app. This feature will enable players to unlock interactive games, content-rich experiences and animation on their smartphones or tablet devices. In our view, the company is seeking to capitalize on the increasing preference for digital games and other electronic learning tools among children.

Apart from this, JAKKS will introduce a series of Cabbage Patch Kids, the popular series of dolls created by Original Appalachian Artworks Inc. The dolls will wear minuscule models of Twinkle Toes footwear, including light-up versions. In addition, some will have Twinkle Toes apparel and backpacks. JAKKS initially acquired the license to manufacture the Cabbage Patch Kids when it bought the Florida-based toy company, Play Along, in 2004.

The deal with Skechers reflects JAKKS' effort to turn around after product misses, weakening consumer confidence due to a sluggish economy in the U.S. and the loss of a license to sell World Wrestling Entertainment Inc. WWE products. Additionally, the shrinking number of toyshops and toy departments in the U.S. are affecting sales.

However, in our view, JAKKS is trying to mitigate these negatives through prudent deals with kid-focused brands. The company's license for The Walt Disney Company's DIS animated film Frozen has been the primary sales driver for the last two quarters.

With the changing dynamics of the toy industry, this Zack Rank #3 (Hold) company is also seeking to diversify. JAKKS now has a pets division that manufactures toys for pets. It also has a subsidiary which produces Halloween costumes for kids and adults, and also a unit which sells toys for swimming pools.

Going forward, we believe the company is well positioned with its innovative product launches and organic growth initiatives, such as securing licenses. However, we prefer to remain on the sidelines currently, given the weak consumer spending amid a sluggishly recovering economy and the intense competition in the U.S. toy sector.