JAKKS Pacific Inc. (JAKK) reported fourth quarter earnings of 22 cents per share, missing the Zacks Consensus Estimate by a penny. The company had earned 55 cents in the year-ago quarter.

Results were mostly in line with our expectations. While the company experienced a decline in revenue, the results were helped by cost cuts.

The company reported a 26% year-over-year decrease in revenue to $198.8 million. Though sales were driven by Halloween costumes, pretend play products, electronic toys and action figures, the company experienced declines in some of the products based on World Wrestling Entertainment (WWE), Hannah Montana, Neopets and others.

Including certain charges and other items, the company reported a net loss of $1.9 million or 7 cents per share, down from a profit of $16.9 million or 55 cents per share in the prior-year period.

For full year 2009, JAKKS reported a loss of $385.5 million or $14.02 per share, down from a profit of $76.1 million or $2.42 per share in the previous year. Excluding impairment charges and other items, the company earned $30.2 million or $1.03 per share in 2009, compared to earnings of $66.6 million or $2.13 per share in the prior year. Revenues were down 11% from the prior year to $803.7 million.

Behind the Headline Numbers

For the reported quarter, on a non-GAAP basis, gross margin was 28.3% as compared to 34.4% in the prior-year period. The decrease is due to the company’s product mix which included more lower-margin sales including closeouts. The company experienced lower-than-expected sales of its higher-margin products and a higher amortization of tools and molds as a percentage due to lower overall sales.

Selling, general and administrative expenses decreased 38% year-over-year to $27.1 million. This decrease is due primarily to the cost-cutting measures implemented by the company and the lower overall sales.

At the end of the quarter, JAKKS had cash and cash equivalents and marketable securities of $255 million compared to $170 million at the end of December 2008. The company reported operating cash of $109 million during the year, compared to $59.5 million for 2008. Capital expenditures were $15.8 million for the full year 2009, down from $22.3 million for 2008.

Accounts receivable at the end of the reported quarter were $129.9 million, down from $147.6 million at the end of the prior-year period. Days-sales-outstanding increased from 49 to 59 during the quarter. Inventory was $33.4 million at the end of the quarter, down 61% year-over-year, primarily due to the second quarter write-down and subsequent sell-off of inventory as well as tighter inventory management.

Outlook

JAKKS expects a loss of 20 cents to 25 cents in the first quarter on sales of $70 million to $74 million. For full year 2010, the company expects earnings of $1.10 to $1.20 per share on sales of about $660 million to $670 million. This compares to the Zacks Consensus Estimate of earnings of $1.34 per share. The company projected 2010 capital expenditures of $12 million, down from $15.8 million reported in 2009.

Though the company continues to make new additions to its product portfolio, management does not expect these additions to fully offset the declines in revenue from the Hannah Montana product line and the declines resulting from the end of its WWE licenses.

Additionally, Jack Friedman, Chairman and co-CEO, also announced that he will step down from his co-CEO post effective Apr 1, 2010. However, he will continue as the Chairman and serve as the company’s Chief Strategist. Stephen Berman will serve as the only CEO and continue as President.

Shares of JAKKS decreased 10 cents or 0.79% to $12.50 during Tuesday’s regular trading on the New York Stock Exchange. The shares were down another 73 cents or 5.84% in after-hours trading, reflecting the weak outlook for 2010.

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