JAKKS Pacific Strategic Analysis: Performance and Recommendations

Introduction

Founded by Jack Friedman, JAKKS Pacific "designs, produces, markets and distributes toys and related products, pet toys, consumables and related products, electronics and related products, kids indoor and outdoor furniture, and other consumer products" (Reuters, 2018). The company's current CEO is Stephen Berman. As a licensee to a number of well-known trademarks — including, but not limited to, Nintendo and Star Wars — JAKKS Pacific remains a key player in the toys and related products marketplace.

Vision and Mission

The mission statement of the company highlights three areas of relevance: the development of products that bring about fun, encourage interaction, and promote learning. The company's mission is stated as follows:

"JAKKS engages children in creative play with products that encourage learning and interaction, and most importantly — fun!" (JAKKS Pacific, 2018).

The company's vision statement, in addition to indicating the entity's ambition, also provides a framework for its strategic planning:

"JAKKS seeks to be a billion dollar company through organic growth of its core product lines, dynamic partnerships and strategic alliances, as well as through strategic and accretive acquisitions" (JAKKS Pacific, 2018).

The importance of a clear vision and mission statement such as those highlighted above cannot be overstated. The two statements define the core business of JAKKS Pacific, state some of the company's objectives, and outline how it is likely to achieve them. The clear and concise nature of the declarations is laudable.

Current Performance

Revenue

The revenues of JAKKS Pacific have been on a sustained decline over a three-year period. Having registered total revenue of $810 million for 2014, the most recent financial data available indicates that the company posted revenues of $707 million in 2016 — a decline of 12.7%. It is also important to note that over the same three-year period, the company's share price fell by more than half.

Debt-to-Equity Ratio

The company's debt-to-equity ratio has also been unfavorable over the last three years. This ratio, according to Moyer, McGuigan, and Rao (2017), "measures the proportion of a firm's total assets that is financed with creditors' funds" (p. 78). During the three-year period under consideration, the company's debt-to-equity ratio stood above 1, meaning that most of the company's assets were financed through debt. Although a high debt-to-equity ratio is not necessarily problematic in all instances, in the case of JAKKS Pacific it raises concern — particularly because prior to this period the company had maintained the ratio below 1. The increase in the ratio at a time when profitability is declining and share prices are falling renders the company financially unstable. At this juncture, most creditors would find it risky to fund the company, exposing it to further decline.