Jakks Pacific Said to Suspend Toy Sales to Kmart
October 20 2016 - 9:00PM
Dow Jones News
Toy maker Jakks Pacific Inc. has suspended sales of its products
to Sears Holding Corp.'s Kmart chain over worries about its
financial health, according to people familiar with the matter.
Jakks Chief Executive Stephen Berman said on a conference call
Thursday that the toy maker decided to stop shipments to a "major
U.S. customer that is experiencing challenges" to minimize risks to
the company.
"This decision was difficult, but we felt it was the right thing
to do," said Mr. Berman, who didn't disclose the retailer's
identity. People familiar with the matter identified the retailer
as Kmart.
Mr. Berman said the decision hurt Jakks Pacific's performance
during the recent quarter, when sales fell 10%. Jakks' shares fell
15% Thursday to $6.95.
Kmart said it has an active and ongoing relationship with Jakks,
and that it continues to receive shipments of Jakks products and
the products remain on its store shelves.
"We intend to continue working with them in 2017," Tricia
Perrotti, Kmart director of brand management, said in a statement.
"We want our customers and members to know that we plan to offer a
wide variety of the hottest toys, games, and exclusive deals in our
stores."
It could be a troubling sign for Kmart ahead of the
all-important holiday season when about 50% of all toy sales are
made. Kmart was once one of the top toy retailers in the U.S., but
its share of the market has dwindled far below the top retailers,
such as Wal-Mart Stores Inc., Toys "R" Us Inc. and Amazon.com
Inc.
Santa Monica, Calif.-based Jakks, with nearly $750 million in
sales last year, ranks as the fifth largest U.S. toy company by
sales. Among its hot toys are collectible figures called Tsum Tsums
based on Disney characters, a remote controlled Teenage Mutant
Ninja Turtle toy being sold at Wal-Mart, and large-size Star Wars
action figures.
The move comes as Sears Chief Executive Edward Lampert earlier
this month had to tamp down concerns that the Kmart chain was about
to close. He said in a blog post that there had "never been any
plans to close the Kmart format," and said that the company's focus
on profitability means that Kmart will end up with fewer stores
than the 700 it operates now.
This year, the company has announced plans to shut 130 Kmart
stores, adding to the more than 400 locations that have been closed
in the last five years.
Other toy companies have also become hesitant to deal with
Kmart, these people said. An executive at another U.S. toy company,
who declined to be identified, said it would only sell to the chain
now if Kmart pays cash upfront. "Everyone is extremely cautious
with them," the executive said.
Gerrick Johnson, an analyst at BMO Capital Markets, estimates
that Kmart's share of the U.S. toy industry is now around 2%. While
the retailer's decline isn't a major concern to the global toy
industry, he said it was a key concern among many toy manufacturers
at a recent toy fair in Dallas. "The number one question I heard
was: should we be shipping to Kmart?" Mr. Johnson said.
Sears Holdings which booked a net loss of $866 million on sales
of $11.06 billion in its six months ended July 30, has been
struggling with declining sales and traffic at its locations. The
company had about $276 million in cash, and said it would get $300
million in additional debt financing from Mr. Lampert's hedge
fund.
Last month, Moody's downgraded its rating on Sears' speculative
grade liquidity rating, noting the company will continue to rely on
external financing and selling assets to fund its operating losses.
Moody's estimated the company's operating cash flow will be
negative $1.5 billion this year.
Write to Paul Ziobro at Paul.Ziobro@wsj.com and Suzanne Kapner
at Suzanne.Kapner@wsj.com
(END) Dow Jones Newswires
October 20, 2016 20:45 ET (00:45 GMT)
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