CALIFORNIA For Jakks, No. 3 spot in toyland is fine

The small company is growing rapidly by acquiring companies and increasing profits by firing workers.
MALIBU, Calif. (AP) -- Mattel and Hasbro may be the giants in toyland, but an upstart Southern California company has quietly positioned itself as the No. 3 player in the industry.
Jakks Pacific Inc., a tiny doll maker with $8 million in revenue in 1995, has swelled to a $284 million company selling kites, pool toys, remote control cars and a line of professional wrestling action figures.
Through eight major acquisitions, it snapped up such brands as Remco, Child Guidance, Flying Colors and Pound Puppies.
Jakks remains dwarfed by Mattel Inc., with $4.8 billion in 2001 revenue, and Hasbro Inc., with $2.9 billion. The two companies accounted for about 34 percent of toy sales in 2001; no other company accounted for more than 2 percent.
But while Mattel and Hasbro are cutting back and rebuilding from recent financial problems, Jakks is expanding toward its goal of $1 billion in sales within the next three years.
And in a year without a hot holiday toy, Jakks could have a few surprise contenders, including its video karaoke machine and an all-in-one video game system featuring classic Atari games, such as "Pong" and "Missile Command."
View of founders
Jakks founders Jack Friedman and Stephen Berman aren't worried that their company is not as well known as its two rivals. The two met while Friedman ran THQ, a video games company he founded, and Berman served as THQ's vice president.
"We're not a brand," Friedman, 63, said. "We're a management team that has a style, a way of doing business, that has been successful."
While Mattel and Hasbro are talking about slow growth over the next few years, Jakks is predicting revenue growth of 20 percent a year. The company is flush with cash for acquisitions and has no debt.
Jakks scored its first hit producing action figures for the World Wrestling Federation. It added die-cast collectible cars and metal trucks and bulldozers and a line of pre-school toys from Child Guidance.
In 2000, Jakks bought Flying Colors, a line that includes do-it-yourself make-up kits. The division developed a line of toys with the Nickelodeon brand, including squishy, moldable compounds with names such as Mood Gooze and Gak Splat.
Its most significant acquisition came earlier this year when it bought Toymax, which makes "Go Fly a Kite" brand kites, Funnoodle pool and water toys and markets toys such as "Creepy Crawlers" under the Toymax brand.
Quarterly sales
The toy industry makes half its money in the last three months of the year, according to NPD Inc., a New York company that tracks toy and video game sales. Jakks is different: In 2001, its biggest quarter was July-September, which produced 32.6 percent of its annual revenue. The last quarter produced just 21 percent.
Jakks' profits often come at the expense of workers in the companies it buys. Through a layoff strategy, the company tries to increase profit margins to between 15 percent and 20 percent.
"Unfortunately, we fire a lot of people when we acquire companies," Friedman said.
Jakks also is diversifying how it sells retail. While it sells the bulk of its products at large chains such as Wal-Mart and Toys "R" Us, it also sells its crafts and stationary products through nontraditional outlets such as Staples and Walgreens.
The company does face some challenges, including a stock price that has dropped from a high of nearly $25 in November 2001, to $9.52 in October. The stock has since rebounded to about $15.
Analysts say the stock is being hurt by corporate governance issues as Jakks shifts from a small company run by two co-founders to a large public company facing increased scrutiny by investors and financial analysts.
The company's executives, for instance, do not own a significant number of company shares. Investors prefer to see executives have as much of a stake in the stock price as they do.

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