A handful of law firms announced recently that they are investigating JAKKS Pacific, Inc., which designs, builds and markets a wide range of consumer products, and that these inquiries could result in them filing securities class action lawsuits against the company.
Securities class action lawsuit investigations
One of these inquiries was announced by The law firm of Wohl & Fruchter LLP on July 18, which indicated that it was looking into potential breaches of federal securities law that were perpetrated by both the directors and officers of the company.
The Rosen Law Firm, P.A., announced on July 19 that as a result of allegations that key statements made by the company could have been false, it was looking into potentially filing securities class action claims.
Both of these inquiries note a sharp drop in the company shares that came after the organization made substantial adjustments to its guidance for 2013.
Company discloses challenges to market
JAKKS Pacific provided various statements to the market on June 17, which indicated that it was encountering challenges. According to the inquiry launched by Wohl & Fruchter, the two licensed brands of the company were suffering lackluster sales. In addition, the company stated that electronic devices were in greater demand among children.
This investigation noted that amid these challenges, the company announced plans to overhaul its operations and bring about a "substantial reduction of leased space, employees and other overhead expenses."
On June 17, the company announced that in addition to these restructuring plans, it was going to reduce its dividend. It also sharply revised its 2013 guidance, indicating its expectations that it would incur a loss of $2.56 per share, compared to its previous estimate of earnings of between $0.63 and $0.68 per share, according to the inquiry launched by The Rosen Law Firm.
In addition to reducing its guidance, JAKKS Pacific announced financial figures for the second fiscal quarter that fell far short of the predictions that it had released previously. The most recent estimates had been revised in April.
The financial results indicated that during this second fiscal quarter, the lackluster performance of several key properties owned by the company contributed to it taking a charge of $12.2 million for problems in its inventory and $14.1 million related to its licensing agreements.
According to the inquiry launched by Wohl & Fruchter, global markets responded to this news by causing shares of the company to plunge more than 39 percent on July 18, to $6.99 each from $11.48 at the end of the prior session.