Dive Brief:
- Funko’s Q2 results exceeded the company’s and analysts’ expectations. The toy company on Thursday reported it swung from a net loss of nearly $76 million last year to $5.4 million in net income for the quarter. Net sales were $247.7 million, up 3.2% year over year from $240 million. Gross margin rose to 42% from 29% last year.
- For Q3, Funko’s guidance is for net sales ranging from $282 million to $297 million with a gross margin of 38% to 39%. The company reiterated its full-year guidance for net sales of $1.05 billion to $1.1 billion.
- Also Thursday, Funko said acting Chief Financial Officer Yves LePendeven would take over the role permanently. LePendeven had served in an acting capacity since March. He’s been with the company for five years and was previously deputy chief financial officer.
Dive Insight:
The second quarter was the company’s first quarter of year-over-year net sales growth and the first profitable quarter since Q3 of 2022, CEO Cynthia Williams said during her first earnings call.
Williams, who was named CEO in May, said in a statement that Funko’s recent performance was primarily driven by strong demand for its Pop! Yourself and Bitty Pop! collectibles, along with solid growth in direct-to-consumer sales. Since last quarter, Funko also lowered its inventory to $109 million from $112 million and cut its debt by $22.5 million to $223.9 million.
Funko’s attempts to reach new customers are also paying off. Since its launch last August, over 80% of Pop! Yourself customers are new to Funko. Williams said during the call that is proof there are large untapped fandoms the company hasn’t yet connected with. Eric Wold, an analyst with B. Riley Securities, echoed that perspective in a Thursday note. “We expect the company to lean on this success to penetrate new fandoms and grow the customer base [total addressable market] — with additional points of distribution,” Wold said.
The company said going forward it will grow by taking a “fan-centric approach” around four fundamental principles: delighting core fans, attracting and serving new fans, selling where fans are and improving the fan experience.
Williams said the company intends to broaden its distribution channels to new areas. “To give you one example, I believe we can make great strides in growing our sports business by selling our products where the sports fans are, in stadiums and arenas, on college campuses and in sporting goods stores, both brick-and-mortar and online,” Williams said.
The company is also leaning into DTC. LePendeven said DTC in Q2 comprised 23% of gross sales. That’s up from 18% a year ago and equates to 33% DTC sales growth. LePendeven noted the company reached that level despite a lack of new entertainment releases due to last year’s Hollywood strikes.
“Heading into the back-half of the year and 2025, we continue to expect management to lean further into the DTC channel and real-time pop culture moments to meaningfully expand the customer base and drive a sense of urgency with new customers (and drive additional purchases across the product portfolio),” Wold said.
The company reported earnings shortly after it agreed to a $2.1 million settlement to resolve claims it misled investors. Funko faced multiple lawsuits dating from at least 2020 that the company withheld unfavorable financial and business information from stockholders and the public. In agreeing to settle, former CEO Brian Mariotti and other defendants still dispute the allegations and deny wrongdoing. A hearing is set for November to approve the settlement terms.
