Dive Brief:
- Amid continuing sales declines and surplus inventory issues, toy company Funko announced it laid off about 12% of its workforce or 180 employees, per a company press release.
- The jobs cuts are a result of the company rationalizing its product lines to focus more on the products and businesses that are the most productive, Funko Chief Operating Officer and Chief Financial Officer Steve Nave said on a call with investors Thursday.
- The layoffs came as Funko reported second-quarter net sales fell by 24% year over year to $240 million, while it swung to a net loss of $75.9 million from a profit of $15.8 million for the same period last year. The company’s gross margin in Q2 fell to 29.2% from 32.7% last year.
Dive Insight:
Funko, which is known for its pop-culture-inspired vinyl figures and collectibles, has implemented a plan that includes a number of initiatives aimed at cutting costs.
In addition to enacting layoffs, the company is cutting back on product after surplus inventory strained its fulfillment network in the fourth quarter of last year, forcing the brand to destroy between $30 million and $36 million worth of inventory. At the time, the company’s inventory was up 48% from the prior year.
The company has made “excellent progress on the disposal of inventory that was in excess of our warehouse capacity, which has enabled us to process customer orders more quickly and eliminate certain related storage costs and container rental charges,” Nave said in a statement Thursday. Funko ended the second quarter with about 24% less inventory than the year-ago period.
These latest developments come on the heels of Funko’s CEO Brian Mariotti announcing in July that he was taking a leave of absence and stepping down from the chief executive role. Mariotti was succeeded on an interim basis by board member Michael Lunsford.
“Our fans and our partners demand that we be quick to market, responsive to rapidly changing pop culture, nimble and creative in our product designs, and operationally excellent,” Lunsford said on the earnings call. “Over the past two years, we lost sight of the importance of these competencies, and as a result, the number of product lines and SKUs that we have produced has grown rapidly, bringing too much complexity to the business with too little return. We believe that the best path forward for Funko is to focus our energy on fewer product lines and fewer SKUs.”
Lunsford told investors that Funko would reduce both its product lines and SKUs by about 30%. The company expects its financial performance to rebound by 2024.
The company expects the actions of inventory and product reduction, plus the layoffs to lead to about $38 million in incremental annualized savings, of which about $20 million is related to the job cuts.
Funko also lowered its full-year outlook. The company now expects net sales between $1.05 billion and $1.12 billion, from a previously projected $1.19 billion to $1.26 billion. The company also expects adjusted EBITDA to be between $20 million to $30 million, down from a previous estimate of $65 million to $75 million.
