Funko Inc. Earnings Call: Growth Amid Challenges

Funko Inc ((FNKO)) has held its Q1 earnings call. Read on for the main highlights of the call.

Funko Inc. recently held its earnings call, revealing a mixed sentiment as the company navigates through significant international growth and strategic supply chain diversification, while grappling with challenges such as tariff impacts, negative financial results, and liquidity concerns. These challenges have led Funko to withdraw its 2025 outlook, reflecting the complex environment the company is operating in.

International Growth

Funko’s international performance remains a bright spot, with the company achieving an impressive 8% growth in Europe’s G5 markets. This growth significantly outpaces the overall toy market growth of just 1%, showcasing Funko’s strong positioning and appeal in international markets.

Successful Diversification Strategy

In a strategic move to mitigate risks, Funko has successfully diversified its supply chain. The company has reduced U.S.-bound product manufacturing in China from one-third to approximately 5% by the end of the year, demonstrating proactive steps to manage geopolitical and economic uncertainties.

Direct-to-Consumer Engagement

Funko’s direct-to-consumer business, bolstered by the Fan Rewards loyalty program, continues to grow. This segment enhances fan engagement and profitability, contributing 22% to gross sales and highlighting its importance in Funko’s overall strategy.

Positive Indicators in Sports Collectibles

The launch of sports-related products, such as the NBA All-Star Weekend Pop! Yourself, achieved a 100% sell-through rate. This success indicates strong market traction and underscores the potential growth opportunities within the sports collectibles space.

Cost Reduction Initiatives

Funko has implemented significant cost reduction initiatives, achieving annualized reductions across product costs, supply chain, and fixed expenses. Notably, the company has reduced its global workforce by 20%, reflecting its commitment to improving financial efficiency.

Tariff Impact and Withdrawal of 2025 Outlook

The company has withdrawn its 2025 outlook due to uncertainties related to global tariffs, which have intensified challenges, particularly in the U.S. market. This decision underscores the unpredictability of the current economic landscape and its impact on Funko’s long-term planning.

Negative Adjusted EBITDA and Net Loss

Despite better-than-expected results, Funko reported a negative adjusted EBITDA of $4.7 million and an adjusted net loss of $17.8 million, or $0.33 per share. These figures highlight the financial challenges the company is facing amidst broader market pressures.

Debt and Liquidity Concerns

Funko’s liquidity decreased to $90.9 million from $124.7 million in Q4, prompting the company to seek covenant relief and explore debt refinancing strategies. These actions are critical as Funko navigates its financial obligations and seeks to stabilize its financial position.

Forward-Looking Guidance

In its guidance, Funko reported net sales of $191 million, aligning with expectations, and a gross margin of 40%. Despite withdrawing its 2025 outlook due to U.S. challenges, the company is actively mitigating impacts through supply chain diversification and strategic cost reductions. Funko’s investments in direct-to-consumer engagement and sports collectibles are seen as promising growth areas.

In summary, Funko Inc.’s earnings call paints a picture of a company in transition. While international growth and strategic initiatives provide optimism, challenges such as tariffs and financial losses weigh heavily. The withdrawal of the 2025 outlook underscores the uncertainties ahead, but Funko’s proactive measures and focus on key growth areas offer a path forward.