Funko Inc ((FNKO)) has held its Q2 earnings call. Read on for the main highlights of the call.
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Funko Inc’s recent earnings call paints a challenging picture for the company, marked by significant hurdles due to tariff policies and financial instability. The call highlighted a decrease in sales and gross profit, alongside an increased net loss. Despite these challenges, there were positive notes on international sales growth, successful price increases, and a robust tariff mitigation plan. However, the overall sentiment was more negative than positive.
Resumption of Direct Import Orders
Funko announced the resumption of shipping orders to direct import customers after resolving pricing arrangements. This development is expected to contribute to improvements in the second half of 2025, offering a glimmer of hope amid the current challenges.
International Sales Growth
The company’s international business showed promising signs, with an 18% increase in POS sales growth in the first half of the year and a 28% increase in Q2. This growth highlights Funko’s potential to expand its market presence outside the U.S.
Successful Price Increases
Funko successfully implemented price increases without negatively impacting unit volumes for e-commerce sales. Early indications from wholesale data also appear positive, suggesting that the company can maintain its sales momentum despite higher prices.
Tariff Mitigation Plan
The company has effectively implemented a tariff mitigation plan, reducing the estimated incremental duties and tariff costs for 2025 from $45 million to $40 million. This strategic move is part of Funko’s efforts to navigate the challenging tariff landscape.
Significant Net Sales Decline
Funko reported total net sales of $193.5 million, marking a 22% decline compared to last year’s second quarter. This decline is primarily attributed to U.S. tariff policies affecting direct import orders, underscoring the impact of external economic factors on the company’s performance.
Decreased Gross Profit and Margin
The company’s gross profit stood at $62 million, with a gross margin of 32.1%, down from last year’s Q2 gross margin of 42%. This decline reflects the financial pressures Funko is currently facing.
Increased SG&A Expenses
SG&A expenses rose to $82.3 million from $77.9 million in the second quarter of last year. This increase in expenses adds to the financial strain on the company.
Adjusted Net Loss and Negative EBITDA
Funko reported an adjusted net loss of $26.7 million, a stark contrast to the adjusted net income of $5.6 million last year. The negative adjusted EBITDA of $16.5 million further highlights the financial challenges the company is grappling with.
Going Concern Disclosure
The company’s 10-Q filing includes disclosures about its ability to continue as a going concern, indicating significant financial instability. This disclosure raises concerns about Funko’s long-term viability.
Forward-Looking Guidance
Funko’s guidance reflects ongoing challenges and efforts to stabilize the business amid uncertain U.S. trade policies. For the second half of 2025, the company anticipates a decline in net sales by high single digits compared to the second half of 2024. Adjusted EBITDA margin is projected to be in the mid- to high single digits, with Q4 results expected to improve over Q3. Strategic measures include price increases in the U.S. market, shifting production to Vietnam and other countries, and reducing SG&A expenses. Funko remains optimistic about future growth and profitability, continuing its search for a new CEO to lead these initiatives.
In summary, Funko Inc’s earnings call highlighted significant challenges due to tariff policies and financial instability, resulting in decreased sales and increased losses. Despite these hurdles, the company is making strategic efforts to stabilize and grow, with positive signs in international sales and successful price increases. The forward-looking guidance suggests cautious optimism as Funko navigates a complex economic landscape.