Don’t call it a comeback — yet — but Funko managed to please the Wall St. crowd with better-than-expected earnings leading to a share price bump last night.
The Washington-based purveyor of pop culture-inspired toys, collectibles, and lifestyle products saw net sales slide more than 12% in the fourth quarter — a smaller dip than expected — while improving on its operations, cash flow, and other metrics. In 2023, Funko sales dipped to $1.1 billion versus $1.3 billion in 2022 amid a challenging environment for toys and collectibles overall.
In 2023, we implemented a comprehensive plan to significantly reduce costs, improve operational efficiencies and focus on our core product offerings. The major elements of that plan, which addressed the company's inventory issues, unprofitable product lines and SKUs, workforce size, and several other factors, were successfully completed, and we believe our company is now on a significantly more solid foundation upon which we intend to build and grow."
In Q4, Funko’s net sales and adjusted EBITDA were at the upper end of its guidance range thanks to continued growth in the company’s direct-to-consumer (DTC) business, which spiked nearly 30% versus Q4 2022 to account for 26% of total revenue. Lunsford also notes an improved balance sheet as the reduced inventory levels and used the proceeds related to the sale and licensing of Funko Games to Goliath to further pay down debt.
Looking ahead, Funko, like much of the U.S. toy industry, expects a softer year with new challenges, including increased shipping costs due to conflict in the Red Sea. Funko also joins fellow toymakers in calling out a disruption in the entertainment content slate due to last year’s Hollywood strikes that will ultimately impact sales this year.
Meanwhile, Funko joins Mattel, Hasbro, and others in citing the sales growth and profit potential of its DTC business and limited-edition product offerings. Funko’s new, premium offering, Project Fred, launched this week with 750 vinyl figures of Freddy Funko as Bob’s Big Boy. The 11-inch figures come in premium packaging and sell for $295 each.
Additionally, the executive shuffle continues at Funko as President Andrew Perlmutter, who turned in his resignation on Feb. 15, will depart on March 31. Steve Nave, who was appointed Funko’s CFO and COO last year, is resigning effective March 15, 2024. Yves LePendeven, the company’s Deputy CFO, will serve as Acting CFO as of the same date.
Funko continues its search for a new CEO and hopes to announce the new hire sometime in Q2.
