As expected, Funko took a hit in the first quarter, but the company cautions that the second quarter holds bigger challenges.
The company saw an 18% decline in net sales for the first quarter of 2020 with $136.7 million compared to $167.1 million last year. The company pointed to a weaker content lineup, retail closures, and other challenges brought on by the global spread of COVID-19. Funko experienced supply chain disruptions and reduced shipments to retailers deemed “non-essential” in select markets, and social distancing guidelines and stay-at-home orders began taking effect in the last few weeks of the quarter.
“As people around the world navigate the many challenges of COVID-19, I am incredibly grateful to our Funko employees for their hard work and unwavering commitment to delivering innovation, delighting our fans and driving long-term growth,” says Funko CEO Brian Mariotti. “In recent weeks, our management team acted decisively to mitigate business disruption and increase financial flexibility by reducing operating expenses, cutting capital expenditures, and successfully amending our credit facility.”
Funko was one of the first companies to withdraw its 2020 financial guidance during the early weeks of the COVID-19 spread, followed by a furlough of what it called “a significant portion” of its employees, executive pay cuts, and an overall move to reign in expenses.
“We’ve proven in 16 years that we can handle tough times,” Mariotti stated on an afternoon call with investors and analysts. “It took a global pandemic for Funko not to grow.”
Prepping for a Q2 Sales Cliff
Mariotti and Funko join others such as Hasbro’s Brian Goldner in putting out a word of warning that the second quarter is where the biggest financial hits will come as it will, in theory, be the quarter in which the most business disruption and retail closures are expected to impact. For Funko, the company is anticipating a massive 60% decline in sales.
According to Mariotti, Funko expects to emerge on the other side of COVID-19 as “a leaner organization,” but one that “can pick up right where it left off” in providing content to a fanbase that is hungry for merchandise based on content that families have been binge-watching.
Licensed Properties Being Held
Funko has a plan to handle the unprecedented situation with licensed properties being out of sync with merchandising. Funko will hold and warehouse any merchandise that was already in production for many films that have seen a release date shift. The company has already adjusted its own plans to match the new release schedules outlined by Hollywood studios and is looking forward to a more robust content lineup when theaters re-open and production resumes. The company is already working on plans for 2021 and 2022.
Gaming, E-Commerce, and Future Outlook
The company’s recent launch of Funko Games is off to a solid start, and Mariotti says that its first-ever, battle-inspired game will be released later this year. The as-yet-unnamed project is said to have a micro-collectibles element that will fuel additional sales. The company also has plans for new entries into the Funkoverse line.
Amid COVID-19 and the cancelation of events such as Emerald City Comic Con, Funko’s e-commerce business has grown by 50%, but Mariotti says that it sill only represents “a small portion of the business” Funko will relaunch its online store this summer with additional functionality and a larger product offering. It is also adjusting current U.S. warehouse space to accommodate more direct-to-consumer sales.
Despite store closures and some big hits in the specialty channels, sales at Walmart increased in the first quarter, and an unnamed mass retailer is said to be expanding its shelf space for Funko products by 20% with the addition of other apparel items and Loungefly offerings.