Freddy Funko and Mr. Monopoly in Pop! Vinyl Form | Source: The Toy Book/stock.adobe.com

It’s been a rough few months for Freddy Funko and the gang.

Last fall, mere weeks after a vibrant investor day presentation wowed attendees in New York City, the company surprised the toy industry and Wall St. by reporting Q3 earnings reflecting a shocking duality: sales were way up (36.6%), but debt, inventory overloads, growing pains, and other factors absolutely crushed profits and tanked the outlook.

A month later, Brian Mariotti returned to the role of CEO as Andrew Perlmutter stepped down and assumed the role of President. Meanwhile, both the company’s Chief Financial Officer and Senior Director of Corporate Communications departed, while news of layoffs across Funko’s design, brand, and social media teams spread like wildfire.

Now, the company is attempting to hit the reset button as it reports Q4 and full-year 2022 earnings that are bound to raise a few eyebrows.

Funko Q4 and Full-Year 2022 Earnings

While Q4 was challenging for the entire toy industry, retail, and most consumer products industries, net sales for Funko only declined by 1% to $333 million when compared to 2021. However, the company’s net income decreased 368% to $(46.7) million. For the full year, consumer demand continued to drive a net sales increase of 29% to $1.3 billion, but Funko’s net income decreased 108% to $(5.2) million.

At press time, Funko’s share price was getting pummelled with a 23% decline in after-hours trading.

“During the fourth quarter and in early 2023, we have made progress in addressing operational issues that impacted our results in the second half of 2022,” says Funko CEO Brian Mariotti. “We have strengthened our executive and operational management team and have taken significant steps to improve our operating efficiency. We are gratified that the Funko brands continue to see strong consumer demand from our incredibly loyal and resilient global fanbase, as demonstrated by 37% direct-to-consumer growth and strong sell-through in Q4. As we move forward, we remain laser-focused with a high sense of urgency to build an operating foundation to support the long-term growth opportunities we envision for Funko, our partners, and stakeholders.”

For the full year, core collectibles sales increased by 21.6%, Loungefly spiked 67.7%, and Other business grew 23.9% versus 2021.

Related: The 2023 Edition of The BIG Toy Book is Here!

A New CFO and COO

Steve Nave has been appointed Chief Financial Officer and Chief Operating Officer of Funko, effective immediately.

Nave was engaged by Funko as a consultant last December and has worked alongside Mariotti to drive enhanced strategic and operational execution. Nave previously held leadership roles at Walmart.com and Bluestem Brands.

“Since joining the Funko team as a consultant, Steve has played an integral role in the development of our operational and financial improvement plan,” Mariotti says. “We believe his valuable industry expertise and financial acumen will help us capitalize on the opportunities ahead and deliver on our long-term growth and profitability objectives. As we chart our path forward, we believe we now have the right team to strengthen our execution and deliver results for our shareholders.”

Related: State of the Industry Q&A 2023: Funko Games

Logistics Failure, Inventory Write-down, Workforce Reduction

On a call with analysts and investors, Nave stated that the company expects to take a write-down of $30-36 million as it disposes of (destroys) unsold inventory. The company’s fulfillment network appears to be overloaded, broken, and beyond capacity. Funko says that its new distribution center in Arizona, which opened last summer, became difficult to manage in a very short period of time.

Additionally, Funko says that it has 48% more inventory on hand — $246.4 million — when compared to a year ago. Funko has been renting containers to store inventory and those costs are already declining. The excess inventory will be destroyed by a “very green third party firm,” that Nave says will recycle the products. The firm is located not far from Funko’s warehouse and certificates of destruction will be provided to licensors.

Looking ahead, the company expects total revenue growth of between flat to 5% in 2023, with most growth expected to occur in the back half of the year.

One big concern has to do with the workforce reduction of 10%. The toy industry is already facing job losses at Mattel, Hasbro, PlayMonster, and others — much of which follows previous contraction and expansion that occurred during the COVID-19 pandemic.

Related: State of the Industry Q&A 2023: Loungefly

Specialty vs. Mass Retail vs. D2C

Mariotti reminds the industry that Funko’s No. 1 customer is itself, thanks to its massive direct-to-consumer (D2C) business. No one customer represents more than 8% of Funko’s total sales.

On the earnings call, the mix between specialty and mass retail was discussed, with specialty said to have better inventory levels than mass. Some of the major retailers are still being “conservative” in ordering following some cancelations last fall, but Mariotti says that they’re “starting to thaw.”

Looking ahead, POS remains positive and Funko plans to increase the speed of delivery by the second half of 2023 as stronger entertainment releases begin fueling additional sales with Loungefly and Mondo highlighted as areas of extreme growth.

About the author

James Zahn

James Zahn

James Zahn, AKA The Rock Father, is Editor-in-Chief of The Toy Book, a Senior Editor at The Toy Insider and The Pop Insider, and Editor of The Toy Report, The Toy Book‘s weekly industry newsletter. As a pop culture and toy industry expert, Zahn has appeared as a panelist and guest at events including Comic-Con International: San Diego (SDCC) Wizard World Chicago, and the ASTRA Marketplace & Academy. Zahn has more than 30 years of experience in the entertainment, retail, and publishing industries, and is frequently called upon to offer expert commentary for publications such as Forbes, Marketwatch, the Wall Street Journal, the New York Times, USA Today, Reuters, the Washington Post, and more. James has appeared on History Channel’s Modern Marvels, was interviewed by Larry King and Anderson Cooper, and has been seen on Yahoo! Finance, CNN, CNBC, FOX Business, NBC, ABC, CBS, WGN, The CW, and more. Zahn joined the Adventure Media & Events family in 2016, initially serving as a member of the Parent Advisory Board after penning articles for the Netflix Stream Team, Fandango Family, PBS KIDS, Sprout Parents (now Universal Kids), PopSugar, and Chicago Parent. He eventually joined the company full time as a Senior Editor and moved up the ranks to Deputy Editor and Editor-in-Chief.

archivearrow-chevron-downarrow-chevron-left-greyarrow-chevron-leftarrow-chevron-rightarrow-fatarrow-left-blackarrow-left-whitearrow-right-blackarrow-rightarrow-roundedbookscalendarcaret-downclose-whiteclosedocumenteditorial-archiveeyefacebook-squarefacebookfilesgifthamburgerheadinghearthomeinstagram-squareinstagramlatestlinkedin-squarelinkedinmailmedia-inquiresmessagenewsopen-boxpagination-leftpagination-rightpauseplayprintproduct-archiverecent-productssearchsharesort-filterspotifysunteamtiktoktime_purpletimetrendingtvtwitter-squaretwitteryoutube