Funko delivered a Halloween treat to investors with the release of its third quarter earnings.
Following a 22% sales increase in the first quarter and a 38% increase in the second quarter, the Washington-based company made famous by its ever-growing selection of Pop! Vinyl figures has exceeded expectations once again. The strong results are being fueled by growth across all brands and categories both in the U.S. and internationally.
Funko reported a net sales increase of 26% to $223.3 million in the third quarter of 2019, up from $176.9 million in the third quarter of 2018. Gross profit increased 26%, net income increased to $15.5 million from $7.6 million, income from operations rose 36%, while gross margin decreased 10 basis points to 38.3%.
“More and more people are choosing Funko to be the platform in which they engage with pop culture,” says Funko CEO Brian Mariotti. “We are focused on finding new and innovative ways to connect people to their favorite entertainment through fan experiences as well as digital and physical goods. There continues to be strong global demand for our products as the proliferation of content persists around the world. We are continuing to make the investments needed to capitalize on our expanding growth opportunities in both new and existing markets.”
Sales of its collectible figures lines increased 24% to $176.5 million. The Loungefly brand and other softline products including apparel, bags, and wallets contributed net sales growth of 33% for the quarter.
In addition to a growing retail footprint, this quarter reflects sales from some big events, including Comic-Con International: San Diego (SDCC), where more than 75 exclusive items were sold through two massive booth locations. Harry Potter remained the company’s top licensed property, but contributed just 9% of sales. Mass retail sales are up 65%, but Mariotti notes that mass retail is less than 15% of Funko’s overall business.
This year, the company has been expanding its reach and scope, with construction of a Hollywood flagship store, a Minor League baseball sponsorship, a new collection tracker app, a children’s book series, the acquisition of board game developer Forrest-Pruzan Creative, and a feature film in development at Warner Bros.
Mariotti says that the company is making investments in future growth, and while licensing is a very important piece of Funko’s product mix, in-house IP development is increasingly important. New toy lines based in Funko IP are in the pipeline for the years ahead — “wonderful, distinct toy lines that will be merchandised in a very disruptive way,” Mariotti says. Additionally, the overall product mix is expected to be diverse between evergreen content and trend items, and newer products such as games and advent calendars which continue to grow.
While the overall toy industry is still concerned about the potential enactment of the List 4B tariffs on Dec. 15, they’re just a mild concern for Funko, which produces a very small percentage of its products in China. The company has contingency plans in place and several potential levers to pull.
“If tariffs do go into effect, it’s a one quarter headwind for us. We’ll make the changes and be ready to rock and roll again,” Mariotti says.