Funko Q3 Earnings Call Highlights

Key Points

• Funko delivered stronger margins and earnings: Q3 net sales rose 3%, core collectibles grew 5%, and gross margin increased five percentage points to 45%. Adjusted EBITDA was $32 million, and net debt fell to $155 million from just over $200 million a year earlier.
• The company maintained its full-year outlook for sales to be flat to up 3% and adjusted EBITDA of $100 million to $110 million, while expecting core collectibles growth to continue in Q4. Retail point-of-sale units declined 4% globally, with U.S. weakness offset partly by 16% growth in Europe, the Middle East and Africa.
• New products and selling channels are growth initiatives: Pop! Mystery products sold three times faster than expected with 100% sell-through, and Funko plans launches tied to about a dozen properties over the next year. The company is also expanding live selling and developing faster product launches.

Funko NASDAQ: FNKO reported third-quarter sales growth and a wider gross margin, as gains in core collectibles and Europe helped the company deliver adjusted earnings above its expectations.

Net sales rose 3% from a year earlier, while core collectibles sales increased 5% and European sales climbed 12%, Chief Financial Officer Yves Le Pendeven said. Gross margin reached 45%, an improvement of five percentage points from the prior-year quarter.

Adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, totaled $32 million, representing a 12% margin. Funko ended the quarter with $42 million in cash and $155 million in net debt, down from just over $200 million in net debt a year earlier.

The company reiterated its full-year outlook for sales to be flat to up 3% and adjusted EBITDA of $100 million to $110 million. CEO Josh Simon said Funko expects core collectibles growth to continue in the fourth quarter.

Retail Sales Trends

Point-of-sale units fell 4% globally in the third quarter, including a 10% decline in the U.S. and a 16% increase in Europe, the Middle East and Africa, Le Pendeven said. He noted that roughly half of Funko’s retailers report that information to the company.

Le Pendeven said the U.S. comparison was difficult partly because shipping disruptions after a tariff announcement in the second quarter of the prior year led to more inventory reaching shelves in the third quarter. Direct-to-consumer units declined 13%, which he largely attributed to fewer promotions and discounts on Funko’s website. Profitability in that channel increased despite the unit decline, he said.

For the year through the end of the third quarter, global point-of-sale units were up 3%. Le Pendeven said holiday trends are difficult to predict but that the company hopes the positive year-to-date comparison will continue.

Pokémon Leads, Mystery Products Expand

Pokémon moved into the top spot among Funko’s intellectual properties during the quarter, displacing One Piece, Simon said. Harry Potter ranked third and KPop Demon Hunters fourth. The company’s top 10 properties accounted for about 34% of quarterly sales.

Chief Product Officer Husnal Shah said Funko’s Pop! Mystery products, launched with Plants Flora, WB Horror and One Piece lines, sold three times faster than expected and achieved 100% sell-through. The company is supplying more products to the market, he said, with Hello Kitty and Harry Potter lines coming next.

Simon said Funko plans to launch Pop! Mystery products tied to about a dozen intellectual properties over the next year, including Shrek. The company also plans versions of Pop! Plush in several formats and is developing its Bitty products and a product intended to appeal to sports collectors. Shah said Funko will preview new product lines at the Nuremberg and New York toy fairs in February.

Among individual products, a Zenitsu figure from Demon Slayer had sold 100,000 units since its September launch, Shah said.

Live Selling and Faster Product Development

Executives highlighted Funko’s efforts to turn cultural moments into products more quickly. Shah said the company’s Hyperstrike process uses parallel design and production work, along with onshore manufacturing, to shorten the time between a concept and delivery. Funko used the process to create a Ken Carson product for ComplexCon after learning he would headline the event only a few weeks beforehand.

Funko also tested live commerce through an eBay Live auction with collectibles entrepreneur Ken Goldin as part of its Pop! 250 program. Simon said a one-of-one Babe Ruth item sold for $26,000.

Head of Marketing and Brand Nik Rupp said the company is preparing to expand live selling as a retail and revenue stream. Simon said Funko had completed its third live-selling test on TikTok and expects to continue scaling the channel in the fourth quarter and beyond.

Asked whether high secondary-market prices for limited products could support higher prices, Rupp said Funko’s primary focus is serving fans. Simon said the company sees an opportunity to expand the market for limited editions through more genres, properties and entry points rather than extracting higher prices from core collectors.

About Funko (NASDAQ:FNKO)

Funko, Inc is a consumer products company that designs, sources and sells licensed and original pop-culture collectibles and merchandise. Its best-known product is the Pop! vinyl figure, which features characters from movies, television, video games, sports and other entertainment properties. The company also offers plush products, action figures, accessories, apparel, home goods and games.

Funko's portfolio includes brands such as Pop!, Loungefly and Mondo. Loungefly focuses on licensed bags, wallets, accessories and other lifestyle products, while Mondo is known for premium collectibles, posters, apparel and related merchandise.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.