Funko’s 2026 Q2 Earnings Call: Gross Margin and Tariff Guidance Contradict Previous Estimates

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Date of Call: Aug 6, 2026

Financials Results

• Revenue: Sales up 7% in Q2 and up 6% for the first half of the year.
• Gross Margin: 56.6% compared to 32.1% last year, with a normalized gross margin (excluding a $25M tariff credit) of 44.4%.

Guidance:

• Reiterating net sales guidance flat to up 3%.
• Raising adjusted EBITDA guidance to $100 to $110 million.

Business Commentary:

Revenue Growth and Strategic Execution:

• Funko reported sales were up 7% in Q2, contributing to a 6% increase in the first half of the year.
• The growth was driven by the successful execution of the "Make Culture Pop" strategy, which led to broad-based sales increases in the U.S. and Europe, and improved productivity across product lines.

Product Innovation and Market Expansion:

• Funko introduced new product formats like Pop Mystery and partnered with HP for additive manufacturing to accelerate production timelines.
• These initiatives are part of Funko's strategy to enhance speed and responsiveness to cultural moments, with plans to expand into new formats and channels.

Geographic and Retail Channel Performance:

• In Europe, sales were up 19%, with increased shelf space and partnerships leading to greater visibility and consumer engagement.
• Funko secured additional diorama displays and end-cap placements, enhancing product presentation and driving incremental sales through key retail partners.

Financial Health and Margin Improvement:

• Funko reported a gross margin of 56.6% for Q2, benefiting from a $25 million tariff credit, and normalized gross margin of 44.4%.
• SG&A expenses improved by over 400 basis points, and adjusted EBITDA was $40.9 million, significantly above the previous year's negative figure, indicating improved operational efficiency and profitability.

Content and Licensing Strategy:

• Strong performance in core collectibles and licenses such as Spider-Man and One Piece contributed to sales momentum.
• Funko capitalized on a robust content slate across entertainment, sports, and gaming, leveraging licensing deals to expand product offerings and consumer reach.

Sentiment Analysis:

Overall Tone: Positive

• Eve stated: 'numbers have been great.' Josh highlighted: 'the results that you've just talked about this quarter really highlight the model that we're building.' Management raised EBITDA guidance, citing strong sales, improved profitability, and record high normalized gross margin.

Q&A:

• Question from Eric Wold (Texas Capital): How would you characterize the level of wholesale order demand in the third quarter of 2026 into the upcoming holiday season?
  Response: Wholesale demand is healthy with normalized seasonality; POS sales were up 6% year-over-year, and the business has good sell-in/sell-through balance.

• Question from Keegan Cox (D.A. Davidson): In regards to the strong entertainment slate we have had this year, which franchises or categories are generating the strongest demand? And what properties are you most excited for in the second half of the year?
  Response: Strong demand across broad base of franchises (e.g., Mando Grogu, Toy Story 5, Spider-Man, One Piece, Pokemon, sports). Most excited for Avengers Doomsday and other upcoming releases.

• Question from Steven Lachick (Goldman Sachs): Did the positive POS trend from Q1 entertainment slate continue through Q2, and what gives confidence in sustainability through 2026?
  Response: Yes, POS momentum continued with 6% wholesale growth in Q2 and 9% year-to-date growth; confidence is based on content slate and product lineup factored into guidance.

Contradiction Point 1

Gross Margin Expectations

Guidance for gross margins appears to have decreased from the previous high, indicating a change in financial forecast.

Keegan Cox (D.A. Davidson) - Keegan Cox (D.A. Davidson)

2026Q2: Guidance factors in the latest announced tariffs (10–12%). Downside Factors (Prudence): Potential tariff surprises, higher freight/raw material costs due to factors like oil prices. - Eve (Funko)

What are the assumptions for the high and low ends of guidance, and have higher input costs like freight affected performance? - Keegan Cox (D.A. Davidson)

2026Q1: The 44% gross margin in Q1... The guidance of 42%-44% for the rest of the year is expected to hold. - Yves Le Pendeven(CFO)

Contradiction Point 2

Wholesale POS Sales Growth Trends

The year-over-year growth rate for wholesale POS sales is cited as 6% in Q2, but a stronger figure was reported for Q1, indicating inconsistency in sales trend characterization.

Steven Lachick (Goldman Sachs) - Steven Lachick (Goldman Sachs)

2026Q2: Q2 wholesale POS sales up 6% year-over-year; year-to-date POS growth 9%... - Eve (Funko)

Did the positive POS trends from the Q1 entertainment slate continue through Q2, and what factors support confidence in their sustainability through 2026? - Stephen Laszczyk (Goldman Sachs)

2026Q1: global POS up 6%, wholesale up 12%, U.S. up 6%, Europe up 28%... - Yves Le Pendeven(CFO)

Contradiction Point 3

Inventory Health Characterization

Contradiction on the health status of wholesale inventory, moving from a direct health statement to a more general comment on seasonality.

Can you provide an update on Texas Capital's earnings performance and strategic outlook? - Eric Wold (Texas Capital)

2026Q2: Inventory levels in the channel are healthy. - Eve (Funko)

How would you characterize wholesale order demand in Q3 2026 leading into the holiday season? - Eric Wold (Texas Capital)

2026Q2: This year shows a return to more normalized seasonality compared to last year's disruption. - Yves (CFO)

Contradiction Point 4

Sales Guidance Seasonality

Guidance described as steady vs. returning to normal seasonality, affecting expectations for revenue distribution throughout the year.

Eric Wold (Texas Capital) - Eric Wold (Texas Capital)

2026Q2: Visible wholesale order patterns are returning to more normalized seasonality. - Eve (Funko)

What is the trend in wholesale order demand for Q3 2026 leading into the holiday season? - Stephen Laszczyk (Goldman Sachs)

20260313-2025 Q4: The sales guidance is expected to be consistent throughout the year, not a 'hockey stick' plan. Growth is anticipated to be steady... - Yves Le Pendeven(CFO)

Contradiction Point 5

Tariff Impact Quantification

Specific $40M 2025 tariff figure contradicted by general guidance assumptions, indicating inconsistency in quantifying the financial impact of tariffs.

Keegan Cox (D.A. Davidson) - Keegan Cox (D.A. Davidson)

2026Q2: Guidance factors in the latest announced tariffs (10–12%). - Eve (Funko)

What are the assumptions behind the high and low ends of guidance, and have higher input costs like freight impacted these assumptions? - Keegan Tierney Cox (D.A. Davidson)

20260313-2025 Q4: In 2025, total tariffs and duties were close to $40 million... No specific incremental pressure for H1 2026 was quantified, but tariffs are assumed to remain around 15% for the remainder of the year in the 2026 guidance. - Yves Le Pendeven(CFO)

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