Funko (FNKO) 7 Nov 24 2024 Q3 Earnings call transcript

Funko, a leading pop culture consumer products company, recently held its 2024 third quarter financial results conference call, providing insights into the company's financial performance and strategic direction. The call, led by Cynthia Williams, CEO, and Yves Le Pendeven, CFO, highlighted several key themes and trends that underscore Funko's financial health and growth prospects.

Financial Performance

Funko reported a solid financial performance for the third quarter, with net sales of $293 million, slightly down from the previous year but within the company's guidance range. The company's gross margin was 41%, exceeding the top end of its guidance range, and adjusted EBITDA stood at $31 million, also surpassing expectations.

Strategic Direction

In terms of strategic direction, Funko is focused on expanding its reach and attracting new fans. The company has realigned certain responsibilities within its senior management team, with Andy Oddie taking on global sales and business development efforts in addition to overseeing licensing relationships. Johanna Gepford is now fully dedicated to overseeing growth initiatives and newer business lines, including managing the global direct-to-consumer channel, Pop! Yourself, Mondo, and digital collectibles.

Funko is also investing in key areas such as creative product development, brand management, and marketing and business development associated with organically expanding its reach and fandoms. The company's plan to grow involves delighting core fans, attracting new fans, selling where the fans are, and improving the fan experience.

Market Trends and Challenges

During the call, Funko's management discussed the cautiousness exhibited by certain wholesale customers due to uncertain consumer spending during the holidays. This trend, however, has not affected the company's profitability, which remains strong, with improved gross margins leading to better-than-expected bottom line results.

The company also noted that consumers are increasingly seeking value, which has resulted in a shift towards promotional activities and discounts. Funko expects to capitalize on this trend by ramping up promotional activities and marketing spend ahead of the holiday season, with direct-to-consumer sales expected to return to year-over-year growth in the fourth quarter.

Market Opportunities

Funko is also leveraging partnerships and collaborations to expand its reach and tap into new markets. For instance, the company's collaboration with the NFL to allow fans to customize Pop! Yourself with any NFL team logo has been a success, with more than 40% of Pop! Yourself sales including NFL accessory packs and daily sales increasing by over 150%.

Funko has also partnered with the Walt Disney Company and video game developer, Gameloft, to bring the world of Loungefly to life in interactive entertainment. This partnership is expected to further boost the company's presence in the digital collectibles market.

Outlook

Looking ahead, Funko is lowering its net sales guidance for the full year to $1.037 billion to $1.05 billion, while raising the range for adjusted EBITDA to $85 million to $90 million. The company's confidence in its financial outlook is reflected in its decision to invest in strategic initiatives aimed at expanding its reach and attracting new fans.

Despite challenges such as cautiousness among wholesale customers and the need to navigate changing consumer preferences, Funko remains optimistic about its future. With a strong focus on strategic investments and a commitment to delivering value to its customers, the company is well-positioned to capitalize on the growing demand for pop culture collectibles and merchandise.

Overall, Funko's third quarter financial results demonstrate the company's resilience and adaptability in a dynamic market. With a clear strategic direction and a focus on customer satisfaction, Funko is poised for continued growth and innovation in the pop culture consumer products space.