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01/11 17:58
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call reveals significant challenges: a 22% sales decline, increased SG&A expenses, and liquidity concerns due to high debt. The going concern disclosure and CEO transition add to the uncertainty. Despite some positive responses to price increases, the overall sentiment is negative, with management's vague responses in the Q&A section raising further concerns. The withdrawal of 2025 guidance and tariff impacts compound the negative outlook, likely leading to a stock price decline of -2% to -8% over the next two weeks.
Total Net Sales $193.5 million, a 22% decline year-over-year, primarily due to the disruption of sales related to U.S. tariff policies and a pause of orders out of China by direct import customers.
Direct-to-Consumer Sales 21% of gross sales, down from 23% in the second quarter of last year, reflecting a shift in sales channels.
Gross Profit $62 million, with a gross margin of 32.1%, down from $104 million and a gross margin of 42% in the prior year. The decline was due to a shortfall in minimum guaranteed royalties, tripling of tariffs on imports, and increased inventory reserves, despite a 350 basis point improvement from reduced discounting.
SG&A Expenses $82.3 million, up from $77.9 million in the prior year, which included a nonrecurring net benefit of $1.5 million. The increase reflects higher operating costs.
Adjusted Net Loss $26.7 million or $0.48 per share, compared to adjusted net income of $5.6 million or $0.10 per diluted share in the prior year, driven by lower sales and higher costs.
Adjusted EBITDA Negative $16.5 million, compared to positive $27.9 million in the prior year, reflecting the impact of reduced sales and increased costs.
Cash and Cash Equivalents $49.2 million as of June 30, reflecting the company's liquidity position.
Net Inventory $101.3 million, indicating the company's inventory levels.
Total Debt Approximately $256.6 million, highlighting the company's financial obligations.
Total Company Liquidity $54.2 million, comprised of $49.2 million in cash and $5 million available to borrow on the revolving credit facility.
Pop! Yourself launch in Europe: Funko plans to launch the Pop! Yourself product line in Europe in time for the holiday season.
Bitty Pop! and sports products growth: The Bitty Pop! line and sports products category showed good growth in Q2.
International market growth: International business, representing over 1/3 of sales, saw 18% POS sales growth in the first half and 28% in Q2.
Tariff mitigation plan: Funko implemented measures to offset $40 million in incremental tariff costs, including price increases, shifting production out of China, and reducing SG&A expenses.
Workforce reduction: The company reduced its workforce by approximately 20% to cut costs.
Debt refinancing and liquidity measures: Funko amended its credit facilities, filed for an ATM equity offering of up to $40 million, and engaged Moelis & Company LLC for debt refinancing and strategic options.
CEO search: Funko has commenced a search for a permanent CEO, focusing on external candidates, with plans to name someone by the end of the quarter.
Focus on organic growth and profitability: The company is working on accelerating organic growth initiatives and improving financial performance in the second half of 2025.
U.S. Trade Policies: The company faced disruptions due to uncertain U.S. trade policies, including higher tariffs, which led to a pause in orders from direct import customers and impacted sales.
Tariff Costs: Incremental duties and tariff costs in 2025 are estimated at $40 million, creating financial strain despite mitigation efforts like price increases and shifting production out of China.
Workforce Reduction: A workforce reduction of approximately 20% was implemented to cut costs, which could impact employee morale and operational efficiency.
Sales Decline: Net sales declined by 22% compared to the previous year, primarily due to trade policy disruptions and paused orders from direct import customers.
Debt and Liquidity: The company has significant debt of $256.6 million and limited liquidity of $54.2 million, raising concerns about its ability to refinance debt due in September 2026.
Going Concern Disclosure: The company disclosed concerns about its ability to continue as a going concern, highlighting financial instability.
SG&A Expenses: SG&A expenses increased to $82.3 million, up from $77.9 million the previous year, despite cost-cutting measures.
Inventory Reserves: A build in inventory reserves negatively impacted gross margins, reflecting inefficiencies in inventory management.
Macroeconomic Environment: Uncertainty in the macroeconomic environment adds challenges to forecasting and achieving financial stability.
CEO Transition: The company is undergoing a leadership transition, searching for a new CEO, which could impact strategic direction and stability.
Second Half 2025 Performance: The company expects performance to improve compared to the first half of 2025. Net sales are projected to decline by high single digits compared to the second half of 2024. Adjusted EBITDA margin is expected to be in the mid- to high single digits range, with Q4 results ramping up over Q3.
U.S. Market Trends: Shipping orders to direct import customers have resumed, and price increases have been fully implemented. POS sales trends are relatively resilient, with a 5% decline in the first half of 2025 and a 3% increase in Q2 compared to the same period last year.
International Business: International sales, which account for over one-third of total sales, showed 18% POS sales growth in the first half of 2025 and 28% growth in Q2.
Product Launches: The company plans to launch 'Pop! Yourself' in Europe in time for the holiday season. Growth was also observed in the Bitty Pop! line and sports products category in Q2.
Tariff Mitigation Plan: The company expects to fully offset the financial impact of incremental tariffs within 2025. Estimated incremental duties and tariff costs have been revised to $40 million from $45 million. Key mitigation strategies include price increases in the U.S., shifting production out of China to Vietnam and other countries, and reducing SG&A expenses.
Debt Refinancing and Liquidity: The company is focusing on refinancing its debt due in September 2026 and has engaged Moelis & Company LLC for this purpose. To bolster liquidity, the company filed a Form S-3 for equity issuance and a prospectus for an ATM equity offering of up to $40 million.
The selected topic was not discussed during the call.
The earnings call presents a mixed picture: while international sales and product launches show promise, domestic sales and financial health raise concerns. The Q&A reveals cautious optimism but highlights tariff impacts and financial instability. The strategic plan suggests potential growth, but execution risks and economic uncertainties temper expectations. Overall, the company's outlook is balanced, leading to a neutral sentiment.
The earnings call reveals significant challenges: a 22% sales decline, increased SG&A expenses, and liquidity concerns due to high debt. The going concern disclosure and CEO transition add to the uncertainty. Despite some positive responses to price increases, the overall sentiment is negative, with management's vague responses in the Q&A section raising further concerns. The withdrawal of 2025 guidance and tariff impacts compound the negative outlook, likely leading to a stock price decline of -2% to -8% over the next two weeks.
The earnings call reveals significant challenges: withdrawal of 2025 outlook due to tariffs, a noted financial strain with increased debt, and a 20% workforce reduction. Despite some positive elements like direct-to-consumer growth and better-than-expected adjusted EBITDA, the overall sentiment is negative. The Q&A section highlights uncertainties, particularly around pricing and tariffs. Given these factors, the stock price is likely to decline, falling into the negative category (-2% to -8%).
The earnings call reveals several concerning factors: withdrawal of 2025 outlook due to tariff impacts and economic uncertainty, negative Q2 expectations, and increased debt. Despite some positive aspects like cost discipline and slight margin improvements, the lack of a share repurchase program and unclear future impact of headcount reduction add to the negative sentiment. The Q&A section highlights mixed POS trends and lack of clarity in management responses, further contributing to a negative outlook.
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