Earnings call transcript: Funko Q2 2025 results miss forecasts, stock dips

Funko Inc. reported its second-quarter earnings for 2025, revealing a notable miss on both earnings per share (EPS) and revenue compared to analyst forecasts. The company posted an EPS of $0.48, falling short of the forecasted $-0.32, resulting in a 250% surprise. Revenue came in at $193.5 million, below the anticipated $203.21 million, marking a 4.78% shortfall. Following the earnings release, Funko’s stock reacted negatively, with premarket trading showing an 8.74% decline, bringing the stock price down to $3.34. According to InvestingPro data, the company’s market capitalization now stands at $201.06 million, with the stock trading near its 52-week low of $3.48.

Key Takeaways

• Funko’s Q2 2025 EPS and revenue missed analyst expectations significantly.
• The company’s stock fell by 8.74% in premarket trading following the earnings announcement.
• Funko is implementing strategic changes, including workforce reductions and production shifts.
• The company anticipates improved financial performance in the latter half of the year.
• International markets remain a strong growth area for Funko.

Company Performance

Funko’s overall performance in Q2 2025 was marked by a 22% year-over-year decline in net sales, amounting to $193.5 million. The company’s gross profit was $62 million, representing a 32.1% gross margin. Despite challenges, Funko’s international markets showed resilience, with point-of-sale (POS) sales growing by 18% in the first half of 2025.

Financial Highlights

• Revenue: $193.5 million, down 22% year-over-year
• Earnings per share: $0.48, missing forecast by 250%
• Gross profit: $62 million with a 32.1% margin
• Adjusted net loss: $26.7 million
• Negative adjusted EBITDA: $16.5 million

Earnings vs. Forecast

Funko’s Q2 2025 earnings per share of $0.48 fell significantly below the forecast of $-0.32, resulting in a negative surprise of 250%. Revenue also missed expectations, with actual figures at $193.5 million compared to the forecasted $203.21 million, a 4.78% shortfall. This performance contrasts with previous quarters where the company had managed to meet or exceed expectations.

Market Reaction

Following the earnings announcement, Funko’s stock experienced a notable decline in premarket trading, dropping 8.74% to $3.34. This movement reflects investor concerns over the earnings miss and the company’s ability to navigate current market challenges. The stock’s performance is near its 52-week low of $3.48, indicating significant pressure. InvestingPro analysis suggests the stock is currently undervalued, with a strong free cash flow yield of 26%. Additionally, technical indicators show the stock is in oversold territory, though investors should note that FNKO generally trades with high price volatility. For detailed valuation metrics and 12 more exclusive ProTips, visit InvestingPro.

Outlook & Guidance

Looking ahead, Funko expects net sales in the second half of the year to decline by high single digits. The company projects an adjusted EBITDA margin in the mid to high single digits for the same period. Funko anticipates an improvement in Q4 results over Q3, bolstered by strategic initiatives and product launches, including the introduction of Pop Yourself in Europe. InvestingPro data reveals the company’s last twelve months EBITDA stands at $66.4 million, while its current ratio of 0.85 suggests some liquidity challenges. Analysts tracking the stock maintain a consensus hold recommendation, with price targets ranging from $5.50 to $7.00.

Executive Commentary

Mike Lunsford, Interim CEO, expressed optimism about the company’s future, stating, "Funko’s Board and I believe that Funko’s best chapters are still ahead." CFO Yves Lependoven highlighted efforts to mitigate the impact of tariffs, confirming, "We continue to expect to fully offset the financial impact of incremental tariffs within the current year."

Risks and Challenges

• Supply chain disruptions and tariff impacts remain significant challenges.
• The company’s high debt level, at $256.6 million, poses financial risks.
• Market saturation and competitive pressures could hinder growth.
• Changes in consumer preferences may affect product demand.
• Economic uncertainties and trade policy shifts could impact international sales.

Q&A

During the earnings call, analysts raised questions about the impact of price increases on sales, liquidity concerns, and the company’s strategy for resuming orders with direct import customers. Funko’s management addressed these issues, emphasizing their confidence in strategic measures to navigate current challenges.

Full transcript - Funko Inc (FNKO) Q2 2025:

Conference Operator: Good afternoon, and welcome to Funko’s twenty twenty five Second Quarter Financial Results Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. Please be advised that reproduction of this call in whole or in part is not permitted without written authorization from the company. As a reminder, this call is being recorded.

I will now turn the call over to Funko’s Director of Investor Relations, Rob Jaffe. Please proceed.

Rob Jaffe, Director of Investor Relations, Funko: Hello, everyone, and thank you for joining us today to discuss Funko’s twenty twenty five second quarter financial results. On the call are Mike Lunsford, our interim chief executive officer, and Yves Lependoven, the company’s chief financial officer. This call is being broadcast live at investor.funko.com. A playback will be available for at least one year on the company’s website. I wanna remind everyone that during the course of this call, management’s discussion will include forward looking information.

These statements represent our best judgment as of today about the company’s future results and performance. Our actual results are subject to many risks and uncertainties that may differ materially from those stated or implied, including those discussed in our earnings release. Additional information concerning factors that could cause actual results to differ materially is contained in our most recently filed SEC reports. In addition, during this call, we refer to non GAAP financial measures that are not prepared in accordance with US generally accepted accounting principles and may be different from non GAAP financial measures used by other companies. Investors are encouraged to review Funko’s press release announcing its twenty twenty five second quarter financial results for the company’s reasons for presenting non GAAP financial measures.

A reconciliation of the non GAAP financial measures to the most directly comparable GAAP financial measures is also attached to the company’s earnings press release issued earlier today. Also, we have posted supplemental financial information on the investor relations section of the company’s website, which includes, among other things, a gross margin bridge and key IP and product drivers. I will now turn the call over to Mike Lunsford. Mike? Thanks, Rob.

Good afternoon, everyone, and

Mike Lunsford, Interim Chief Executive Officer, Funko: thank you for joining us. Many of you know me from my time as Funko’s Interim CEO in 2023 and 2024 and as a longtime Board member. For the past month, I stepped in again at the Board’s request to help Funko realize the full potential of its business by accelerating the organic growth initiatives, exploring financial and strategic options for the business and identifying Funko’s next CEO. We have commenced a search for a permanent CEO. The search will focus on external candidates and we expect to name the CEO in the near future.

Now let’s move on to our financial performance and outlook. As we signaled on our last call, our Q2 financial results reflect the impact of the ever changing and uncertain U. S. Trade policies. Nonetheless, we moved quickly to mitigate the financial impact of higher tariffs by cutting costs, including a workforce reduction of approximately 20%, accelerating our shift in production out of China to other sourcing countries, raising prices and making other necessary changes to minimize the ongoing impact of these trade disruptions.

While additional changes to the economic and trade environment may affect our future sales and earnings, we believe we now have a relatively robust plan for the back half of the year that will result in improved financial performance compared with the first half. I’ll now turn it over to Yves to provide more detail on our Q2 results and second half

Yves Lependoven, Chief Financial Officer, Funko: outlook. Thanks, Mike. Hey, everyone. Thanks for joining us today. For the second quarter, total net sales were $193,500,000 The twenty two percent decline compared with last year’s second quarter was primarily due to the disruption of sales related to U.

S. Tariff policies, more specifically, a pause of orders out of China by our direct import customers. Direct to consumer sales comprised 21% of gross sales compared with 23 in the second quarter of last year. Gross profit was $62,000,000 equal to gross margin of 32.1%. Last year’s Q2 gross profit was $104,000,000 equal to gross margin of 42%.

Gross margin was favorably impacted by approximately three fifty basis points as a result of reduced discounting compared to Q2 of last year. However, that was more than offset by a shortfall in minimum guaranteed royalties caused by the sales disruption, the tripling of tariffs on imports and a build in inventory reserves versus inventory reserve relief in the same quarter last year. As a reminder, we posted supplemental financial information on our website, which includes a gross margin bridge. SG and A expenses were $82,300,000 SG and A expenses for the second quarter of last year were $77,900,000 which included a non recurring net benefit of $1,500,000 Adjusted net loss was $26,700,000 or $0.48 per share compared to adjusted net income of $5,600,000 or $0.10 per diluted share. And finally, negative adjusted EBITDA was $16,500,000 compared to adjusted EBITDA of $27,900,000 Turning to our balance sheet.

At June 30, we had cash and cash equivalents of $49,200,000 Net inventory was $101,300,000 Our total debt was approximately $256,600,000 and total company liquidity was $54,200,000 which was comprised of $49,200,000 in cash and cash equivalents and 5,000,000 available to borrow on our revolving credit facility. Turning now to our outlook. Continuing uncertainty around global tariff policies as well as the macroeconomic environment understandably make it difficult to provide a formal outlook. However, I will provide a couple of high level thoughts on our second half performance. For the 2025, we expect our performance to improve compared with the first half.

We expect second half net sales to be down high single digits compared with the 2024. We expect second half adjusted EBITDA margin to be in the mid to high single digits range. And we expect Q4 results to ramp up over Q3. Our belief in an improved 2025 compared with the first half is based on several factors, including: in The U. S.

Market, we have resumed shipping orders to our direct import customers and fully implemented our price increases. In addition, we are encouraged by the relatively resilient trend in POS sales. In the 2025, POS sales reported in units by some of our larger wholesale customers were down just 5%, significantly better than the decline in year over year sell in, which again was impacted by the pause in orders by our direct import customers. In Q2, POS sales comped up 3% over Q2 of last year. Meanwhile, our international business, which represents more than one third of our sales, continued to gain momentum with 18% POS sales growth in the first half of the year and 28% POS sales growth in Q2.

Also, we remain on track to launch Pop Yourself in Europe in time for the upcoming holiday season. And we saw good growth in Q2 from our biddy pop line as well as from our sports products category. We continue to expect to fully offset the financial impact of incremental tariffs within the current year. We now estimate the incremental duties and tariff costs in 2025 to be approximately $40,000,000 compared to our earlier estimate of $45,000,000 The key elements of our tariff mitigation plan, which include increasing prices in The U. S.

Market, shifting production out of China and into Vietnam and other sourcing countries and reducing our SG and A run rate are all largely implemented. A few comments on our debt and other corporate matters. As announced three weeks ago, we executed an amendment to our existing credit facilities. The amendment includes waivers for the maximum net leverage ratio and the minimum fixed charge coverage ratio for the fiscal quarters ended 06/30/2025 and ending 09/30/2025. The waivers to financial covenants provide the company with additional flexibility during this dynamic period.

Nonetheless, like last quarter, our 10 Q filing for the twenty twenty five second quarter includes disclosures about the company’s ability to continue as a going concern. We are now turning our attention to refinancing our debt, which becomes due in September 2026. We’ve engaged Mullis and Company LLC to advise the company on the refinancing process as well as to evaluate other financial and strategic options. To bolster our liquidity during this process, today, we filed with the SEC a form s three, which renews our shelf registration and enables the company to issue equity. Today, we also filed with the SEC a prospectus for an at the market or ATM equity offering, which once our Form S-three goes effective, will allow us to sell shares of our common stock from time to time, having an aggregate value of up to $40,000,000 With that, I’ll turn it back to you, Mike.

Mike Lunsford, Interim Chief Executive Officer, Funko: Thanks, Eve. I want to return to the three areas of focus of the Board. We have commenced the search for a new CEO and hope to name someone by the end of this quarter. We continue to work on accelerating organic growth initiatives and returning to the level of profitability you expect from Funko and believe we are making good progress on improving our financial performance in the back half of the year. Finally, as Eve described, we have also made good progress on financial and strategic options including finalizing the debt amendment and filing the ATM.

Funko’s Board and I believe that Funko’s best chapters are still ahead. We’re committed to profitable growth, operational discipline and above all, for our fans in ways that only Funko can. With that, we’ll open the call for questions. Operator?

Conference Operator: Thank you. We will now begin the Q and A session. Our first question today comes from Eric Wold from Texas Capital Bank. Please go ahead.

Eric Wold, Analyst, Texas Capital Bank: Thank you. Good afternoon. A few questions. I apologize. Haven’t had a chance to read through the entire 10 Q yet, so I know somebody may be in there.

But I guess, first question, you’re looking at the adjusted EBITDA in the quarter. Obviously, I know a lot of disruptions in the quarter around your gross margin and kind of navigating the tariffs and kind of getting around the shipments in the quarter. It doesn’t look like anything was added back to adjusted EBITDA around potential kind of onetime SG and A items in the quarter around the disruption. Anything that you potentially call out, maybe not to be added back, but anything that $82,000,000 of SG and in the quarter that you maybe kind of say was somewhat not normal as you kind of navigated around the issues in the quarter that we should kind of think about as you kind of model going forward?

Yves Lependoven, Chief Financial Officer, Funko: Hey, Eric. This is Eve. That’s a great question. You know, it’s it’s a little bit hard to quantify in terms of the top line disruption in the quarter that was, you know, just isolated to the tariffs announcement. What I would point you to are some supplemental slides that we posted on our IR website, and I did provide a gross margin bridge there.

You’ll see on there that about almost five points of our margin decline year over year was directly attributed to the tariffs announcement. So I think that’s one thing I would point to in the quarter that was I don’t know if that I’d call it one time, but it certainly was a big variance compared to Q2 of last year.

Eric Wold, Analyst, Texas Capital Bank: Got it. And then, you know, when you talk about you in in in the on the first quarter call, you talked about you halted, you the the q two inbound orders to avoid this tariff. You talked about now you kind of resume those. Now as you think about Q3 and the orders that were kind of halted or paused in Q2, how would you characterize the orders that paused? You know, were the majority of those kinda resumed, you know, canceled somewhere in between?

How should we think about the orders in q three? Are those kind of the ones that are paused in q two gonna push the q three or, you know, new? Kind of trying to get a sense of kind of what was kind of shifted or was there a good percentage of those that in q two that were paused that were gonna end up being, canceled or is all of you or something else kind of came up between q q one, q two, and and and where we are sitting today?

Yves Lependoven, Chief Financial Officer, Funko: Yeah. That’s a great question. So, you know, I think the interruption in terms of shipping the orders to direct import customers was primarily, you know, happening in the April and May months. The good news is we were able to kind of work out pricing arrangements with our our key customers to get those orders moving again in June. There are some orders that were intended to ship in q two that have rolled over into early q Again, it’s a little bit difficult to quantify that.

But, you know, the good news is that we’ve got those orders, flowing again. We’ve implemented our price adjustments. And, you know, we’re we’re we have a pretty good visibility on our q three order book right now, and and things are looking good. In terms of, you know, normal kind of shipping patterns and seasonality of the business, I I’d say at this point in time, barring any kind of unforeseen new announcements about tariffs and so forth that we’ve kind of resumed normal shipping patterns.

Eric Wold, Analyst, Texas Capital Bank: Perfect. Thanks and congrats on navigating through this. Thank you very much. Appreciate it.

Yves Lependoven, Chief Financial Officer, Funko: Thank you. Thanks, Eric.

Conference Operator: Our next question comes from Keegan Cox from D. A. Davidson and Co. Please go ahead.

Keegan Cox, Analyst, D.A. Davidson and Co.: Thanks, guys. My first question, I just wanted to kind of get any idea of, early customer reaction to your price increases from July 1.

Yves Lependoven, Chief Financial Officer, Funko: Sure. You know, it’s something that we’re watching very closely. We have kinda real time ecommerce data. And, you know, the the great news there is that we we’ve adjusted pricing beginning early July. As far as our ecommerce sales have gone, we’ve seen no negative impact on unit volumes, continued, you know, great sell through on the new items that we’re launching at the at the higher prices.

In terms of our wholesale data, we have about half of our customers, larger customers that report their POS sales directly to us. And, again, it’s it’s a little bit too early to say. Some of those customers were still selling through items at the older prices throughout July while bringing in the new items at the at the higher prices. So it’s a little bit of a you know, there’s some noise in there when we look at the, at the July data. But, I’m happy to report that similar to our ecom business, we don’t see a meaningful dip in POS unit volumes, that that’s that I could attribute to the the pricing changes.

Keegan Cox, Analyst, D.A. Davidson and Co.: Got it. And then just a clarifying question on the guidance. The adjusted EBITDA margins of mid to high single digits, is that for the full year or just for the second half?

Yves Lependoven, Chief Financial Officer, Funko: That is for the second half of the year, and then a and then a progressive improvement from Q3 to Q4.

Keegan Cox, Analyst, D.A. Davidson and Co.: Got it. And just to follow-up on that, do you guys think you’ll have enough cash to last through the end of the year with, the ATM and the s three filing? Because you’re pushing up right on your revolver, and, seems like you’ve been bleeding cash.

Yves Lependoven, Chief Financial Officer, Funko: Well, I mean, obviously, our, you know, our liquidity has been impacted by the fact that, you know, sales were disrupted for a couple of months, and that led to lower collections than we expected. But, you know, as I said in the call, we’ve entered into our, fourth amendment to our credit agreement. We have covenant waivers, which is great news. We also announced the, filing of an ATM today, which gives us additional flexibility. If we want to raise cash, we’ll have the ability to do so.

But we’re very focused on the refinancing process, and our goal is still to refinance our debt before the end of this year.

Keegan Cox, Analyst, D.A. Davidson and Co.: Awesome. Thank you.

Conference Operator: Thank you. We have no further questions. So I will now hand back over to the management team for closing remarks.

Mike Lunsford, Interim Chief Executive Officer, Funko: Thank you everyone for joining us on the call today. We look forward to sharing our progress on our next call. Talk to you next time.

Conference Operator: This concludes today’s call. Thank you for joining everyone. You may now disconnect your lines.

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