News

Aug 06, 2023

Funko says stores will be hesitant to stock up on toys for the rest of the year

Toy maker Funko Inc. on Thursday said it expected subdued demand for the rest of the year, the latest hurdle for a company that has dealt with layoffs, a leadership shakeup and a big drop in its stock

Toy maker Funko Inc. on Thursday said it expected subdued demand for the rest of the year, the latest hurdle for a company that has dealt with layoffs, a leadership shakeup and a big drop in its stock price.

The company — known for its Funko pop dolls modeled after movie, TV and comic-book characters — also said it would soon begin a search for a permanent chief executive, after Brian Mariotti took a leave of absence to “recharge,” and Michael Lunsford temporarily took his place.

Funko FNKO, -13.92% cut its full-year sales outlook to $1.05 billion to $1.12 billion, from an earlier range of between $1.19 billion and $1.26 billion. Executives said that retailers were still reluctant to stock their shelves with new toy orders, as they try to clear an existing surplus that began piling up in 2022.

The forecast was below the $1.2 billion that Wall Street was expecting, according to FactSet.

“Ongoing inventory de-stocking by some of our larger U.S. wholesale customers impacted our topline and profitability,” Lunsford said in a statement. “We anticipate that this softness will continue in the second half of this year and, as a result, we have lowered our full-year guidance.”

Shares fell 6.1% after hours on Thursday. The stock has fallen 31.7% so far this year.

When the pandemic prompted widespread travel restrictions and limits on gathering, shoppers, aided by stimulus cash, snapped up toys in an effort to ward off boredom. But that demand faded as the economy reopened, and Funko has scaled back in the process and tried to save money. The company late last month said it planned to cut roughly 180 to 200 employees, or around 12% to 13% of its staff.

“We have also begun reshaping the company to focus our energies and resources on Funko’s core products,” Lunsford said. “To that end, we are implementing a strategic plan to reduce the number of product lines and complexity in our business.”

“Putting our fans and brand first, running the business like a lean startup and investing in areas where we can grow profitably, will guide and inform every decision we make,” he said.

Still, he said he expects sales and margins to “meaningfully ramp up” when compared with the second quarter. He said he expects Funko’s financials to rebound in 2024, as retail stores sort out their stockrooms and warehouses and eventually end up with the products they want to sell.

When prices rose last year, retailers found themselves with too many toys, clothing items and electronics that they couldn’t sell, because more shoppers were stretching the savings they had to cover essentials like groceries.

For its second quarter, Funko reported a net loss of $75.9 million, or $1.54 a share, contrasting with a profit of $15.8 million, or 28 cents a share, in the same quarter last year. Sales fell to $240 million from $315.7 million in the prior-year quarter. The company reported an adjusted loss per share of 43 cents.

Those results were worse than analysts expected. Analysts polled by FactSet expected a 41-cent per-share loss, on sales of $250.3 million.

AustralianSuper, one of the world’s largest pensions, halved its Apple stock investment and sold Microsoft stock, while buying shares of Tesla and Nvidia.

Bill Peters is a Los Angeles-based MarketWatch reporter who covers earnings.