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Shares of Funko Inc. nosedived in after-hours trading on Wednesday, after the collectible toy maker issued a financial outlook that was far worse than expected and said efforts to improve performance might not take hold for months.
Executives issued the forecasts amid a drop-off in retail demand for toys, and operational snags at a new distribution center. Funko has been battling issues that led to a change in the chief executive and chief financial officer positions late last year, and the company on Wednesday appointed a consultant as its chief financial officer and chief operating officer.
Funko
FNKO,
shares plunged 27% in after-hours trade. The maker of the Pop line of figurines modeled after popular figures from movies, TV shows and sports forecast first-quarter sales of $225 million to $255 million, well lower than Wall Street’s expectations for $296 million. Executives also forecast a per-share loss of 90 cents to $1 — far worse than analysts’ average expectations for a nickel of profit for each share.
Funko’s forecast feeds into concerns about a potential hangover for sales of action-figures and other toys, following a jump in demand when pandemic restrictions were in place as well as the ebbs and flows of sales boosts from movie releases. Hasbro Inc.
HAS,
has laid off employees, and Mattel Inc.
MAT,
anticipates a falloff in demand for some action figures.
Shares of Funko sank nearly 60% in a single November session after the company cut its 2022 forecast ahead of the holiday season. Chief Executive Andrew Perlmutter, at the time, said the company was “making needed short-term investments to upgrade our infrastructure.” Perlmutter was replaced as CEO in December by Brian Mariotti.
“Although demand remains strong for FNKO’s inexpensive, unique pop culture offerings, the company was impacted in 4Q22 by retailers pulling back on ordering,” D.A. Davidson analysts said in a note on Monday, adding that it was also suffering from “company-specific operational issues” related to a new distribution center. However, analysts there said the issues were temporary.
Executives said that demand for products remained strong, and that they were focused on shoring up margins and costs. But they said efforts to do so “will take several quarters in some cases.” They said they expected conditions to get better over the year.
Funko executives expect full-year sales growth of between zero percent and 5%, compared with FactSet forecasts for 3%. They also stated that excluding the effect of an anticipated write-down on inventories, they expected first-quarter gross margin to be “in line to slightly below the fourth quarter of 2022,” with improvements coming later in the year.
For the fourth quarter, Funko reported an adjusted loss of 35 cents a share, worse than FactSet estimates for a loss of 10 cents. Sales fell 1% to $333 million, beating estimates for $318 million. The company closed out the year with $246.4 million in inventory, a 48% jump compared with the prior year.
Funko on Wednesday also announced the appointment of Steve Nave as Chief Financial Officer and Chief Operating Officer. Nave was brought on as a consultant when Funko’s board shook up its C-suite last year.
Before the close of Wednesday trading, shares of Funko were down 36.5% over the past 12 months. By comparison, the S&P 500 index
SPX,
has fallen 8.2% over that time.
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