Funko targets modest Q4 net sales growth with Make Culture POP! strategy amid global expansion and product innovation

Earnings Call Insights: Funko, Inc. (FNKO) Q3 2025

MANAGEMENT VIEW

* CEO Josh Simon, in his first earnings call, emphasized the company's "Make Culture POP!" strategy, focusing on culture, creativity, and commerce as the foundation for future growth. Simon highlighted, "We have a passionate and broad fan base... Membership in our fan loyalty program has grown 27% since the start of the year."
* Simon announced that Funko recently celebrated "1 billion units sold" and has signed several multiyear renewal agreements with key licensing partners, including Warner Bros, NBC Universal, 20th Century, Paramount, and Disney.
* The CEO detailed the company's ability to rapidly identify trends and bring products to market, citing the KPop Demon Hunters line as "one of our biggest presale items ever when it launched on funko.com a month ago."
* Bitty Pop! was officially introduced in Walmart's toy aisle and featured in the retailer's top toy list, with an out-of-aisle placement planned for 1,800 Walmart stores.
* Simon highlighted plans for international expansion, particularly in Asia and Latin America, and enhancements to direct-to-consumer digital capabilities, including the launch of an AI-powered builder for Pop! Yourself.
* CFO Yves Le Pendeven stated, "For the third quarter, total net sales were $250.9 million, in line with our expectations... Gross profit was $100.8 million equal to gross margin of 40.2%, which was better than expected."

OUTLOOK

* The company expects Q4 2025 net sales to increase modestly from Q3, supported by the rollout of Pop! Yourself in Europe and sales of KPop Demon Hunters products.
* Gross margin is projected to be approximately 40%, and adjusted EBITDA margin is anticipated in the mid- to high single digits range.
* Le Pendeven said, "We now expect for the 2025 fourth quarter net sales to increase modestly from Q3 2025, driven in part by the launch of Pop! Yourself in Europe and sales of our KPop Demon Hunters product lines, gross margin of approximately 40% and adjusted EBITDA margin to be in the mid- to high single digits range."

FINANCIAL RESULTS

* Funko reported $250.9 million in net sales for Q3 2025, with gross profit of $100.8 million and gross margin of 40.2%.
* Adjusted net income was $3.2 million or $0.06 per diluted share; adjusted EBITDA reached $24.4 million.
* Direct-to-consumer sales mix represented 18% of gross sales, down from 20% in the prior year's Q3.
* SG&A expenses declined to $79.8 million from $92.7 million, reflecting cost reductions and reduced marketing spend.
* As of September 30, cash and cash equivalents were $39.2 million, net inventory $99.8 million, and total debt approximately $241 million.

Q&A

* Stephen Laszczyk, Goldman Sachs: Asked about the top priorities for executing the Make Culture POP! strategy over the next year. Simon responded that the short-term focus is on performance momentum, expanding in areas like sports and music, and operationalizing quick strike capabilities. "There's opportunities to move quicker in those areas," he explained.
* Laszczyk also inquired about retailer engagement and restocking for the holiday season. Le Pendeven answered, "Our global kind of POS in units was down only 3% year-over-year... U.S. was more like down mid- to high single digits in units and then EMEA was up in low double digits." Simon added that content launches like "Stranger Things" and "Wicked" would be significant for Q4 shelf space.
* Keegan Tierney Cox, D.A. Davidson: Questioned the competitive landscape for vending machines and kiosks. Simon stated, "The ability for a fan to go and create customized Funko Pop! of themselves or a friend as a gift is something that I think we are uniquely able to offer."
* Cox asked about European sales. Simon noted, "Our POS trend is pretty strong in Europe... we did have a little bit of production delays that impacted our European sales in the quarter... we expect Europe to be back to growth in the fourth quarter."
* Cox further asked about pricing and demand. Simon said, "We rolled out the price increases... It's hard to attribute [lower unit volumes] directly to the price increase... But generally, it's been in line with our expectations."

SENTIMENT ANALYSIS

* Analysts pressed management on execution priorities, retailer restocking, competitive threats, and pricing impacts, showing a neutral to slightly cautious tone.
* Management maintained a confident stance during prepared remarks, frequently highlighting opportunities and operational progress. During Q&A, the tone was constructive, with Simon and Le Pendeven providing detailed, measured responses and emphasizing ongoing momentum and future plans.
* Compared to the previous quarter, the sentiment shifted towards greater optimism as the new CEO outlined a strategic vision and acknowledged early traction on several initiatives.

QUARTER-OVER-QUARTER COMPARISON

* Q3 saw the introduction of new CEO Josh Simon and a shift toward a defined growth strategy, contrasting with the prior quarter's interim leadership and focus on cost mitigation and tariff challenges.
* Gross margin improved significantly from Q2's 32.1% to Q3's 40.2%.
* SG&A expenses decreased, reflecting the full benefit of cost reduction actions taken in Q2.
* The company moved from an adjusted net loss in Q2 to adjusted net income in Q3.
* Strategic focus shifted from immediate operational stabilization to growth through product innovation, expanded partnerships, and international expansion.
* Analysts' questions evolved from liquidity and tariff risk in Q2 to growth strategy execution and market expansion in Q3.

RISKS AND CONCERNS

* Le Pendeven referenced ongoing refinancing efforts and disclosures in the 10-Q about "the company's ability to continue as a going concern."
* The company executed an amendment to its credit facilities, waiving financial covenants for Q2 and Q3, and introduced a minimum cash requirement and progress milestones for refinancing.
* Tariff disruptions previously affected shipping and sales, with lingering effects noted in Q3, particularly on U.S. and European operations.
* Management acknowledged retailer caution and financially impacted smaller distributors due to tariffs.

FINAL TAKEAWAY

Funko's third quarter highlighted the launch of a focused growth strategy under new CEO Josh Simon, bolstered by key licensing renewals, product innovations like Bitty Pop!, and expanding international ambitions. Gross margin improvement and a return to adjusted profitability signal operational progress, while management expressed confidence in further growth through its "Make Culture POP!" strategy, although refinancing and macroeconomic risks remain in focus for the coming quarters.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/fnko/earnings/transcripts]

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