Anyone follow Funko on here?
If so, what are your thoughts?
It's down 30% pre-market at this point, but could fall even more through the end of the year.
It was a disaster of an earnings release despite significant revenue growth during the quarter.
During the conference call one of the analysts that follows the stock was beside themselves calling out the company for potentially misleading them.
From the earnings call:
“So it feels to me a little bit like a bomb has dropped down my head. You know, like, you really up until the second quarter when you did have it EBITDA decline, you've had pretty strong EBITDA growth in the last five quarters. And you just had a big analyst meeting where you stood up in front of everybody in September and you talked about, really kind of aggressive margin goals going forward. So I guess I'm having trouble marrying, like, the two ideas here. I mean, when you have the analyst meaning, did you know that you had these operational issues?” – Linda Bolton Weiser
The company's response was that their analyst day was based on a “long-term” vision.
Then the analyst continues about excess inventory and revenue trends.
“It sort of implies that in the last two, three quarters, four quarters, you've been selling into the channels into Walmart and Target, at a pace that exceeds your POS growth? Do you have a sense as if that has been happening? You've been shipping more in at a rate is higher than what it's been selling through at?” – Linda Bolton Weiser
Answer from Funko's CFO, “Yes. It's a broader context, Linda. As you've heard across the board, retailers across the board are bringing down their inventories. It's not a direct reflection that our sell-in versus our sell-through. It's really the macroeconomic environment as well as our own internal operational issues that we're currently working through to make sure that we can deliver goods on time. So that's what you're seeing. If you look at the back half, we are still up in the low-teens on the back half of the year.”
And there is much more you can read (or listen to) on your own from their earnings call that point out the challenges to the company; in addition to reviewing their financials.
At a high level, Funko seems like a company that couldn't manage its growth operationally, is losing shelf space at major retailers, and now has to work through excess inventory while paying down its increasing debt load. Not exactly the kind of company you want to invest in coming into a recession while interest rates are rising.
Funko (FNKO) seems like a company that could turn itself around given its continued revenue growth. However, after this earnings release and conference call, it seems that it'll be at least a couple of quarters before they'd be able to work through their issues.
For anyone that does follow them or knows their business, it would be interesting to get your opinion on the situation and your thoughts on the company and their products going forward.
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