Funko reported another big earnings miss for its fourth quarter results late Wednesday as the pop culture collectibles giant deals with margin pressures and bloated inventories. FNKO stock tanked after hours Wednesday following results.
Funko shares plummeted 66% after the company posted a major earnings miss and slashed its outlook in early November. Funko's adjusted earnings fell 28% to 28 cents per share while revenue rose 36% to $365.6 million. Wall Street expected adjusted earnings to jump 28% on a 19% revenue gain.
In the report, Funko noted it was still grappling with supply chain issues following the pandemic. Quarterly inventories skyrocketed 88.7% over the year to $265.8 million. However, Funko said it expects to make progress on trimming inventory levels starting in Q4.
Meanwhile, gross margin fell 100 basis points year-over-year to 35% in the third quarter, driven by product costs outpacing previous price increases on certain products. Funko executives noted margins will decline again in Q4 due to seasonality and inventory management, as retailers take advantage of contractual discounts.
Following the third quarter results, the company guided FY2022 adjusted earnings between 85 cents and 95 cents per share, falling from $1.42 last year. It forecast sales ranging from $1.29 billion to $1.33 billion. Funko previously anticipated earnings of $1.88 per share to $1.99 per share and revenue between $1.3 billion and $1.35 billion. Meanwhile, Wall Street had predicted Funko to post earnings of $1.91 per share on $1.33 billion of revenue. FactSet analysts lowered their guidance to earnings of 79 cents per share on $1.308 billion in revenue following the slashed outlook.
Executive Shakeup
In December, Funko shuffled its executive suite in an attempt to improve performance.
"The board is taking swift and decisive action to strengthen operations and drive improved results for our stockholders," Chairman Charles Denson said in the Dec. 5 announcement.
Brian Mariotti, chief creative officer and board member, reassumed his role as CEO. He succeeded Andrew Perlmutter, who stepped into the role of president. Jennifer Fall Jung stepped down as chief financial officer. Steve Nave was appointed Chief Financial Officer and Chief Operating Officer along with the Q4 earnings announcement.
Funko Earnings
For the fourth quarter, Funko's posted an adjusted loss of 35 cents per share, from earnings of 38 cents per share last year. Net sales declined 1% to $333 million. Analysts expected Funko to post its third quarterly loss in almost three years, falling to a loss of 10 cents per share. Revenue was seen dipping 5.4% to $318 million.
The company's gross profit margin fell to 28.3% during Q4, from 33.9% last year. Meanwhile, inventories jumped 48.1% to $246.4 million.
For fiscal 2022, Funko adjusted earnings tumbled roughly 60% to 57 cents per share on a 29% jump in sales to $1.3 billion.
In the earnings call, Funko cited operational and distribution headwinds. Selling, general and administrative expenses spiked nearly 78% to $139.2 million in Q4, partly due to inventory storage costs and container rentals. The company expects those costs to decline as it invests in a new warehouse management system for its distribution center. Funko also plans to write down its inventories and the benefit should be seen in the second half of the fiscal year, while some of the storage issues are starting to ease.
For the first quarter, Funko projects a loss of 90 cents to $1 per share. Revenue is seen declining up to 27% to range from $225 million to $255 million. For the full year, Funko forecasts flat to 5% revenue growth.
FNKO Stock
Funko stock plummeted nearly 25% to 8.04 after hours Wednesday. Shares are approaching their November lows of 7.76 following the Q3 report.
Shares are struggling to retake and hold support at the stock's 10-week moving average. FNKO stock is up 13.5% over the past three months but down more than 2% year-to-date and 61% below its August high.
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