Pop culture collectible company Funko is moving to reduce its bloated inventories by purging up to $36 million of its vinyl figurines. The move follows a major earnings miss for its fourth quarter results last week. FNKO shares edged higher after hours after sliding Monday.
The company's collectible bobblehead figures depict almost everything in entertainment, from Marvel and Harry Potter figurines to rock stars and famous athletes. In the report, Funko revealed its year-end inventory spiked 48% to $246.4 million as its warehouse distribution center in Arizona overfilled, forcing the company to rent extra containers and storage space.
That surplus includes inventory Funko "intends to eliminate in the first half of 2023 to reduce fulfillment costs by managing inventory levels to align with the operating capacity of our distribution center," the company wrote in its earnings press release. As a result, the Everett, Wash.-based company expects to write down $30 million to $36 million of its inventory in the first half of 2023.
However, Funko did not clarify if "eliminating" means recycling, destroying, donating or throwing away the excess collectibles. Because a large portion of Funko customers are collectors, flooding the market with locked-up products could cause the value to drop.
Funko In A Funk
Funko's fourth-quarter gross margin fell to 28.3% from 33.9% last year, driven by storage and container rental charges used for the extra inventory. And the company recorded an adjusted Q4 loss of 35 cents per share, compared to earnings of 38 cents per share in 2021. Meanwhile, net sales for the quarter decreased 1% to $333 million for the fourth quarter.
Core collectibles sales, which includes the Funko Pop! figurines, fell 6.6% to $244.2 million as the company prioritized current content over evergreen content due to its constrained logistics. However, its Loungefly lifestyle brand sales jumped 30.9% to $70.7 million in Q4.
United States sales fell 4.7% to $241.1 million while sales in Europe dipped 0.2% to $63.9 million due to slower retail restocking in the markets. Other international sales leapt 44.8% with double-digit growth across all geographies, the company reported.
FNKO Stock
Bank of America lowered its price target for FNKO stock on Thursday, dropping it to $11 from $12.50. Bank of America maintained its Neutral rating on the shares but said it is "significantly lowering" its 2023 adjusted earnings expectations to "reflect the operational challenges expected to continue through September."
Funko stock rose 1.94% after hours Monday after dipping 1.11% during the day. Shares are trading around 9.96, near lows from December 2020, and down nearly 65% from its August highs.
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