Funko, Inc. (Nasdaq: FNKO), a leading pop culture consumer products company, today reported preliminary financial results for the fourth quarter ended December 31, 2019. Net sales are expected to be approximately $214 million, a decrease of 8% compared to $233 million in the fourth quarter of 2018. Net sales were below expectations in mature markets, including the U.S., due to the challenging retail environment, which resulted in lower than expected purchases among Funko’s top customers throughout the holiday season as well as softness in sales related to certain tentpole movie releases. These factors more than offset strong growth both in Europe and the Loungefly brand during the quarter.

(*Consensus sees Q4 revenue of $264.3)

For the fourth quarter of fiscal 2019, Funko estimates:

• Net sales in the U.S. will decrease approximately 9%, while net sales internationally will decrease approximately 8%, reflecting declines in mature international markets, including Australia and Canada, partially offset by continued double digit growth in Europe.
• On a product category basis, net sales of figures will decrease approximately 10% and net sales of other products will decrease approximately 3% versus the year ago period, respectively. Net sales of Loungefly items, included in other products, are expected to show continued double digit growth in the fourth quarter offset by declines in other branded products.
• The Company will incur a one-time $16.8 million charge related to the write-down of inventory as a result of the Company’s decision to dispose of slower moving inventory to increase operational capacity. This charge is incremental to normal course reserves and will have an unfavorable impact to gross profit1, gross margin1, net loss and net loss per diluted share in the fourth quarter.
• Gross profit1 will be in the range of $62.3 million to $62.8 million, while gross margin1 will be 29.2% to 29.4%. Gross margin excluding the one-time inventory write-down2 will be 37.0% to 37.3%.
• The Company will have a net loss in the range of $6.7 million to $6.0 million and net loss per diluted share of $0.12 to $0.11.
• Adjusted EBITDA3 will be in the range of $24.7 million to $25.7 million.
• Adjusted Net Income3 will be in the range of $8.1 million to $8.9 million and Adjusted Earnings per Diluted Share3 will be in the range of $0.16 to $0.18.

“While we are disappointed in our fourth quarter results, we are confident that our strong track record of innovation through new product categories and properties, as well as continued international expansion, will continue to propel the Company in 2020 and beyond. The underlying strength of our Pop! and Loungefly brands, combined with Funko’s unique ability to leverage evergreen properties will enable the Company to achieve high-single-digit to low-double-digit sales growth in 2020,” stated Brian Mariotti, Chief Executive Officer. “Since 2017, we have grown sales at a compound annual rate of more than 20%. The key drivers that have fueled our growth and brought Funko to where it is today remain intact. Looking forward, we plan to continue investing in existing and new products, people and global operations to ensure the Company is positioned for long-term success.”

Initial 2020 Outlook

In 2020, Funko plans to focus on integrating scalable processes and procedures to position the Company for long-term success. These plans will include building scale through infrastructure investments in talent, IT and global operations. At the same time, the Company expects to utilize its design and development expertise, extensive licensing partnerships, broad distribution and new product initiatives to drive top line growth. Strategic initiatives include:

• Developing and building upon new growth platforms, including additional product categories and proprietary IP through new introductions in toys and games;
• Leveraging Funko’s strong global presence to increase the Company’s international sales mix;
• Growing direct-to-consumer sales and increasing fan engagement through Funko’s e-commerce channel; and
• Driving supply chain improvement through initiatives across planning, logistics and inventory management.

The Company expects its 2020 net sales growth rate to be in the high-single-digits to low-double-digits. Additionally, the Company anticipates that top line trends will improve gradually throughout 2020 and will be largely weighted toward the second half of the year, with net sales in the first half expected to be down low-single-digits to flat compared to the first half of 2019. Funko plans to provide expanded guidance for 2020 in connection with the release of fourth quarter and full year 2019 financial results on March 5, 2020.

Mr. Mariotti continued, “In 2020, we expect growth to be driven by strength in our Pop! and Loungefly brands, continued expansion in under-penetrated international markets and new product introductions in toys and games. Our teams will be focused on broadening Funko’s offerings and global reach, positioning us to continue delivering strong top line growth over the long-term. At the same time, we are enhancing our operations to drive efficiency and gain leverage in our model.”

Fourth Quarter and Full Year 2019 Conference Call and Webcast

Funko will report fourth quarter and full year financial results after the market closes on Thursday, March 5, 2020. The Company will host a conference call to discuss the results and Funko’s 2020 strategies and outlook, followed by Q&A, at 4:30 p.m. Eastern Time. The call can be accessed by dialing (833) 227-5847 or (647) 689-4074 and referencing passcode 6565388, or visiting the Investor Relations section of the Company’s website at https://investor.funko.com/. A replay of the webcast will be available for one year.