FUNKO Returning To Core Products After Layoffs Last Week At HQ2 In Downtown Everett

In a press release FUNKO, headquartered in Everett, Washington and maker of licensed pop culture products yesterday announced plans to re-focus their energies on their core products. Last week employees at their HQ2 office in downtown Everett were greeted with a sign on their front door instructing them to refer to a corporate announcement regarding workforce reduction.

Here’s a partial copy of a press release outlining their 2nd Quarter 2023 financial results and offering a bit more information. Click here to see the full release.
Second Quarter Financial Results Summary: 2023 vs 2022

Net sales were $240.0 million for the 2023 second quarter versus $315.7 million for the 2022 second quarter

Gross margin was 29.2% for the 2023 second quarter versus 32.7% for the 2022 second quarter

SG&A expenses were $85.6 million for the 2023 second quarter versus $82.7 million for the 2022 second quarter

Net loss was $75.9 million, or $1.54 per share, for the 2023 second quarter, which includes a company established full valuation allowance against its deferred tax asset of $138.1 million, offset by an adjustment to the tax receivable agreement liability of $99.6 million, the net effect of which was a non-cash charge of $38.5 million. This compares to net income of $15.8 million, or $0.28 per diluted share, for the 2022 second quarter

Adjusted net loss* was $22.3 million, or $0.43 per share, for the 2023 second quarter versus adjusted net income* of $14.0 million, or $0.26 per diluted share per share
Negative adjusted EBITDA* was $7.6 million for the 2023 second quarter versus adjusted EBITDA* of $31.8 million for the 2022 second quarter

“For the 2023 second quarter, net sales and adjusted EBITDA* loss were within our guidance, and SG&A expenses were better than expected and an improvement over the preceding quarter,” said Michael Lunsford, recently appointed Interim Chief Executive Officer of Funko. “Ongoing inventory de-stocking by some of our larger U.S. wholesale customers impacted our topline and profitability. We anticipate that this softness will continue in the second half of this year and, as a result, we have lowered our full-year guidance.

“We have also begun re-shaping the company to focus our energies and resources on Funko’s core products. To that end, we are implementing a strategic plan to reduce the number of product lines and complexity in our business. Putting our fans and brand first, running the business like a lean startup and investing in areas where we can grow profitably, will guide and inform every decision we make.

“Over the remaining two quarters of the current year, we expect sales and gross margin to meaningfully ramp up compared with the recently completed second quarter. We also expect SG&A as a percentage of sales to decrease, primarily due to continuing cost reductions and operational improvements. Looking out a bit further, we see our financial performance rebounding in 2024, based in part on a full year of benefit to our gross margin and cost structure from our improvement efforts, the launch of Pop! Yourself, currently planned for later this month, and a return to more normalized sales to our wholesale customers.”

Restructuring, Cost Reduction Initiatives

Earlier this year, the company implemented an operational improvement and cost reduction plan that, once completed, is expected to generate annualized cost savings of between $155 million to $185 million.

“We are ahead of schedule on the key elements of our cost reduction plan,” said Steve Nave, Chief Financial Officer and Chief Operating Officer. “To date, we’ve made excellent progress on the disposal of inventory that was in excess of our warehouse capacity, which has enabled us to process customer orders more quickly and eliminate certain related storage costs and container rental charges.

“Despite this progress, last week we implemented a plan that includes, among other things, another round of cost-lowering initiatives and further reductions to our workforce of approximately 12%, or 180 positions. These actions are estimated to generate approximately $38 million of incremental annualized savings, of which approximately $20 million is related to the workforce reduction.”

Leadership Changes

As previously announced, Brian Mariotti took a leave of absence and ceased serving as the company’s CEO, and Michael Lunsford, a member of Funko’s board of directors since 2018, was appointed interim CEO. The company’s board of directors plans to shortly commence a search for a permanent CEO; the search will include both internal and external candidates.