For the quarter ending June 30th, Funko reported a $40.5 million loss and a 22% drop in sales, compared with the same period a year ago, as the company grapples with a rapidly changing economy and the addition of tariffs.
In May, Funko said it would cut 20% of its global workforce in response to higher costs from U.S. tariffs on countries, such as China, where many of its pop culture products are made.
In June, the cuts were extended to CEO Cynthia Williams, who was ousted just 14 months after being hired to reverse a postpandemic slide in sales at Funko.
That all leaves Funko, founded in Snohomish in 1998, with the sort of split-identity more befitting for some of its action figures.
“Funko has solid consumer demand and a lot of great collectible products that are proven winners,” said James Zahn, editor-in-chief at The Toy Book, a trade publication. “But behind the scenes, they have a ton of organizational challenges that are now exacerbated by … all of the tariff issues.”
Funko expects tariffs and related disruptions to boost expenses by around $40 million this year, company officials said during a Thursday call with industry analysts.
But the company also said it has moved quickly to soften the effects of tariffs, by raising prices in the U.S. and shifting production from China to Vietnam and other countries that face lower U.S. tariffs.
According to The Wall Street Journal, Funko planned to reduce the share of its production in China from 30% in April to just 5% by the end of the year.
“We continue to expect to fully offset the financial impact of incremental tariffs within the current year,” Yves LePendeven, chief financial officer, said on Thursday’s call.
Funko faces more challenges.
For one, the company is still dealing with growing pains from a pandemic surge, when sales doubled from around $650 million in 2020 to around $1.3 billion in 2022.
As with many consumer products companies, Funko’s sales were skewed as many of its customers, stuck at home and “flush with cash” from federal pandemic funds “were blowing it on collectibles,” said Zahn.
The company, which had already been on a growth tear, expanded rapidly. It acquired Mondo, maker of high-end pop culture products, in 2022, and opened stores in Dubai and Abu Dhabi.
That growth strained fulfillment operations and led to so much excess inventory that in 2023 Funko said it would have to destroy tens of millions of dollars of products, according to Supply Chain Dive, a trade journal.
And once the surge in buying stopped, sales plummeted.
Funko has responded with cutbacks. In 2022, it laid off 258 workers, according to a state notification and the following year said it would reduce its product line by nearly a third, which would mean more job cuts.
The broader uncertainty around the economy poses unique challenges for the niche of collectibles purchases, said Zahn.
Sales of conventional toys tend to hold up even in a recession because “parents and grandparents always want to do right by their kids,” said Zahn.
But for the older customers who make up a lot of the collectibles market — “kidults,” in industry slang — fears of a souring economy could dampen discretionary purchases such as collectibles, he said.
In the latest quarter, sales of “core collectibles” were down nearly 16%.
That may also be a problem for Funko’s pricier lines, including the Loungefly line of bags, backpacks and other accessories it acquired in 2017. Loungefly sales fell by 23% in the most recent quarter
Funko executives struck an upbeat tone on Thursday’s call, and predicted the second half of the year would see steady improvements. “Funko’s best chapters are still ahead,” said board member Michael Lunsford, who replaced Williams as Funko’s interim CEO.
Zahn agreed, with caveats. He said the company still faces many risks as it tries to reshape its global supply chain and navigate a possible recession.
“Funko is certainly a viable company, but they have a lot of work to do.”
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