Funko(US:FNKO)2023-05-05 01:51Financial Data and Key Metrics Changes - In Q1, the company reported net sales of $252 million, at the top end of guidance, with a direct-to-consumer (D2C) channel growth of 61% to $42 million [16][21][22] - The wholesale business declined by 26% year-over-year to $210 million due to cautiousness from retailers regarding restocking and inventory levels [16][17] - Gross margin was 20%, impacted by a $30 million inventory write-down; adjusted gross margin would have been approximately 32% without this write-down [16][17] - Adjusted EBITDA was negative $14 million, exceeding expectations by more than $30 million [16][17] Business Line Data and Key Metrics Changes - Core collectible brands' net sales decreased by 23% to $183 million, while the Loungefly brand grew by 4% to $52 million [16][17] - Other brands, including toys and games, saw a decline of 13% to $16 million [16] Market Data and Key Metrics Changes - Net sales in the US declined by 23% to $178 million, while European sales grew by 4% to $59 million; other international regions saw a 23% decline to $15 million [16][17] - D2C now represents approximately 17% of net sales, highlighting strong brand enthusiasm despite a challenging retail climate [21][22] Company Strategy and Development Direction - The company is focusing on operational improvements and has made significant progress in cost reductions, aiming for annualized improvements of $150 million to $180 million [25][26] - A strategic partnership with Fanatics was launched, targeting the sports collectibles market, with plans for expansion in upcoming NFL and NBA seasons [12][21] - The company is taking a cautious approach for the second half of the year, reflecting macroeconomic uncertainties and adjusting full-year sales guidance to a decline of 5% to 10% [17][21] Management's Comments on Operating Environment and Future Outlook - Management noted that while the brand has shown resilience, external factors are impacting short-term performance, leading to a more conservative outlook for the second half of the year [12][21] - The company remains confident in its ability to navigate through macro uncertainties and is focused on long-term value creation for shareholders [12][17] Other Important Information - The company completed a 10% workforce reduction to better position itself for future growth initiatives [15] - Inventory at the end of the quarter totaled $192 million, a decrease of 22% sequentially but an increase of 19% year-over-year [17] Q&A Session Questions and Answers Question: What allowed the company to clear out inventory more quickly? - Management indicated that they acquired short-term expansion space in Arizona to stage inventory and found a third-party agent to accept trailers on behalf of carriers, which helped eliminate per diem charges [27][33] Question: What contributed to the change in revenue guidance for the back half of the year? - Management explained that the sales drop was a reaction to macro-level conversations with retail partners, who are reducing inventory across all categories due to cautiousness [36][38] Question: Why did Loungefly perform better than other product categories? - Management did not provide specific details on this question during the call, indicating that further granularity would not be available at that time [39][45]