Andre, Host/Moderator: Hi, everyone. I’m here with Josh and Eve. We’re here at San Diego Comic-Con. Seems like the perfect place to have this discussion about Funko and its business, because so much of Funko is here and has been here for the past 20 years.
Josh, CEO, Funko: Yeah. I often think there wouldn’t be the Funko that exists today without Comic-Con. It’s a massive highlight of the year for us. We’re excited you were able to join us.
Andre, Host/Moderator: Yeah.
Josh, CEO, Funko: Excited to take a little bit of a walk around in a bit here.
Andre, Host/Moderator: Well, I’ve been to your booth several times over the years and now we finally come together like this. Before we get into the nitty-gritty, that’s something I want to talk about, because you’ve been here for 20 years. The booth has grown, the product has grown, the fandom has grown. Just what is that general feeling? Does it feel like a celebration when you come to San Diego every year?
Josh, CEO, Funko: It does. You’ll see the folks who work in our booth are largely fans from all over the world, who are taking time off of work and out of their lives to come and hang out here and help interact. It’s also a great way for just these community of fans from all across the country and the world to come and celebrate Funko, experience the brand, buy some incredibly coveted limited edition products. It’s flattering and humbling and wild to see the lines at our booth for people who are here to get the exclusive product you can only get here at Comic-Con.
Andre, Host/Moderator: Absolutely. It’s obviously great to see this fandom that happens here, but I’ve seen those exclusives get off those shelves, I know some finances happen here as well. Let’s get into that. How has this quarter been for Funko?
Josh, CEO, Funko: Yep. Numbers have been great, it’s really a reflection of our Make Culture POP! strategy gaining traction. We’re really pleased to report sales were up 7% in the quarter, that’s building on the growth from Q1. For the first half of the year, we were up 6%. The good news is it wasn’t really one product or region or IP, it was really broad based. In the U.S., we were up 3%, in Europe we were up 19%, from a product perspective, our core collectibles were up 9%. Although Loungefly was down 2%, it was an improving trend from what we saw in Q1, we’re really pleased with the better SKU productivity.
Andre, Host/Moderator: Very nice. I’m going to say that increase in the U.S., about 0.045%. That might just be me. No, that’s great to hear. Josh, what are some highlights of this quarter with Funko?
Josh, CEO, Funko: Well, Eve mentioned the momentum that we’re seeing. I think a big part of that is we talked a lot about the Make Culture POP! strategy, and I think we’re really seeing that go from strategy to execution and take form. It’s really about culture sensing and creating demand across the entertainment and pop culture landscape, creativity, giving it form and products, then commerce, putting it in fans’ hands all over the world.
Andre, Host/Moderator: Yeah.
Josh, CEO, Funko: On the culture side, it’s really about how we get faster at sensing what’s happening and then turning that into product. The last two quick things I’ll mention is creativity on the product side. We’re going to take a walk around in a little bit, and you’re going to get to see our brand new Pop! Mystery platform. That’s really about taking what people love about Pop! and just turning it into a broader experience, and a new product format. So excited to show you how that’s about to materialize. It’s great to sort of see that Make Culture POP! strategy coming together and really moving from idea to execution in the quarter.
Andre, Host/Moderator: Yeah. It’s interesting because it seems like you, obviously there’s some franchises you’re ready and prepared for, like Avengers: Doomsday, for example, or something like that. You’ve got to kind of predict the popularity, and then you have Obsession or like last year with Demon Slayer, where it’s like, boom, this explosion out of nowhere. How do we jump on that as fast as possible? Is that a constant turning strategy between predicting versus following up on a trend?
Josh, CEO, Funko: It is. I think because we can’t predict those things, what we really have to do is build this repeatable offense. Having sort of upstream teams in place that are really ready very quickly to make the licensing deals, the capacity internally to design the product, to manufacture them, and get them to shelves, then those retail relationships, either with wholesale partners or our own D2C channel, to get those out to consumers quickly.
Andre, Host/Moderator: Yeah.
Josh, CEO, Funko: I think the magic for us is that we’ve really sort of honed that engine of sensing demand, turning it into products, and getting into our fans’ hands in a really repeatable way, and we’re starting to see that happen more and more.
Andre, Host/Moderator: You only have to do that with movies, television, sports, anime.
Josh, CEO, Funko: Only. Exactly.
Andre, Host/Moderator: Video games.
Josh, CEO, Funko: Exactly.
Andre, Host/Moderator: Pop! culture in general.
Josh, CEO, Funko: Yeah. Maybe Jimothy the raccoon that’s taking the world by storm right now. Well, should we go take a look at-
Andre, Host/Moderator: I think we should. I’m very excited to see what you have here on the show floor.
Josh, CEO, Funko: All right, great. Let’s go check it out. After you.
Andre, Host/Moderator: All right, let’s check out what’s over here.
Josh, CEO, Funko: This is Husnal, our Chief Product Officer.
Andre, Host/Moderator: Hi, Husnal. Nice to meet you.
Husnal, Chief Product Officer, Funko: Nice to meet you.
Andre, Host/Moderator: Pleasure. All right, obviously got some great products here, there’s a special one here.
Husnal, Chief Product Officer, Funko: Oh, yeah.
Andre, Host/Moderator: This Pop! Mystery. Can you tell us about that?
Husnal, Chief Product Officer, Funko: Yes. At San Diego Comic-Con over here, we are launching our Pop! Mystery line.
Andre, Host/Moderator: Oh, yeah. Let’s see if this is the Flora pack right here?
Husnal, Chief Product Officer, Funko: Yes, this is the Flora pack.
Andre, Host/Moderator: Okay, tell us about Flora.
Husnal, Chief Product Officer, Funko: Flora is a plant line that we started off as a regular standard Pop!, and now we’ve made it into a Mystery collection piece.
Andre, Host/Moderator: Oh.
Husnal, Chief Product Officer, Funko: It is absolutely fabulous.
Andre, Host/Moderator: I love that. It seems here that you can get one of six possible ones in common.
Husnal, Chief Product Officer, Funko: Yeah. Each box has six commons.
Andre, Host/Moderator: Yeah
Husnal, Chief Product Officer, Funko: With rare cards, we have the chase as well as the global one of one chase, which is what differentiates us from the market and is extremely exciting.
Andre, Host/Moderator: Did you say one of one?
Husnal, Chief Product Officer, Funko: One of one.
Andre, Host/Moderator: There’s only one of these out there.
Husnal, Chief Product Officer, Funko: Only one of these. Imagine if you’re a fan.
Andre, Host/Moderator: Oh my God.
Husnal, Chief Product Officer, Funko: Yes.
Andre, Host/Moderator: That’s wild. Well, I got to see which one is inside, right?
Husnal, Chief Product Officer, Funko: Let’s open it.
Andre, Host/Moderator: Okay. What if this is the worldwide chase? That’d be wild, wouldn’t it? All right, let’s open this one up.
Josh, CEO, Funko: Lucky guy. Let’s see.
Andre, Host/Moderator: Ooh, it’s pretty. I like that. Oh, it’s a little wild and cute. Oh.
Josh, CEO, Funko: Cute. Not the one of one, but it’s still cute.
Andre, Host/Moderator: It’s not the one of one, but I feel like it.
Josh, CEO, Funko: No, but I think it’s great, and we’re obviously revealing this here at Comic-Con, but there’s other sort of licensing partners. This, as you mentioned, is original IP.
Andre, Host/Moderator: Yeah
Josh, CEO, Funko: that we created.
Andre, Host/Moderator: Yeah.
Josh, CEO, Funko: Of course, we’re also launching with some of the biggest IP in the world as well.
Andre, Host/Moderator: Yeah. Like who, perchance?
Husnal, Chief Product Officer, Funko: With One Piece, as well as with the Warner Bros.
Andre, Host/Moderator: Yeah
Husnal, Chief Product Officer, Funko: with the horror line.
Andre, Host/Moderator: Speaking of Warner Bros. horror, One Piece, and Flora, they have a little bit of an activation going on over here.
Nick, Head of Boutique Brand Deals, Funko: They are giving away the Flora line in that activation, so you might want to go check it out.
Andre, Host/Moderator: I think I do want to check it out.
Josh, CEO, Funko: Yeah. Let’s go take a look.
Andre, Host/Moderator: Okay, let’s see what this is here. Got a knock.
Josh, CEO, Funko: Give it a knock. Yeah, let’s see.
Andre, Host/Moderator: Flora? Flora? Flora?
Josh, CEO, Funko: Oh, look at that.
Andre, Host/Moderator: Oh, hey.
Josh, CEO, Funko: Gary, this is Nick, our head-.
Andre, Host/Moderator: Hi, guys
Josh, CEO, Funko: of our boutique brand deal.
Andre, Host/Moderator: Oh, nice to meet you.
Nick, Head of Boutique Brand Deals, Funko: Come on in. Come on in.
Andre, Host/Moderator: Oh my gosh. Wow, this is beautiful.
Nick, Head of Boutique Brand Deals, Funko: Welcome to the Pop! Flora Greenhouse.
Andre, Host/Moderator: Tell me about what it’s like to create experiences for people at San Diego Comic-Con when it comes to Funko. Obviously, they’re getting the pops, but you’re giving a more immersive experience of the brand, right?
Nick, Head of Boutique Brand Deals, Funko: 100%. This is such a special opportunity to be at San Diego Comic-Con. We really consider this sort of our World Cup, our Super Bowl all in one.
Andre, Host/Moderator: Yeah.
Nick, Head of Boutique Brand Deals, Funko: It just provides us an amazing opportunity to be on the ground with our fans. As part of the launch of Pop! Mystery, we created these mystery game rooms. This is the Pop! Flora Greenhouse, and we really wanted to bring our own IP and our fandom to life. This isn’t just a banner ad. This isn’t a shelf display. This is a greenhouse that you can stand in to experience this world yourself.
Andre, Host/Moderator: I really like that because it almost brings more into the fandom-
Nick, Head of Boutique Brand Deals, Funko: Exactly
Andre, Host/Moderator: when you’re able to do some kind of experience along with the product.
Nick, Head of Boutique Brand Deals, Funko: 100%.
Andre, Host/Moderator: Let’s see some more stuff here.
Nick, Head of Boutique Brand Deals, Funko: Let’s get you out of here.
Andre, Host/Moderator: All right.
Nick, Head of Boutique Brand Deals, Funko: Thank you for stopping by.
Andre, Host/Moderator: Yeah. This is really cool. We also have a One Piece one here, and WB and Pop! Demon Slayer. Thanks again, Nik. That was really cool.
Josh, CEO, Funko: Good. Yeah.
Andre, Host/Moderator: Yeah.
Josh, CEO, Funko: All right. Let’s take a look around this way.
Andre, Host/Moderator: Okay.
Josh, CEO, Funko: Obviously, we talked about this earlier, selling a lot of exclusive products that you can only get here.
Andre, Host/Moderator: Yes.
Josh, CEO, Funko: Obviously massive lines of people, which is super humbling. Look, I think what you experienced and saw over in the mystery room is sort of our first step into doing something that’s more experiential.
Andre, Host/Moderator: Yes.
Josh, CEO, Funko: one of the most compelling experiences that we’ve become known for, both online and soon rolling out into some wholesale partners, is the Pop! Yourself.
Andre, Host/Moderator: Yes
Josh, CEO, Funko: experience.
Andre, Host/Moderator: I’ve been able to do that at the Funko Hollywood Store.
Josh, CEO, Funko: You can do it at the Hollywood Store. There’s a couple stores we’ll announce soon where you’ll be able to start doing it as well. You can do it at the Inter Miami Stadium.
Andre, Host/Moderator: Okay
Josh, CEO, Funko: with the football club there.
Andre, Host/Moderator: Okay.
Josh, CEO, Funko: Of course, here celebrating the upcoming launch of Spider-Man: Brand New Day.
Andre, Host/Moderator: Wow.
Josh, CEO, Funko: We have a great Pop! Yourself experience as well for folks.
Andre, Host/Moderator: Wait, so.
Josh, CEO, Funko: here at Comic-Con.
Andre, Host/Moderator: Are you telling me I can Pop! Yourself as Spider-Man right now?
Josh, CEO, Funko: You sure can.
Andre, Host/Moderator: Oh.
Josh, CEO, Funko: A limited edition. You can only get it here.
Andre, Host/Moderator: Okay.
Josh, CEO, Funko: Obviously sort of a version of our kiosk experience, where you can pick your body type, your skin tone, your hair.
Andre, Host/Moderator: Yeah
Josh, CEO, Funko: your clothes and like I said, some very specific Spidey outfits that you can only get here at Comic-Con. All right, you want to give it a try?
Andre, Host/Moderator: I have to Pop! Yourself here.
Josh, CEO, Funko: All right. Yep.
Andre, Host/Moderator: Let me start building. You said this is an exclusive Spider-Man: Brand New Day Pop! Yourself, right?
Josh, CEO, Funko: Exclusive only here to the Comic-Con.
Andre, Host/Moderator: All right. Let me pick my body type here. Nice. Okay, let’s go with some skin tone. Love that. All right.
Josh, CEO, Funko: Yeah, you get to really customize it here. Your lashes.
Andre, Host/Moderator: Yeah.
Josh, CEO, Funko: Your hair.
Andre, Host/Moderator: Lots of different hairstyles. Oh, there we go. This looks like me. I like that, I like that. Very nice.
Josh, CEO, Funko: Okay.
Andre, Host/Moderator: Got to do the glasses.
Josh, CEO, Funko: Of course.
Andre, Host/Moderator: Glad you have some glasses options.
Josh, CEO, Funko: Iconic. It’s your trademark.
Andre, Host/Moderator: Yeah, there we go. Okay.
Josh, CEO, Funko: Yes, then some exclusive accessories as well.
Andre, Host/Moderator: We got a VIP badge. Perfect for Spider-Man going to Comic-Con. All right. You can hold the mask in his hand.
Josh, CEO, Funko: Like it, yep.
Andre, Host/Moderator: We also got some web shooting here. All right, I’m going to go with that mask. I can pick another one, right? Yeah.
Josh, CEO, Funko: Yeah, there you go.
Andre, Host/Moderator: Let’s definitely do the web. Very nice. Looks really cool.
Josh, CEO, Funko: Neat.
Andre, Host/Moderator: I see you have a little Hulk here. Is that also exclusive to here?
Josh, CEO, Funko: It comes with a Bitty Pop! Hulk.
Andre, Host/Moderator: Oh, that’s awesome.
Josh, CEO, Funko: Yeah.
Andre, Host/Moderator: All right, I get a Bitty Pop! Hulk with my Spider-Man outfit here. All right, got to package that Pop!. Pop!.
Josh, CEO, Funko: Look at that.
Andre, Host/Moderator: Wow. It’s me in the Spider-Man outfit. There’s the web shooting, there’s the mask, there’s the exclusive Hulk Pop! in there. Oh, that is great. That’s a really cool experience.
Josh, CEO, Funko: Yeah
Andre, Host/Moderator: to come here if you’re excited for Spider-Man: Brand New Day, if you’re excited for Pop! Yourself, you get to have this experience right here inside of your Comic-Con.
Josh, CEO, Funko: Obviously, the ability to create these sort of geo-specific experiences is something that we’ll start to roll out and test later this year with some retail partners.
Andre, Host/Moderator: Oh.
Josh, CEO, Funko: You can imagine something like this starting to pop up in other parts of the world and really create something unique and specific to a location, which is really great.
Andre, Host/Moderator: Oh, that’s interesting.
Josh, CEO, Funko: Yeah.
Andre, Host/Moderator: I was thinking you could do this at the Funko store, but now you’re saying there might be other stores.
Josh, CEO, Funko: Some other places as well, yeah
Andre, Host/Moderator: around the world to do this in?
Josh, CEO, Funko: Yeah.
Andre, Host/Moderator: All right. Stay tuned for that, huh?
Josh, CEO, Funko: All right. Let’s go. Let’s check out the next part of the booth here.
Andre, Host/Moderator: All right.
Josh, CEO, Funko: All right, let’s go by the Mondo booth.
Andre, Host/Moderator: Oh, yes.
Josh, CEO, Funko: As you know, Mondo is sort of our premium collector toy line.
Andre, Host/Moderator: Yes.
Josh, CEO, Funko: These guys are amazing artists.
Andre, Host/Moderator: I’ve got some pieces in my home right now.
Josh, CEO, Funko: Okay, great. We’re going to cut through the crowds here.
Andre, Host/Moderator: Hey, how’s it going?
Nick, Head of Boutique Brand Deals, Funko: How’s it going, man?
Andre, Host/Moderator: Good to see you.
Nick, Head of Boutique Brand Deals, Funko: Yeah, yeah.
Andre, Host/Moderator: Okay. I am a huge Ninja Turtles fan, so I’m very excited about what’s going on here.
Nick, Head of Boutique Brand Deals, Funko: Yeah. This is a TMNT Mondoverse, where our partnership with Paramount has given us permission and access to create our own what if scenario sequel story to the ’90s films.
Andre, Host/Moderator: Nice.
Nick, Head of Boutique Brand Deals, Funko: We’re bringing in all the characters and whimsy and wildness of the comics, video games, and cartoons into this real world, gritty, man in a suit vibe.
Andre, Host/Moderator: Yeah
Nick, Head of Boutique Brand Deals, Funko: that the movies have. Paramount has given us a blessing to reimagine all of the character history.
Andre, Host/Moderator: Okay.
Nick, Head of Boutique Brand Deals, Funko: For example, we’re introducing new versions of the Punk Frogs as kid brothers that Mikey finds in the sewers.
Andre, Host/Moderator: Nice.
Nick, Head of Boutique Brand Deals, Funko: That’s the kind of story expansion that we’re able to do with the Mondoverse. It’s our sandbox.
Andre, Host/Moderator: I was curious about that because you have Funko and Mondo under the same roof.
Nick, Head of Boutique Brand Deals, Funko: Yeah
Andre, Host/Moderator: Obviously you’re doing different types of products.
Nick, Head of Boutique Brand Deals, Funko: Yes.
Andre, Host/Moderator: Have you seen this interesting transition in any kind of way from Funko to Mondo as far as getting more detailed or an upgrade?
Mondo Artist/Creative Lead, Funko/Mondo: Oh, well, it’s like we have the artists in-house to do all the techniques, right?
Andre, Host/Moderator: Right.
Mondo Artist/Creative Lead, Funko/Mondo: What we get from Funko is the support, the credibility, and the doors being blasted open for us.
Andre, Host/Moderator: Yes
Mondo Artist/Creative Lead, Funko/Mondo: To get licenses and access and relationships that we otherwise might not be able to get.
Andre, Host/Moderator: Yeah.
Mondo Artist/Creative Lead, Funko/Mondo: It’s really an amazing pairing that creates another collectible through line. You might have been collecting Funko Pop! for a long time, and you have a beautiful collection of them, and you’re just like, "I’m a Turtles guy. I got all the Turtles Pops, but I also want a realistic one-sixth scale.
Andre, Host/Moderator: Yeah.
Mondo Artist/Creative Lead, Funko/Mondo: You can stay in-house at Funko through Mondo and have a really diverse collection.
Andre, Host/Moderator: Oh.
Mondo Artist/Creative Lead, Funko/Mondo: Thank you for stopping by, man.
Andre, Host/Moderator: Dude.
Mondo Artist/Creative Lead, Funko/Mondo: We’re so proud of it. I can’t wait to show you guys more.
Andre, Host/Moderator: This is awesome, man. Oh my gosh. It’s so much nostalgia here too, man. Real Ghostbusters, Masters of the Universe. Street Sharks?
Mondo Artist/Creative Lead, Funko/Mondo: Yes.
Andre, Host/Moderator: All right.
Josh, CEO, Funko: One more stop.
Andre, Host/Moderator: All right.
Josh, CEO, Funko: One more stop on this tour.
Andre, Host/Moderator: All right. We’ve seen the booths. We’ve seen the fans having a wonderful time buying the Pops, enjoying the experiences. This feels like a good out to go on in San Diego.
Josh, CEO, Funko: It does. We’re in the big Pop! mystery box.
Andre, Host/Moderator: Yeah.
Josh, CEO, Funko: I think the mystery is going to be where we end up after this, after this box closes. For now, should we go and take some investor questions?
Andre, Host/Moderator: I think we should. Thank you so much, man.
Josh, CEO, Funko: Yeah, you ruined the mystery.
Andre, Host/Moderator: I just remembered. They told me that one exclusive IP is coming up soon. Well, that was fast. One minute we’re dodging crowds at Comic-Con, and next we’re here in the Funko office. Somehow, Josh, you made it all the way to London.
Josh, CEO, Funko: I am. I’m across the pond, spending some time with our EMEIA team and partners. It’s a late night, but excited to be reunited with you here live.
Andre, Host/Moderator: Absolutely. The magic mystery box can do multiple locations, apparently. Multiple drop-offs. Now that we shared all the fun stuff at Comic-Con, Yves, can you tell us a little bit more about the financials?
Yves, CFO, Funko: Sure, I’d be happy to. Like I mentioned earlier, sales were up 7% in Q2 and 6% in the first half. In addition to that, we reported a gross margin of 56.6% compared to 32.1% last year. To be clear, our Q2 gross margin benefited from the recognition of a $25 million credit that was related to the expected tariff refunds and release of accrued tariffs. Just for sake of comparison to our guidance range of 42%-44%, our gross margin normalized for that $25 million credit was 44.4%, which was still a record high for Funko. SG&A expenses improved as a percentage of sales by over 400 basis points compared to last year. Finally, adjusted EBITDA was $40.9 million compared to negative adjusted EBITDA of $16.5 million last year.
Excluding that tariff-related benefit, we delivered adjusted EBITDA of $15 million, well above our guidance range. I’d also like to highlight that in the quarter, we executed a sale of our IEEPA tariff claims, a total of $22 million for proceeds of $19 million. We used that to pay down debt by a total of $15 million, making more progress on deleveraging our balance sheet.
Andre, Host/Moderator: Wow, those are great results. What about the outlook?
Yves, CFO, Funko: For the outlook, we’re reiterating our net sales guidance of flat to up 3%, and we’re raising our adjusted EBITDA guidance to $100 million-$110 million. That raise is driven by, again, that $25 million tariff credit from Q2, as well as $5 million from improved profitability.
Andre, Host/Moderator: That’s great. Thank you, Yves. Josh, what can investors expect in the second half of the year from Funko?
Josh, CEO, Funko: Well, I think the results that Yves just talked about this quarter really highlight the model that we’re building. Sensing demand earlier, creating more repeatable ways to take that demand and create products that can scale selectively through the right retail channels around the world. I think in the second half, our consolidated sales will reflect more of a normalized year-over-year shipment comparison, and I think we’ll continue to be prudent, just given some of the broader consumer environment that’s out there. Also, just to double back on one of the things Yves mentioned earlier about Loungefly and the SKU reductions that we had discussed. We’ve made some meaningful progress in that area. I definitely would not declare the work there finished. We have exciting plans, but still ways to go.
The encouraging signal in Q2 was that, as Yves said, sales were down 2% with approximately 50% fewer SKUs, really seeing that increased productivity. For the remainder of the year, importantly, I think the headline is that we definitely expect the core collectibles to continue growing in the second half. When you step back from it, the core is growing, Loungefly is becoming healthier, our underlying earnings power is improving, and Q2 is really a strong and early proof point that everything we’ve talked about in the Make Culture POP! strategy is underway, and our focus is now just about consistent execution.
Andre, Host/Moderator: Nice. What are you excited for the rest of the year, particularly in terms of how the way the company is evolving?
Josh, CEO, Funko: Well, there’s a lot to choose from that I’m super excited about. I guess, a couple of things that I would highlight. First, overall is just speed. I’ve talked about this a lot. How do we make sure that we’re part of these really great cultural or entertainment moments while they’re happening? Really the key to speed is being able to sense demand earlier and respond quickly. Hopefully, in some cases, with even less inventory exposure. One thing I’ve mentioned a couple of times, but excited to more formally announce now. We formalized a partnership with HP on the additive manufacturing front. This is part of our Hyper Strike strategy, which means we’re able to create products in a matter of weeks instead of months or sometimes years that go into the traditional manufacturing process.
We’ve already sort of launched our first product with this partnership at Fanatics Fest a couple of weeks ago. We did a really awesome mashup between WWE and the Garbage Pail Kids. The product sold out at Fanatics Fest. They’re selling for multiples more than what we originally sold them for on eBay. We’re really excited to work with HP on that front. By the way, our normal quick-strike offense from a speed standpoint has also continued to be off and running. We had pre-orders for Heated Rivalry, Off Campus, and Obsession. A lot of surprise entertainment hits out there that we’ve been able to get it out for pretty quickly, including a pre-order when the Knicks won the NBA championships. The night that they won, we went live with a championship five-pack. We’re really kind of building that repeatable speed capability.
All right. Well, the second thing I’ll mention is we actually are announcing today that we’re hiring a new Chief Commercial Officer. It’s a role that we’ve had open for a little bit now. Kristen Hamilton. She joins us most recently from Crunchyroll, where she was senior vice president, head of global e-commerce and direct to consumer. Obviously excited about her commercial experience there and her experience in the anime world, which is obviously a huge fandom for us. Before Crunchyroll, she spent about 15 years at Hasbro across a ton of different leadership roles, global e-commerce, consumer product strategy, transformation, brand management, marketing. She’s done a ton there. She officially starts on August 24th, I guess that’s another big exciting thing for me in the second half of the year.
Andre, Host/Moderator: All right. Well, the second half’s looking promising. Nice. We’re going to take some questions from some analysts right now. First one is from Eric Wold at Texas Capital. How would you characterize the level of wholesale order demand in the third quarter of 2026 into the upcoming holiday season?
Yves, CFO, Funko: Sure. I’ll take that one. I think what we’re seeing this year, we continue to have about three or four months visibility with our wholesale customers placing orders. I would say compared to last year, we’re seeing a return of a little bit more normalized seasonality, like Josh mentioned. Last year, Q2 was pretty disrupted, post-Liberation Day announcement, then there was an element of kind of catching up with people’s orders in Q3 and into Q4. This year, obviously we’re kind of shipping orders as our customers want them. We’re seeing great POS trends in our wholesale channel globally. Our POS sales were up 6% year-over-year. Again, always looking for that balance between sell-in and sell-through, which we saw in Q2. By all the metrics that we gauge, the business is healthy, inventory in the channel’s healthy.
We see that there’s a good demand from our wholesale partners and from our end customers as well.
Andre, Host/Moderator: Okay. Another question. What are you seeing from your major retail partners around shelf space allocation in recent quarters and into the holiday season? What categories are likely to see the most benefit from those gains?
Josh, CEO, Funko: Well, look, I think I’ll start off just kind of by the fact that I’m here in Europe and have been spending some time with our European retailers. We’ve secured extra diorama displays in about 350 stores across Smyths, which is one of the most preeminent toy retailers in Europe, and certainly even I would say in the world. HMV, Gift Universe, a bunch of independent retailers. Look, those are sort of like fully designed, kind of built-out displays that really showcase our product out of the packaging on shelves. We’re also seeing increase some end cap displays at Smyths for Bitty Pop! If you walk around the city right now, we have pretty high profile windows at Hamleys, another iconic toy retailer that sort of is a Disney and Funko collaboration that’s really giving us a lot of high visibility in prime tourist destinations.
Actually right now even we have another partnership across Sony, Disney, with HMV, on a big Spider-Man activation at HMV Oxford Street. Things like Bitty Pop! have continued to lead incremental shelf space for us. Things like Spider-Man have led to incremental placement with pallet trains at Walmart. I think, alongside these big entertainment releases and alongside our new and growing product lines, we’re seeing it generate incremental shelf space for us at retail.
Andre, Host/Moderator: Nice. I look forward to seeing people post some photos with photo ops with all of those displays there. Now we have some questions from Keegan Cox at D.A. Davidson. In regards to the strong entertainment slate we have had this year, which franchises or categories are generating the strongest demand? Any highlights this quarter, and what properties are you most excited for in the second half of the year?
Josh, CEO, Funko: Thanks. Thank you, Keegan, for the question. For us, obviously, a strong content slate always helps. We knew going into this year, or at least suspected, that there would be some big hits, and I think you’re really seeing that in box office attendance and box office records overall. We have a pretty, first I’ll just say, broad base across fandoms. We’ve seen momentum for us across anime, gaming, obviously theatrical, sports, and some of our own programs. I’ll remind everyone in this quarter, I think our top 10 franchises and programs represented about 32% of Q2 sales. Our business is not necessarily dependent on any one property, but they obviously help. Mando & Grogu was great for us. Toy Story 5, which was a massive hit for Disney, also doing really well for us. You saw our Spider-Man: Brand New Day activation at Comic-Con.
That has recently proven to be huge for us, and we’re really glad that we made a bet on that film early on. Couldn’t be more excited for Avengers: Doomsday and what the Russo brothers and Marvel and Disney are going to bring to screens at the end of the year. Beyond that, One Piece and Pokémon in anime and gaming space continue to be huge. Sports delivered. I mentioned, the excitement around the Knicks was somewhat unprecedented for us in the certainly in the world of NBA championships compared to past seasons. The excitement around the World Cup, I think was palpable and reflected in some strong sales for us.
I have to just sort of mention again on the Quickstrike front, but you have movies like Obsession, which kind of came from out of nowhere as a surprise and was a major record-setting box office. We were able to very quickly go on pre-sale for that film, along with things like Heated Rivalry and Off Campus. I’ll even say a personal favorite of mine in this past quarter, a great line of products celebrating the Spice Girls. I’m not just saying that because I’m over in the U.K. right now. I would’ve said that if I were in America as well. Across Loungefly and Funko, a dream come true, honestly, to be able to collaborate with those folks. A pretty broad representation of franchises, Keegan.
Andre, Host/Moderator: All right. Save me a MLB Funko Pop!. I need that. All right. Input and take on the guidance. What are the assumptions that you give to the high and low ends of your guidance? Have you seen any impact from higher input costs like freight?
Josh, CEO, Funko: Sure. I would start by to the upside, especially on sales, I mentioned our order book visibility in Q3, so we feel good about that. Obviously the holiday period in Q4, we have a bit less visibility too, but we’re excited about the content slate. I think obviously any upside would depend on continued sell-through performance. We’re hoping the consumer stays resilient through the holiday period. To the downside, I would call out tariffs. Obviously, we’ve factored in the latest announced tariffs that are in effect of 10%-12%, but for everyone who’s following the news, that there can continue to be surprises on that front. Again, chose to be prudent within our gross margin guidance in particular.
As far as freight costs or raw materials costs, we’re cautiously optimistic, but obviously any kind of higher oil prices and things like that could negatively impact us as well.
Andre, Host/Moderator: Understood. All right. Here’s some questions from Stephen Laszczyk at Goldman Sachs. Funko noted that point-of-sale tailwinds in the first quarter entertainment slate carried into early second quarter. Did this positive trend continue through the remainder of the quarter, and what gives management confidence that these trends are sustainable through 2026?
Josh, CEO, Funko: I’ll start with the trends that we saw in Q2. Again, I mentioned in the wholesale channel, 6% growth in units year-over-year in POS sales. For the year to date, it’s 9% growth. Again, for the year to date in the U.S., up mid-single digit. In Europe, slightly over 20% POS growth. It’s a really strong trend. We’re loving to see that momentum. I believe based on the content slate and some of the products that we have coming up in the lineup that we should see that trend continue.
That’s kind of what we factored into our guidance.
Andre, Host/Moderator: Okay. To what extent does management expect new formats like Bitty Pop!, Pop! Mystery, and the sports-related launches to be revenue contributors in 2026? What does management view as the key growth levers for Funko in 2026 and beyond, outside of the core Pop! products?
Josh, CEO, Funko: Well, I’ll jump in. I think first on Pop! Mystery, it’s a little bit too early to sort of size that one responsibly. What I think is most important about it, and I think kind of signals a lot of what we’ve been talking about as part of our strategy is that it’s just sort of the platform potential of it. If you think about Pop! Mystery just as another dimension and extension of the core Pop! product, it can really extend across any entertainment franchise, sports. We’re doing it with our own IP that you saw down at Comic-Con with the Flora line. It can go in multiple channels, markets around the world. I would say that blind box craze is showing no signs of slowing down.
For us, I think it’s a unique way that kind of encourages what our fans have always loved, that thrill of the chase, discovery, and then that sort of motivation for repeat participation. They want to try and seek out that one specific item that they love. We’ll keep a close eye on sort of the initial launch and judge sell-through and reorders and consumer behavior and scale based on that. I’d say from a licensor standpoint, we have a pretty exciting and awesome lineup of Pop! Mystery products going all the way through next year. I am feeling encouraged about that one. You mentioned sort of, Stephen, your question, Bitty is just sort of another example that I mentioned we’re seeing incremental placement now at Smyths Around Europe.
Another extension of what people love about Pop and what makes it iconic, but it’s becoming its own platform, appealing to a slightly different consumer, getting us incremental placement. We’ll continue to look at new ways to dimensionalize Pop. We have a few different ideas that are in development that we’ll roll out end of this year and early next year. Look, honestly, there’s about, I would say, half a dozen totally brand-new formats that we have in development that we’ll start to roll out early next year and beyond.
The idea with all of those is trying to establish new platforms for our fans to engage, capitalizing on what we know best around culture and our licensure relationships, and being part of these iconic entertainment and cultural moments, but in new and exciting ways that I think hopefully will set the stage for hopefully the next Pop franchise to come.
Andre, Host/Moderator: All right. Well, we’ll look forward to all of that, and I definitely look forward to seeing who gets a one-of-one worldwide chase Pop! there with these Mystery Pops. All right. Well, that’s all the time we have for questions for today. Yves, Josh, thank you so much for all your information about the success as well as how you handle certain challenges. Josh, are there any thoughts before we let everyone go today?
Josh, CEO, Funko: Well, first of all, thank you for being with us down at Comic-Con and in the office there in Burbank. For me, I would just say the financial highlight that this quarter shows us is really early evidence that the Make Culture POP! strategy is beginning to take hold, and it’s really becoming a more deliberate and disciplined growth engine for us. Ultimately, I think we’re getting better at sensing where fan demand is coming from, moving faster to turn those signals into distinctive products and in repeatable ways, and building platforms like I was just talking about, and then scaling them through channels all over the world. This quarter, I think, was an early proof point.
Not the end of the work, but I think the growth and SKU productivity and certainly that record underlying gross margin gives us confidence that we’re on the right track. Other than that, I just want to say thank you to our shareholders for your continued confidence. Most importantly, thank you to our fans for showing up in the way that you always do. I loved the energy and everyone who made their way down to Comic-Con this year. I loved talking with everyone and hearing their ideas. It’s just an awesome reminder of why we do this. We’re certainly excited for the rest of the year. I’ll just say again, Andre, thanks everyone for joining us, and we will see you all next quarter.