Analyst Cuts Funko Rating On Big Sales Miss, Low Confidence In Guidance

Funko Inc FNKO preannounced an 8% sales decline for the fourth quarter of 2019 citing weak reorders in December and disappointing Pop! figure sales related to Frozen 2 and Star Wars.

The 2020 guidance indicates steep sales growth in the second half of the year, but management was unable to provide clear rationales to support these projections, according to DA Davidson.

The Analyst

DA Davidson’s Linda Bolton Weiser downgraded Funko from Buy to Neutral, slashing the price target from $35 to $11.

The Thesis

Funko’s 8% year-on-year sales decline was significantly short of consensus expectations of 13% growth and the 11%-15% growth implied by the company’s previous full-year guidance, Weiser said in the downgrade note.

The company blamed the sales miss on a challenging retail environment in mature markets, which led to lower-than-expected purchases by its top retail customers during the holiday season, the analyst mentioned.

Weiser expects Funko to report an EBIDTA decline of 40%-43%, substantially below the consensus projection of 8%. The company is likely to report earnings between 16 cents and 18 cents per share, while its previous full-year guidance implies earnings between 35 cents and 42 cents per share.

The analyst wrote in the note that Funko’s 2020 guidance indicates a sales growth trajectory of a "hockey stick" curve in the back half of the year, while management was unable to provide satisfactory explanations of why growth should accelerate.

Price Action

Shares of Funko had tanked almost 37% to $9.61 at time of publication Thursday.