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Funko is mounting a comeback after a bumpy 2023, and direct-to-consumer sales are at the center of the turnaround strategy.
On Thursday, the toymaker reported that DTC sales were up almost 30% YoY in Q4, and those sales comprised 26% of total revenue, up from 17% the year before. That bodes well for a company that just last spring destroyed more than $30 million worth of inventory due to lack of demand.
“Growing our DTC business remains a key goal for us,” Interim CEO Michael Lunsford said during an earnings call. “We have more control over our DTC business and believe we can grow it profitably.”
- In theory, the DTC model allows companies to tie their inventory more closely to demand, as it requires less bulk selling to wholesalers, potentially avoiding the kind of overstock that leads to mass dumping events reminiscent of a nightmare sequence in a Toy Story sequel.
Lunsford said Funko planned to expand its DTC business, even as the company braces for “a softer content schedule following the recent Hollywood strikes and uncertainty around shipping costs caused by the Red Sea situation.” This is potentially a problem, as new releases of the vinyl figurines are often based on fresh intellectual property.
Another upside for Funko going into 2024 is that it was able to cut inventory levels in half, from $246.4 million at the end of 2022 to $119.5 million by December 31, 2023.
Still, Funko has plenty of room for growth. Net sales were down 12.6% YoY in Q4, and boosting that number through its higher-margin DTC channel could come with some costs.
“Part of growing that direct-to-consumer channel requires us to spend more marketing dollars to attract the fans to our site,” Deputy CFO Yves LePendeven told investors.