01:13 - Source: CNN Business
Why investors are loving these big-headed toys
New York CNN  — 

Thirty million dollars worth of Funko (FNKO) Pop! figures – those big-headed, vinyl pop-culture dolls – will soon make their way into the hands of a new collector: The garbage collector.

Funko said in its fourth quarter earnings report that a combination of waning demand for the toys and a surplus of inventory is creating financial trouble for the company. Last year, they had to rent excess warehouse space just to hold the buildup of Funko figures, which range from Baby Yoda to Eddie Van Halen.

Funko was holding onto about $246.4 million worth of dolls at the end of 2022. That’s 48% more than what they had on hand just one year before.

The company intends to “eliminate” a bit of that nearly $250 million in inventory in the first half of 2023 “to reduce fulfillment costs by managing inventory levels to align with the operating capacity of our distribution center,” Funko said in a statement Wednesday. “This is expected to result in a write down in the first half of 2023 of approximately $30 to $36 million.”

In short, the product they’re storing is now worth less than the cost of keeping it on hand, so they’re dumping at least $30 million worth of it.

On a call with investors last week, CEO Brian Mariotti said Funko had already filled its Arizona distributing center to the brim with dolls and was forced to rent excess storage containers for them. The cost of that extra storage, he said, was causing the company to lose money at a rapid clip.

Company executives also announced that they would cut 10% cut of their workforce as a cost-saving measure.

Funko benefited during the pandemic boom, posting $1 billion in net sales for 2021 – a 58% increase from 2020 – but those gains didn’t hold up as the global economy reopened.

The company reported a total loss of $47 million in the fourth quarter of 2022. That’s down from a profit of $17 million during the same period the year before.

“It was clear on our last earnings call that the business and our operations hit an inflection point,” Mariotti said. “A combination of macro factors and Funko-specific issues have disrupted our financial and operating performance to an unacceptable degree.”

Funko stock has fallen by 9.4% so far this year.