FNKO Q2 Deep Dive: Tariffs and Production Shifts Lead to Sharp Sales Decline and Margin Pressure

Pop culture collectibles manufacturer Funko (NASDAQ:FNKO) reported Q2 CY2025 results topping the market’s revenue expectations, but sales fell by 21.9% year on year to $193.5 million. Its non-GAAP loss of $0.48 per share was 11.6% below analysts’ consensus estimates.

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StockStory’s Take

Funko’s second quarter saw a significant contraction in sales and profitability, with results falling short of what investors anticipated despite revenue surpassing Wall Street’s estimates. Management attributed the weakness to disruptions from U.S. tariff policies, which led to paused orders from direct import customers and a costly shift of production out of China. Interim CEO Mike Lunsford explained that these factors forced Funko to make rapid changes, including a 20% workforce reduction and price increases, to counteract the impact. CFO Yves Le Pendeven described the quarter as defined by “a big variance compared to Q2 of last year” due to these external shocks and the resulting margin compression.

Looking ahead, Funko’s management expects gradual improvement in the second half of the year, banking on resumed U.S. shipments, implemented price hikes, and international sales momentum. However, they remain cautious given the ongoing uncertainty around global tariffs and macroeconomic volatility. CFO Yves Le Pendeven emphasized, “We expect second half adjusted EBITDA margin to be in the mid- to high single digits range,” while also flagging the company’s focus on debt refinancing and liquidity preservation as critical for stability through year-end.

Key Insights from Management’s Remarks

Management cited the disruption from U.S. trade policy and the resulting operational pivots as the main factors behind the quarter’s performance and outlined several actions aimed at stabilizing the business.

• Tariff disruptions dominated: Management noted that the tripling of tariffs on imports from China directly caused a pause in orders from key direct import customers, which materially disrupted quarterly sales.
• Cost-cutting measures: Funko responded to revenue and margin pressure by reducing its workforce by about 20%, accelerating production shifts out of China, and raising prices to offset higher import duties.
• Production shift challenges: The company’s efforts to diversify manufacturing—moving sourcing from China to Vietnam and other countries—were described as largely implemented, but accompanied by short-term operational inefficiencies and higher inventory reserves.
• International sales resilience: Despite U.S. headwinds, international markets showed strong point-of-sale growth, with management highlighting 18% growth in the first half and 28% in Q2.
• Liquidity and debt actions: Funko amended its credit agreements to secure covenant waivers, filed for an at-the-market equity offering to bolster liquidity, and initiated a refinancing process for debt maturing in 2026, reflecting ongoing concerns about its financial position.

Drivers of Future Performance

Funko’s outlook for the rest of the year is shaped by resumed U.S. shipments, price adjustments, and execution on cost controls, but remains sensitive to external policy shifts and liquidity needs.

• Tariff mitigation and pricing: Management believes that fully offsetting incremental tariff costs depends on successful price increases in the U.S. and continued production shifts out of China, with these measures already in place but still subject to global trade volatility.
• International momentum: Funko expects ongoing strength from its international business, particularly with the rollout of Pop! Yourself in Europe and sustained growth in sports and Bitty Pop! categories, as key drivers of the second half recovery.
• Liquidity and refinancing risk: The company’s ability to refinance its debt and maintain sufficient cash reserves will be critical, especially as covenant waivers are temporary and cash flow remains pressured by recent sales disruptions and continued macro uncertainty.

Catalysts in Upcoming Quarters

In the coming quarters, our team will closely track (1) the pace and sustainability of resumed U.S. shipments and price realization, (2) the momentum of international sales—especially the launch of Pop! Yourself in Europe, and (3) Funko’s progress on debt refinancing and liquidity management. Execution on production diversification and cost controls will also be vital for near-term financial stability.

Funko currently trades at $2.75, down from $3.66 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free).

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