FNKO Q1 Earnings Call: Tariffs and Supply Chain Shifts Dominate Outlook

Pop culture collectibles manufacturer Funko (NASDAQ:FNKO) met Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 11.6% year on year to $190.7 million. Its non-GAAP loss of $0.33 per share was 24.1% above analysts’ consensus estimates.

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StockStory’s Take

Funko’s first quarter performance reflected the growing impact of external pressures and operational changes, as management confronted an evolving macro environment and shifting consumer behavior. CEO Cynthia Williams acknowledged that the company faced “amplified challenges” in the U.S. due to tariffs and selective buying patterns. She highlighted the strength of Funko’s international business, noting that Europe’s G5 markets showed 8% growth for the company versus just 1% for the broader toy industry. Williams also pointed to the company’s ongoing investments in direct-to-consumer engagement and successful product launches in sports collectibles as evidence that Funko’s foundational strategy continues to gain traction even as broader demand softens domestically.

Looking ahead, Funko’s leadership emphasized that navigating tariffs, diversifying supply chains, and maintaining fan engagement will be central priorities. Management withdrew its full-year outlook, citing uncertainty in global trade policies and macroeconomic volatility. CFO Yves LePendeven outlined efforts to accelerate sourcing from Vietnam and Cambodia to offset increased costs, stating, “We expect to fully offset the impact of incremental tariffs within the year.” Williams reiterated that the company will hold pricing steady for core products to protect the fan experience, while deepening cost reduction measures and continuing investments in product quality and international expansion.

Key Insights from Management’s Remarks

Funko’s management discussed how international momentum, supply chain adjustments, and cost discipline influenced the quarter’s results, while highlighting actions taken in response to new tariff pressures and changing consumer patterns.

• International market gains: Funko reported continued share gains in European markets, with CEO Cynthia Williams citing 8% point-of-sale (POS) growth in Europe’s G5 markets, outperforming broader industry trends. The company’s expansion into the United Arab Emirates, China, and the Philippines further broadened its global footprint.

• U.S. demand pressures: Williams described domestic conditions as challenging, attributing softer sales to tariffs and more selective consumer spending. Notably, the U.S. market saw mid-single-digit declines in POS early in the year, though trends improved to low-single-digit growth over the last four weeks of the quarter.

• Supply chain diversification: Funko accelerated its shift away from China-based manufacturing, reducing U.S.-bound production from roughly one-third to around 5% by year-end. The company leveraged established relationships in Vietnam, Cambodia, and Indonesia to mitigate tariff impacts and create a more agile supply chain.

• Cost reduction initiatives: Management detailed broad cost discipline efforts, including a global workforce reduction exceeding 20%. Additional actions included SKU rationalization, renegotiation of ocean freight contracts, and targeted expense reductions across supply chain operations.

• Direct-to-consumer and product innovation: The Fan Rewards loyalty program and Pop! Yourself personalization offering were highlighted as important drivers of engagement and margin strength. Williams noted successful launches of sports-themed collectibles, including NBA and WNBA figures, as bright spots for expanding the brand’s reach.

Drivers of Future Performance

Funko’s outlook centers on supply chain agility, tariff mitigation, and continued product innovation amid uncertain consumer demand.

• Tariff mitigation strategies: Management expects to offset approximately $45 million in incremental tariff costs through accelerated sourcing diversification, operating cost reductions, and maintaining steady price points for core collectibles. A cross-functional task force is overseeing these efforts.

• International growth momentum: The company anticipates ongoing strength outside the U.S., especially in Europe and Southeast Asia, driven by new store openings and local partnerships. Williams described these markets as more stable, supporting Funko’s global strategy.

• Consumer behavior and retail partnerships: Management is monitoring evolving purchasing patterns and collaborating closely with retail partners to maintain value perception and shelf presence. Holding the line on pricing, despite cost pressures, is intended to support long-term fan loyalty and brand positioning.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will monitor (1) the pace and effectiveness of Funko’s supply chain diversification and tariff mitigation, (2) evidence of sustained growth in international markets and new store openings, and (3) the trajectory of U.S. consumer demand and retail sell-through trends. Additionally, the company’s ability to manage liquidity and secure covenant relief will be key areas of focus.

Funko currently trades at a forward P/E ratio of 24.4×. In the wake of earnings, is it a buy or sell? Find out in our full research report (it’s free).

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