Funko reported its second quarter earnings report, crushing the Street’s expectations for the pop culture consumer products company with net sales up 38 percent to $191.2 million.
Gross profits for the company also increased 35 percent to $71.2 million. Income from operations increased 98 percent to $17.1 million, and net income increased to $11.4 million from $0.3 million. Earnings per diluted share increased to $0.16. Adjusted Net Income was $12.9 million compared to $3.2 million in the second quarter of 2018, and Adjusted Earnings per Diluted Share was $0.25, compared to $0.06 in the second quarter of 2018. Adjusted EBITDA increased 61 percent to $31.4 million.
“Funko once again delivered very strong results in the second quarter,” said Brian Mariotti, Funko’s CEO. “We believe these results and our continued opportunities for growth demonstrate that the world is increasingly viewing pop culture through the lens of Funko. Funko has become a solid entertainment content platform, and our brand continues to grow in awareness and popularity around the world. This unique position enables us to develop new and increasingly profitable sources of revenue that we expect will propel continued growth for many years to come.
“Our strong results in the first half of 2019 have allowed us to increase our guidance for the full year. More importantly, the growing range of opportunities for revenue growth, international expansion and entry into new categories make us confident that our best days lie ahead, and that our fans, partners, employees and shareholders can look forward to the future.”
Sales growth was driven primarily by an increase in the number of active properties and strong sales demand across all of Funko’s geographic markets and product categories.
In the second quarter of 2019, the number of active properties increased 16 percent to 592 from 510 in the second quarter of 2018 and net sales per active property increased 19 percent. On a geographical basis, net sales in the U.S. increased 26 percent to $122.7 million and net sales internationally increased 65 percent to $68.5 million with strong growth across all regions. On a product category basis, net sales of figures increased 39 percent to $159.7 million and net sales of other products increased 30 percent to $31.5 million versus the second quarter of 2018, driven primarily by continued growth of Loungefly and other softline products.
Gross margin in the second quarter of 2019 decreased 90 basis points to 37.2 percent compared to 38.1 percent in the second quarter of 2018. The decrease was driven primarily by higher reserves on inventory, partially offset by improved product cost margins and lower license and royalty costs as a percentage of net sales.
SG&A expenses increased 26 percent to $43.6 million in the second quarter of 2019 from $34.5 million in the second quarter of 2018, primarily related to an increase of $7.1 million in personnel and related costs (including salary and related taxes/benefits, commissions and stock compensation expense), an increase of $1.1 million in professional and consulting costs and an increase of $1.0 million in rent and related facilities costs. Both of these costs increased as a result of the continued growth of the business. SG&A expenses declined 210 basis points as a percentage of sales as the Company gained operating leverage in the second quarter of 2019 compared to the second quarter of 2018.
Net income for the second quarter of 2019 increased to $11.4 million from $0.3 million in the second quarter of 2018, and Adjusted Net Income increased $9.7 million to $12.9 million from $3.2 million in the second quarter of 2018. In addition to the reduction in SG&A as a percentage of sales, factors that led to net income and Adjusted Net Income growing faster than sales in the second quarter of 2019 compared to the second quarter of 2018 include lower depreciation and amortization expense as a percentage of sales, a reduction in interest expense, net and the reduced impact of foreign currency gains and losses relating to transactions denominated in currencies other than the US dollar compared to the second quarter of 2018.
Adjusted EBITDA in the second quarter of 2019 rose 61 percent to $31.4 million, or 16.4 percent of net sales, from $19.5 million, or 14.0 percent of net sales, in the second quarter of 2018. The increase in Adjusted EBITDA as a percentage of net sales in the second quarter of 2019 compared to the second quarter of 2018 resulted from lower SG&A as a percentage of sales.