Funko (FNKO) Investor Case on Misleading
Funko released disappointing financial results and cut guidance.
$FNKO experienced several serious stock drops, damaging shareholders.
Investors have reasons to suspect Funko and its leaders of misleading in delivering announced strategic plans.
On March 1, 2023, Funko announced its 2022 results and guidance for FY 2023. While Funko did manage to hit the low end of its Net Sales guidance, the Company saw Net Income for FY 2022 decrease to a $5.2 million loss, its Adjusted EBITDA margin decreased to 7.4% and its Adjusted Earnings per Diluted Share came in well below prior estimates at $0.57 per share.
On this news, Funko’s stock price in a moment fell by 29.6% recovered later the same day but still closed much below the previous close.
Earlier, on November 3, 2022, Funko announced its 3Q 2022 results in which earnings per diluted share was $0.28 per share, over 42% below Street estimates of $0.49 per share.
On the same day, Funko also dramatically lowered its FY 2022 guidance. Funko lowered its Net Sales from $1.30 billion - $1.35 billion to $1.29 billion - $1.33 billion, its Adjusted Net Income from $101.8 million - $107.3 million to $47 million - $49 million, and its Adjusted Earnings per Diluted Share from $1.88 - $1.99 per share to $0.85 - $0.95 per share. Funko also cut its projected FY 2022 Adjusted EBITDA margin to high single digits, compared to prior estimates of 14.6%.
On this news, Funko’s stock price fell 59.4%, seriously injuring investors.
Going back, the Company and its Leaders promoted both the planned move of Funko’s distribution center from Everett, Washington to Buckeye, Arizona as well as the planned upgrade of the Company’s enterprise resource planning (ERP) software system. They repeatedly spoke of the necessity for these upgrades to serve current and future business needs.
Taking all representations and consequent results into account, Investors have reasons to suspect that Funko and its Leaders misrepresented to investors facts concerning the move of Funko's distribution center from Everett, Washington to Buckeye, Arizona, as well as the planned upgrade of the Company's enterprise resource planning (ERP) software system.
Specifically, certain company officers repeatedly spoke of the necessity for these upgrades to serve current and future business needs but failed to disclose that:
Funko was experiencing significantly larger delays in implementing its ERP software than it was disclosing to investors;
Having moved into a new warehouse without functioning ERP software in place would lead to dramatically higher costs and poorer inventory management practices; and
Funko's inability to efficiently operate the new distribution center would have a substantial, undisclosed impact on the Company's EBITDA margin.