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Will Strength In Properties Aid Funko's (FNKO) Q3 Earnings?

By Zacks Investment ResearchNov 04, 2018 09:41PM ET
www.investing.com/analysis/will-strength-in-properties-aid-funkos-fnko-q3-earnings-200354814
Will Strength In Properties Aid Funko's (FNKO) Q3 Earnings?
By Zacks Investment Research   |  Nov 04, 2018 09:41PM ET
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Funko, Inc. (NASDAQ:FNKO) is expected to release third-quarter 2018 results on Nov 8. Encouragingly, earnings and sales of this popular pop culture products company have surpassed the Zacks Consensus Estimate in the trailing three quarters. Let’s see how things are shaping up prior to the upcoming quarterly announcement.

Efforts to Boost Sales Bode Well

Funko relies much on licensees and properties for business expansion. In fact, during the second quarter, the company witnessed 26% growth in active properties and sales per active property increased 5% compared with the year-ago quarter's tally. Some of the highest property performers during the period were Deadpool, Harry Potter, Stranger Things and Avengers Infinity War. Going ahead, management is excited regarding two of its new licenses — Fortnite and Pokémon.

Moving on, the company’s figure category has been performing well, backed by robust launches. During the second quarter, sales in figures increased 31% year on year. Within this category, Pop! Vinyl figures have been performing well. Apart from such efforts, the company undertakes strategic acquisitions for category expansion. We note that the Loungefly buyout in 2017 aided expanding the apparel and accessories segments.

Moreover, Funko has been undertaking product launches to strengthen market presence. Popular among recent launches are Pop! PEZ and FunkO's, which are expected to boost performance in the upcoming periods.

Such well-chalked efforts have aided the company to build a strong brand portfolio that has been fueling top-line performance for a while. Incidentally, net sales rallied almost 32% and 38.5% during the second and the first quarters of 2018. For the third quarter, the Zacks Consensus Estimate for sales is currently pegged at $165 million, depicting a rise of almost 15% from the prior-year quarter’s tally.

Gross Margin Growth to Aid performance

Funko’s gross margin performance has been impressive for a while, backed by strong product performances. Incidentally, gross margin expanded 120 basis points (bps) and 210 bps in the second and the first quarters of 2018.

We expect gross margin to continue expanding in the third quarter as well. This, combined with a solid brand portfolio, bolsters our expectations for the impending quarter. Moreover, we expect such upsides to aid the company in offsetting the adverse impacts of rising SG&A expenses. That said, the consensus mark for earnings for the impending quarter is currently pegged at 23 cents per share, which has been stable in the past 30 days. This estimate indicates a substantial improvement from adjusted earnings of 7 cents and 3 cents delivered in the preceding two quarters, respectively.

What does the Zacks Model Predict?

Our proven model doesn’t show that Funko can beat bottom-line estimates this quarter. For this to happen, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Funko currently carries a Zacks Rank #2, its Earnings ESP of 0.00% reduces chances of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks Poised to Beat Earnings Estimates

Here are a few companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat:

Michael Kors Holdings Limited (NYSE:KORS) has an Earnings ESP of +0.64% and a Zacks Rank #3.

NIKE, Inc. (NYSE:NKE) has an Earnings ESP of +0.86% and a Zacks Rank #3.

PVH Corp. (NYSE:PVH) has an Earnings ESP of +0.46% and a Zacks Rank #3.

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NIKE, Inc. (NKE): Free Stock Analysis Report

Michael Kors Holdings Limited (KORS): Free Stock Analysis Report

PVH Corp. (PVH): Free Stock Analysis Report

Funko, Inc. (FNKO): Free Stock Analysis Report

Original post

Zacks Investment Research
Will Strength In Properties Aid Funko's (FNKO) Q3 Earnings?
 
Will Strength In Properties Aid Funko's (FNKO) Q3 Earnings?

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