$30 Million Worth Of Funko Pop! Toys To Be Thrown Out As Company Struggles With Surplus

Collectible toys manufacturer Funko, known for its Pop! line of vinyl figurines, is set to toss out excess inventory worth between $30 million and $36 million this year, the company has told investors.

The write-down, which is expected for the first half of 2023, was announced in a Q4 2022 earnings report that noted that the value of Funko's year-end inventory had gone up to $246.4 million – a 48% increase compared to last year.

"This includes inventory that the Company intends to eliminate in the first half of 2023 to reduce fulfillment costs by managing inventory levels to align with the operating capacity of our distribution center. This is expected to result in a write down in the first half of 2023 of approximately $30 to $36 million," the company said.

Funko was forced to rent excess storage containers for inventory after its Arizona distribution center was filled with figurines, CEO Brian Mariotti said during an investor call last week.

The cost of that extra storage was causing Funko to lose money at a rapid rate, Mariotti said, according to a report by CNN.

In addition to throwing out excess inventory, Funko also announced that it plans to lay off 10% of its workforce to cut costs.

Despite posting a 29% year-over-year increase in net sales to $1.3 billion, Funko reported a $46.7 million loss in the fourth quarter of 2022.

Additionally, the gross margin for the company's last quarter decreased to 28.3% compared to 33.9% in the fourth quarter of 2021.

This drop in margin was caused "primarily by storage and container rental charges associated with inventory in excess of warehouse capacity," according to Funko.

Industry experts did not expect Funko's announcements.

"I was a bit surprised because the collectible market is one of the big stories for 2022," Juli Lennett, the vice president and industry adviser for U.S. toys practice of market research company NPD Group, said.

"Adults are going to continue to be interested in collectibles. There are too many new buyers that are buying into these categories and it's going to take some time before they all go away," she told NPR.

Funko grew during the COVID-19 pandemic, with the company seeing a 58% annual increase in net sales to $1 billion in 2021.

However, those gains did not hold up when the global economy reopened.