Q4 2020 Funko Inc Earnings Call
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Good afternoon, and welcome to choose Bonkers conference call to discuss financial results for the fourth quarter of 'twenty 'twenty Andrew.
At this time all participants are in a listen only mode.
We will conduct a question and answer session and instructions will follow at that time. Please be advised that reproduction of this call in whole or in part is not permitted without written authorization from the company.
As a reminder, this call is being recorded I will now turn the call over to Andrew Harless manager of Investor Relations to get started.
Thank you good afternoon with us on the call today from management are Brian Mariotti, Chief Executive Officer, Andrew Perlmutter, President and Jennifer Fall Jung Chief Financial Officer, a press release covering the company's fourth quarter 2020 financial results was issued this afternoon is available on the Investor Relations website investors that funko dotcom.
Before we begin Peter remind you that management's remarks on this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 actual results may differ materially from those indicated by these forward looking statements as a result of various important factors, including those discussed in the risk factors section of our form 10-K from the year ended December 30.
<unk> 2020, and other filings with the SEC any forward looking statements made on this call represent our views only as of today, we undertake no obligation to update that we'll be referring to certain non-GAAP financial measures on today's call such as adjusted EBITDA adjusted EBITDA margin, which we believe may be important to investors to assess our operating performance.
Reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings release. We have also prepared a visual presentation that investors consult follow along with this discussion can be accessed at investor Funko Dot Com I will now turn the call over to Brian. Thank.
Thank you for joining the call today and I hope that everyone is staying safe and healthy before we begin I want to commend our funko teams around the world that demonstrated tremendous resiliency and came together to execute in 2020.
Because of them that we were able to continue to bring joy to our fans a highly disrupted year. Some major highlights of 2020.
First we delivered innovation, which is the heart of <unk>.
We successfully launched new products, ranging from snap peas, and funko vinyl soda pop albums gift shop, and a dozen of new board games, all of which expanded our presence among key retail partners extended our reach to new consumers and further diversified our revenue strength does.
To that end our diversification strategy continues to bear fruit in 2020 as our non figure products represented almost 23% of our sales supported by our allowance flight branded products up 17% and our expanded game portfolio growing over 50 per cent.
Second we continue to successfully leverage evergreen content, which allowed us to keep our products fresh and relevant during a time when many new releases where park for the year sales related to evergreen content represented 66% of our business up from 51% in 2019. Additionally, there was.
Only a single property in our top 20 is related towards the article written this unique ability to leverage evergreen properties across a wide variety of genres products brands and retailers enables us to drive revenue, while continually reaching new Pam basis.
Third we strength of our direct to consumer platform in 2020 through several initiatives, we added important digital capabilities to enhance usability and functionality. We increased the number of skus on the site up from only a few hundred to over 3000, we launched uncle Europe Dot Com in October almost two years ahead of us.
Original plan. These actions allowed us to grow our total direct to consumer sales by 80% to over $50 million as a percentage of sale DTC represented 8% of the business in 2020 up from less than 4% in 2019.
This was a nascent business in 2017, and just a few years time has become a rapidly growing channel for us.
We're continuing to invest behind you just need to accelerate our capability to drive growth and build scale.
Our fourth accomplishment in addition to expanding our DTC businesses, we have successfully pivoted and focused on supporting our global mass market and third party e-commerce channels driving growth compared to 2019 exiting the year. These channels accounted for 35% of sales up from 28% in 2019.
Fifth in December we launched pop people at our two flagship retail locations. This gives our fans the ability to create their own custom pop figure and box for themselves they're free.
<unk> per family, we have seen tremendous initial response from our fans over the last three months and pop people has quickly become the top selling items at both of our funko stores given the strong consumer demand. We are working to rapidly bring pop people to our websites in 2022 to allow our fans all over the world to build their own.
And connect with our iconic brands. We think this is a powerful way to enhance the experience while also attracting new fans to our sites.
And more importantly, we found new ways to engage with our fans around the world.
At a time when in person events were not possible, we pivoted and innovated to ensure that we stay connected to our fans whether it was through social media or hosting virtual con and connections with comic Con San Diego, New York and Emerald City.
Such strong fan engagement that in multiple instances, we sold more through our virtual card and through our in person events last year, and our social media engagement with greater than that of the copper con himself.
We are particularly pleased to wrap up the year with a solid fourth quarter, which was highlighted by a return to revenue growth improved profitability and continued progress against our key growth initiatives Q4, net sales grew 6% to $227 million coming in significantly above our expectations are strong.
Revenue performance, coupled with solid cost controls drove adjusted EBITDA margin of 14, 7% up 270 basis points compared to last year.
Also we continued to strengthen our balance sheet as we increased our liquidity position over 70% versus prior year to $127 million Q.
Q4 was highlighted by a number of strong trends and make us even more bullish about the funko brand the underlying strength of our pop culture platform and our ability to connect with our fan base around the world.
We saw exceptional demand in the U S, where sales increased 18% to 171 million and represented our largest domestic quarter ever.
This was driven by strong growth across the mass market.
Third party e-commerce and direct to consumer channel.
Also saw better than expected performance, among our specialty retail partners, but recovery in that channel still remain gradual.
From a brand perspective domestically, we achieved strong growth of 12% and 55% and allows slide during Q4, demonstrating the strength and resiliency of our brands Inc.
<unk> trend that is particularly notable is the enduring strength of evergreen content, which represented 16% of sales in the quarter.
This demonstrates our ability to drive growth without relying on new releases as we increasingly can expand to their favorite evergreen content.
Additionally, our diversification strategy continued to gain solid traction in Q4, our biggest category was flat compared to last year and virtually all of our growth was driven by our other products fueled by strong performance within our bounds by brand and our expanded game offerings.
Also we are continuing to see more and more fans turned to our funko and lounge by website further pop culture purchases sales from our own E. Commerce sites grew over 170% from the quarter in fact, our E. Commerce site would have ranked in the top three of our largest customers globally.
Lastly from an international events, we performed better than expected at pandemic disruptions in Europe were partially offset by sustained demand from both our retail partners and consumers. We are continuing to see strong demand signals from the European region for 2021, and believe we are well positioned to further expand our.
Ill footprint.
<unk> brands or what licensure retailers and most importantly, our fans trough when it comes to pop culture.
Our diversity across product categories licenses genres, and distribution allows us to reach a broad consumer base.
In 2015 over 90% of our sales were attributed to figures since that time, we've expanded into growth adjacencies and diversified our product mix to include bags wallets for gains.
Apparel toys accessories, and more we have grown our non figure category from about $25 million in 2015 to nearly a $150 million in 2020 in that category now represents 23 per cent of our sales. However, during this time, we remain focused on strengthening our figure business, which we have done.
<unk> 2015 and represents over $500 million.
In 2020, we are continuing to drive growth and build on our diversification by extending our reach across product category channel and geography, we have done this by expanding our product offering free strategic acquisition and entering new categories.
Creasing, our penetration in genres, such as sports animate and music.
Moving to build internationally into Europe, Latin America and Canada.
Broadening our distribution to new and existing retailers as well as directly to consumers through our own website continually finding new and innovative ways to engage with our growing family by way of example, just a few weeks ago, New of New York Toy Fair, we hosted our first ever virtual bundled care in which we partner with our license.
<unk> and retailers to engage our fans and launch new offerings, we couldnt be more thrilled with the response, we received and the tremendous success of the event and which fan engagement far exceeded any inverse in toy fair. We have attended over the years.
Net led to nearly one 5 million units being pre sold with fans through our retail partners and many of these parts are still six to nine months away from being released in addition, this resulted in over 90 million impressions across social media, we plan to continue to leverage virtual events throughout 2021 to drive community.
<unk> awareness and engagement amongst band basis across the world.
We exited 2000 twenty's strongly positioned from a strategic operational and financial standpoint, and we are incredibly excited about the true yes.
We have well defined strategies for growth and we are executing against substantial pants.
Our global license merchandise market is over $290 billion and the global toy and game market is more than $90 billion.
Our runway is significant and our strategies to lever our core pop culture platform diversify the business and drive profitability are continuing to gain traction.
We expect 2021 to be our strongest sales year, yet, which gives us the confidence to continue to invest in the business to drive long term growth.
For the year, we expect to deliver sales growth of 25% to 30%, reflecting broad based strength across our brands products channels and geographies.
It also reflects growth from 2019 pre pandemic levels.
Importantly, we are continuing to manage the business with discipline and expect to deliver strong growth on top and bottom line in 2021.
We greatly appreciate the support of our partners fans and shareholders and look forward to keeping you updated on the progress throughout the year now I'll turn the call over to Andrew to discuss our strategic initiatives.
Thanks, Brian we are pleased with the tremendous progress we made in 2020 against our key strategies to drive growth and diversification.
As a reminder, these include building upon our core pop culture business further diversifying our product portfolio.
Spanning our international reach and increasing the share of our business through our own direct to consumer channels.
Heading into 2021, we are excited to build upon the progress to date, which we believe will position the company for sustained long term growth.
First maximizing our core pop culture business in 2021, we will continue to create unique programs that resonate with our fans with a heightened focus on evergreen properties as well as expanding our consumer base by growing underpenetrated content genres, and launching new products we.
We saw strong success with our evergreen programs in 2020 unexpected continue to build upon those by leveraging new properties such as Seinfeld.
Creating new ways to celebrate fan favorite properties, such as Marvel Deadpool and focusing on building holistic statements at retail.
We are planning to drive expansion in our core business with sports music and animation on us.
The license sports and music merchandize market represents over $30 billion in annual sales. We are only just starting to focus on this growing business and capturing market share through license expansion utilizing existing brands, such as pop and lounge lie in creating new lines geared towards their specific fan basis.
In 2020, we saw positive consumer response to the launch of pop album, which recreates iconic records and offers fans a new way to enjoy the pop brand for example, our pop album of Acdc's Classic back in Black record was our top collectible items at one of our key mass market retailers give.
The strong initial fan reaction, we plan to expand this concept across new genres, including sports trading cards and comic book covers. Additionally.
Additionally, later this year, we will be launching a new premium vinyl figure line that captures the essence of culture through icons and music and sports.
This product is aimed to cater to new collector bases as well as sports and music fans across the world.
Another large opportunity is within the anime category, which we estimate to be over 8 billion in annual global license merchandise sales.
Thats fandom for anime properties continues to grow around the world. We are focused on making sure that there is a consistent flow of products and properties of the fans can connect with just last month, one of our key mass market retailers held an end cap devoted to fan favorite anime properties. We will continue to look for opportunities to highlight and grow this genre moving forward.
Strategy number two driving category diversification by harnessing our innovative culture to launch new products and reach new consumers.
In 2020, we achieved significant accomplishments as we grew our lounge live brand expanded our games portfolio and launch New youth inspired collectibles, all of which helped drive our non figure products to generate nearly $150 million in net sales.
Heading into 2021, we are focused on continuing to expand the <unk> brand through broader distribution, both domestically and internationally.
In the U S. We are thrilled to be expanding our launch line relationship with Amazon later this year in.
In overseas markets, we are seeing strong demand for the brand across EMEA and other regions and are focused on further penetrating new markets within our board game category, We launched dozens of new titles throughout 2020 that included Marvel Battle World Panam, Godzilla, Tokyo clash and back to the future back in time, many of our titles made top seller lists on.
And continue to be outstanding performers at our key retailers heading into 2021, we believe we have another solid four game slate plan that includes dozens of new titles, including a second wave of model Battle World. We are seeing strong traction in this category among our key partners at mass E Commerce, and specialty which is resulting in.
Increased shelf space and visibility for the Funko brand.
Within the used collectible category, we launched snap sees in late Q4 and plan to build upon this line in 2021 through expanded distribution to Walmart and Amazon as well as new product launches to keep the line fresh and appealing.
Going forward, we will continue to invest and expand within our games soft lines and used collectible categories to ensure we are offering fans of all ages around the world and increasingly diverse assortment of funko products.
Moving now to our third area of focus international expansion.
2020 was especially difficult in our international regions, given the pandemic disruptions from a high level perspective, the total addressable market for licensed merchandise outside the U S is more than 125 billion. So the opportunity is significant.
Within Europe, we are focused on expanding our footprint in central and eastern Europe, and driving product diversification with particular emphasis on soft lines.
Additionally, we plan to continue to expand our direct to consumer reach in the region, which I'll expand on shortly.
Our next area of focus will be setting ourselves up for growth in Latin America, and Canada by executing on initiatives to expand key direct retail relationships within the region Inc.
Proving fulfillment capabilities and building our in region sales force.
In Australia, New Zealand, which is one of the more mature international regions, we will focus on diversifying our revenue by growing lounge line branded products and games category.
In APAC, we will remain focused on executing against regional distribution strategies and building upon our existing relationships.
We plan to continue investing across these markets to ensure funko is positioned for growth as pandemic headwinds begin to abate.
Now turning to our fourth area of focus expanding our direct to consumer business. We made huge strides in 2020, as we improve the functionality and usability of our website increased product availability and expanded our reach globally. This led to our direct e-commerce business growing 170% compared to 2019 and whatever.
Represented our third largest customer for the year.
This year, we will be focused on accelerating our digital capabilities by implementing our new global ecommerce platform investing in marketing to drive awareness and increasing the functionality of our funko mobile app.
Internationally, we are continuing to expand our direct to consumer reach by expanding our fulfillment capabilities and EMEA region.
We launched <unk> Europe Dot com, just five months ago with the ability to fulfill three countries and have since expanded to eight countries. We are in the early stages of our European PUC effort, and we will be implementing marketing programs and other initiatives throughout the year to build awareness and drive fan engagement in the region.
Those of you, who know us well understand that we have a deep underlying passion for this business and all things pop culture.
When we look at the Tam as Brian and I, just talked about our position as a trusted pop culture brand and the strategies were executing against we see tremendous runway for growth and are excited to continue our journey in 2021.
I will now turn the call over to John to take you through the financials and 2021 expectations.
Thanks, Andrew and good afternoon, everyone.
Quarter came in better than anticipated across the P&L, marking a strong finish to the year our net sales.
The increase of 6% significantly outpaced our expectations gross margins remained strong and we continued to manage costs, while supporting our key initiatives. As a result, we delivered improved profitability and cash flow proactively pulled down debt and increased our liquidity position.
Our top line performance in Q4, largely reflects the strength of our brands and product diversification are.
Over performance compared to our expectations was partially driven by better than anticipated result across Europe as there were sustained consumer and retailer demand. Despite the lockdown. Additionally, we saw continued strong demand and domestic third party E Commerce net market and do you see channel.
The number of active properties in Q4 was 724, an increase of 9% from prior year net.
Sales per active property were 313000, and acquire and 2% compared to last year.
The top 10 performing properties in the quarter we're in.
Amanda Laurean, Harry Potter Marvel Comics.
Dragonball, Inc.
Let's see comic book.
Classic.
Pokemon.
The Nightmare before Christmas.
Star Wars classic and nickel now.
And Brian mentioned fourth quarter net sales from the U S increased 18% to $171 million, our strongest quarter ever domestically.
Although our European performance came in better than we expected sales decreased 24% versus a year ago, reflecting the ongoing effects of the pandemic.
Additionally, sales and other international regions decreased 7%.
On a product category basis, Q4, net sales of figures for flat at $170 million.
Sales increased 30% to $56 million, primarily reflecting strength of our lounge flight branded products, which grew 51% and acquire.
Additionally, we saw growth from Henry <unk> and accessory category.
Sales of our pop branded products grew 1% and acquire reflecting the continued headwinds internationally I pop delivered strong growth at 12% domestically.
Fourth quarter gross margin remained strong at 37, 2%, that's up 800 basis points versus last year, which includes 790 basis points of impact from a one time inventory write down in 2019.
Our gross margin expansion reflects improved inventory management and increased product margins due to higher percentage of DTC sales in the quarter.
This is partially offset by an increase in shipping related expense and a higher mix of orders being fulfilled at our distribution center vs direct shipments from our factory.
SG&A in Macquarie, <unk>, net $54 million or 23, 7% of sales.
Down $4 million from last year, and reflects 310 basis points of leverage.
SG&A on a dollar basis came in slightly higher than anticipated due to revenue over performance in the quarter.
Turning now to profitability, our strong gross margin performance and ability to leverage SG&A enabled us to deliver improved profitability in the quarter.
Adjusted EBITDA increased by 29% to 33 million, which represents an adjusted EBITDA margin of 14, 7% up 270 basis points from last year.
Looking at the balance sheet and cash flow our teams exercise discipline have management's bigger throughout the pandemic, allowing us to drive strong cash flow and strengthen our liquidity position in 2020 liquidity increased by 71% to $127 million comprised of $52 million of cash and cash equivalents.
<unk> 5 million of availability under our revolver.
Our financial flexibility enable us to further pay down debt in Q4.
In addition to a required debt payment of approximately $6 million, we proactively pay down an incremental $12 million on our term loans.
As a result total debt net.
Price discounts was $191 million at year end.
We're $50 million or 20% compared to last year.
Inventory at year end totaled $60 million down 4% versus 2019.
We believe we exit in 2020, and a solid inventory position as we carefully managed inventory to align with demand throughout the year.
The business generated strong cash flow from operations of $47 million in Q4, representing an increase of 69% from a year ago.
For the full year cash flow from operations totaled $107 million, an increase of 18%.
Now turning to our 2020 outlook as.
As Brian and Andrew highlighted we are poised for a strong 2021 and feel confident in the trajectory of the business and our opportunities to drive growth.
We plan to continue investing in the business in 2021, as we execute against our four key growth initiatives.
We expect strong top line growth of 25% to 30% from the full year driven by broad based growth across the business. We anticipate revenue will return to a more normalized seasonal pattern between the first and second half of the year.
However, and pandemic impacts of last year create much easier comparisons in the first half and as such we are providing the following framework for 2021.
Net sales growth on a percentage basis in the first half from a range of low to high fifties.
We expect sales growth in the second half and a low to low double digit and for the first quarter of 2021, we expect sales growth of approximately 30%.
Now turning to margins, we expect gross margins to strengthen in 2021, driven by an increase in our direct to consumer business as well as regional and distribution mix.
For the same reason, we expect Q1 gross margin to increase slightly from Q4 2019 levels.
Our strong revenue growth, we expect for 2021 and the large market opportunity in front of us provide us with added confidence to invest behind our key growth strategies.
Looking at SG&A. The main areas of planned investment in 2021 include the following.
To support our international and direct to consumer expansion as well as our product diversification strategy.
Marketing to support new and recent product launches as well as DTC effort.
In technology, as we enhance and implement new systems that are designed to allow us to scale our business as we execute our key initiatives.
This includes a new ERP warehouse management system and global E Commerce platform.
Specifically in Q1, we expect SG&A on a dollar basis to increase in the low to mid single digits compared to the first quarter of 2020.
From a balance of the year, we anticipate SG&A on a dollar basis to increase sequentially each quarter into the low to mid single digits.
From an earnings perspective, we expect full year adjusted EBITDA margin to be in the range of 13, 5% to 14% representing an increase of 120 to 170 basis points compared to 2020.
Additionally, we expect adjusted net income of $44 million to $51 million based on a blended tax rate of 25%, which translate to adjusted earnings per diluted share of 84 to 96 based on a weighted average diluted share count of 50.
$2 5 million.
We appreciate your time this afternoon now, Brian Andrew and I will be glad to take your questions.
Ladies and gentlemen to ask a question that is star one on your telephone keypad again that is star one to ask a question.
And your first question comes from the line of Erinn Murphy with Piper Sandler.
Great. Thanks, good afternoon, and nice to see a lot of your hard work come together I guess my first question is on the guidance for the first quarter. In particular can you just share a little bit more about what youre seeing in Europe versus the U S is the strength that you saw in the fourth quarter in the U S has that continued and then maybe if you can frame the full.
Our sales guidance for us between what you're expecting between pop and some of the figure business versus that diversification piece that you spoke to in the non figure side.
Great Hey, Aaron how are you how are you.
And nice to hear from you.
Basically what we're seeing underneath the covers I'm going to ask answer. Your first question. The last question first is that we do expect to have growth across all of our product categories. Some of our product categories quite at the absolute dollar value is obviously, our core businesses. So, let's say a little bit more on those and you know for example, the size of lounge by and.
Topline thing game, so well see probably more pressure for growth coming from those that we didn't expect to see growth across the board and as we move into kind of getting back to your first question as we look at EMEA and what we're seeing underneath the covers there they still were down 24% and Q4, so they still did have headwinds.
Absolutely it just wasn't as negatively.
Anticipated.
And as they continue to be on the locked down here.
Still see headwinds until we kind of make it through.
Since at least the first half of the year, but we.
Are pleased with the performance of that business and what we're saying.
Given how and stripped of luck, Kansas They never there.
Got it Okay and then thank you and then just two quick ones, maybe one for Brian and Andrew first for Brian on virtual events. It seems like you've had some good success there.
Can you talk about your thoughts about if we go back into hopefully a post vaccine world revisiting in person events versus if there is some stickiness around what youre seeing in virtual.
And then secondly per Andrew on the snap. These performance can you just talk about how you see.
Kind of capitalizing on that outperformance as we move into 2021 any opportunities between girls toys. After after what you've seen thus far thank you so much.
Aaron Thanks for the questions Yeah, virtual I mean, obviously the bump up there.
Virtually the replay from New York Toy Fair. The results were staggeringly, good considering and we obviously just got the news recently that cynical comic con will not be held this year as well. So you know obviously, we've learned a lot.
From basically nine months ago weighted our first virtual event center, Yokohama Com, where our share of voice is actually.
And bigger than clinical compounds on share of voice, we repeated that success and made some improvements in New York comic Con and obviously upon compared to really well so it certainly.
And he can add to.
What we can do as a company and look eventually the world May go back to normal and we're going to have a big event and it might even be New York comic Con where were physically at the at the show, but I think we're going to be used for learnings that we've got we gathered from these virtual events to continue to find ways to drive retail.
In different and unique ways and I think from one thing I am. So excited about is just seeing the year over year improvement in preorder on stuff that 6789 months out to see our retailers going out and getting those secured orders, giving us better reads on indications of interest what licenses are outperforming what we thought they were and sometimes.
Non performing as well all of this.
Yes, adaptability we've had to.
Burn to do and learn from when we when we Didnt do quite what we thought we would do is certainly going to pay off in the future. So I would see us as a blend going forward. Once once we get our macro environment returns to normal I think youll see virtual events alongside of physical events, and then virtual events on their own driving unique ways.
<unk>.
I'll close with it only funko can do so.
It's exciting and lots of learnings and we just seem to get better at it as we go.
I'll jump in on the on the snaps each part.
Good to hear from you as always.
So yes, we launched <unk> in December as a first to market and target.
It was it was launched on time, we were excited about it we got good results.
It was launched on a promotional side kick in.
Which.
Which sold out is out you can't find that in sourcing more obviously, we just set in line, which we're really excited about.
We just said in line about a week ago at target. So if you go into your local target.
It may be there unless it's sold out which hopefully it is.
And we are excited about it not only because it's our first ever.
Girl specific youth collectable line, but.
We are also approaching it from a slightly more aggressive marketing angle then we have with some of our more traditional grass roots.
Marketing efforts for the Funko brand in general So we're excited to see we're excited to see some early results on that well.
Sorry to see that the digital efforts are working well.
We're excited to see that be.
The store lift that we're seeing early is working so so we're seeing some very positive signs we've got future plans to refresh the line with a lot of great product.
This year and as I mentioned in the script, we're expanding our distribution. So we are getting some.
Additional.
Retail doors as I mentioned it was the first market for target.
We've got other retailers coming on board, which we're very excited about and we think theres a lot of opportunities.
Amongst specialty non traditional toy retailers on this line. So we're very excited.
It's still early days, but we're excited about the brand.
Great. Thank you all best of luck.
And your next question comes from the line of staff listening with Jefferies. Please go ahead.
Hi, Thanks for taking my question nickel.
For staff.
First it looks like the growth in the quarters, increasing being driven by non core could you help us with how we should think about the margin contribution relative to the business.
And as it was across the business and we did see success.
Across all the product categories and as we mentioned on the call you know domestically, we had a very strong quarter, our strongest quarter, yet and as you can.
Look it if I'm if I'm hearing your question correctly from a margin perspective, you know as as some of these other categories come into play whether it being at a set of lounge like they do have different margin.
Margin makeup so will impact the channel distribution.
The impact of total margin depending on the growth of each of those categories, but overall, we felt really good about where Atlanta also keeping in mind that DST is a very strong margin profile.
Puts and takes underneath the covers but.
We felt good about the growth across the book.
Okay helpful. Thanks.
Turning to 2021 as you think about the 25% to 30% growth target could you walk us through how much you're embedding in terms of inventory deload distribution gains in international.
Yeah.
As we look across all of our categories. Some of the smaller ones I think as I mentioned earlier in the game.
Volume growth on a gain from our loans in 2021.
As well as our beautiful both growth and our soft lines.
From a regional perspective is.
And then it will have a stronger growth simply because they had a more challenging year in 2020, So we're expecting a more of a pickup with them coming into the year as we move forward.
Great. Thank you.
Okay.
Your next question comes from the line of Alex Perry with Bank of America.
Hi, Thanks for taking my question and congrats on a really strong finish the year here.
Just first on the quarter. So sales came in about 14 points higher than the high end of the guidance range. I guess, just first where was the delta here was it mostly Europe.
And then I guess going into the quarter what was the thought on Europe just from.
Maybe help us think about where the delta was or was there a certain channel or property that sort of came in way ahead of your expectations.
Hey, Alex that you hear from Neil.
Yes, so what we basically thought so.
As we mentioned Europe came in at a negative 24% growth rate on the quarter that we had anticipated.
Lower growth rate and given they were going into a full lockdown and given what we had seen in Q2.
When they were also in full lockdown so.
<unk>.
What you saw happening in Europe, and they took key learnings that leaving them from Q2 and they quickly pivoted to make sure that they were looking at their orders pivoting their orders to and other retailers to make sure that they can deliver the best possible acquirer and and it really did a nice job we are pleasantly surprised and with their performance given what they were up against.
Now as we look across the board that we did see.
Our DSD business did extremely well over the quarter.
It was really across the board not only did we see success in our third party E Commerce, our mass market in D. C. But we are starting to see the specialty players.
Not quite back to where they used to be but they are really leveraging our DTC channel as well and so it was it was really great to see all tides rise so to speak.
That's great to hear and then just on the guidance I think at the high end of the range. It implies a 7% revenue growth versus 2019.
I guess.
I guess I.
I guess just.
What gives you confidence on returning the revenue base to pretend that make levels and are you seeing an improvement in the content schedule versus maybe the update you gave us when you reported three <unk> and what is the assumption on the recovery and specialty in the guidance.
Yeah, I'll take the first part and I'll, let Brian speak to content and net.
As we look forward and yes. This is above our the high end of the guidance is above our 2019 levels by about that 7% and we have confidence in these numbers because of our ability and what we've been able to achieve over the course of the past year, how we've pivoted to our D to C business, how we worked directly with our specialty retailers to make sure that.
Especially during the Q2.
Looking at our orders, making sure that we moved over to other channels.
Our international expansion.
Everything we put into place over the course of the pandemic really showed up in Q4, and we feel confident that as we look forward that our guidance of.
25% to 30%.
It's right in line with our strategic away from work from how we invest in the business. So we feel good about our guidance and I'll, let Brian.
The content.
Yeah, Alex I am sorry, you broke up just a bit used to continental for 'twenty one.
Yes, just have you seen any sort of improvement in the content slate and then I guess the second part of that was any what's the assumption on the recovery in specialty sort of bottom in the guidance.
Yeah. So you know look I I'll tell you that the content in 'twenty one.
A barren desert right. There was not I mean, it was mandel oriented and that was really it and that we had from initiatives like Wonder woman 1984, where we released product and it was six months before the movie came out so the product just didn't do well. So we basically had zero content in 'twenty. So if you look at 'twenty, one and based on just solidify.
The content slate five new Marvel television shows and by Marvel movies alone in 'twenty one.
We're really excited about that we're obviously seeing a lot of the movies that were pushed from 'twenty into 'twenty, one that they've got stakes in the ground for the second half of the year.
Video game content that we're excited about television Seinfeld, which could be bigger if not bigger than the office, which has been great for us from the last two years. So we are seeing we excited about the content slate not only for 'twenty, one 'twenty two and beyond it's really shaping up well and I think Disney plus I like to call.
That out because it's a big part of this analysis back to back huge wins for us with not only two seasons of mandatory but than one division that's been outperformed anything we ever expected so going into specialty book, we are specialty partners had been phenomenal about adapting the business during a very difficult time, they pushed most of their business too.
Our online.
Their own e-commerce channels and.
I think youre going to see an army omni channel approach for the next year buy online pickup in store.
Online and then I think when the world gets back a little bit normal bid.
Building their stores, so I think they're going to rebound, we definitely see them in great inventory positions and the demand from the parts have never been better. So we were obviously very optimistic when the macro environment clears that we're in good shape there.
Perfect.
Actually if I could squeeze one more in.
So inventory at the end of the quarter was down 4% versus 6% sales growth I guess, how do you feel about the current inventory position and then are you seeing any inventory constraints.
Given port congestion issues on the West coast.
If so have you seen any sort of gradual improvement there.
Lot of other brands and retailers have been calling that out.
Yeah from an inventory perspective, we feel really good about our inventory position, we continue to make progress in terms of the efficiency of our inventory. So we feel like we're in a really good place.
We think about.
Thanks for bringing up the port congestion, yeah, we are seeing a little bit of that especially with a lounge by business.
At this point, it's not necessarily disrupting the total business model, but of course, we're experiencing like everybody else that's for sure.
Perfect. That's really helpful best of luck going forward.
Without.
And your next question comes from the line of Gary Johnson with <unk>.
Capital markets.
Great. Thank you good afternoon I have three questions here. The first one is very similar to a prior question.
You discussed your growth for <unk>.
21, a lot of it coming from evergreen, but how much of the 25% to 30% is based on new theatrical releases not too much too, but specifically new theatrical releases.
Garik.
Yeah.
I think it's obviously a portion.
But we've had ebbs and flows of the company over the last five years six years seven years ago, our number one properties, where TV and it with game of Thrones Youre walking dead. So there's always an ebb and flow.
Or how important theatrical is I think the one lesson we learned from from Q4 of 19, where we didn't do very well and underperformed is.
A reliance on theatrical.
Events to drive the majority of your business is not a sound business strategy, we learned from that we prepared ourselves.
Rather quickly and that's that.
That change paid off obviously in a pandemic that no one saw coming and we drove amazing business with <unk> evergreen and almost no television new content. So now you add a bunch of new TV content, plus a bunch of theatrical content, but some great video game titles, we have a master toy announcement, we're gonna habits pretty major coming up fairly soon.
<unk>.
We don't like to put a percentage on how much of that growth is I think it will contribute but it's like anything else. We certainly learned from the one mistake, we made a net one quarter.
We're going to take an omni approach.
Every kind of thing that we think is moving the needle on pop culture.
Okay, Great down one more question you kind of answered both of my prior questions.
So lounge landslides seems to be the biggest surprise here in the quarter. So what what distribution channel are you seeing the most success with large clients.
No I think.
A tremendous amount of success with Disney Parks closed and net which is amazing because thats. The number one customer it's still very specialty we're seeing a lot of.
Tremendous amount of growth online through our own direct to consumer.
And Amazon has really become a focus for them as well. So and then we're also putting in plans using the lounge Y skill set but the pop brand and were starting to dip into the mass retailers and so I think it truly is about.
Domestically the free channels and then obviously just doing a better job of the amazing amount of content, they're creating and having that resonate international the appetite in EMEA up per lounge why is through the roof.
And we think we can do a better job of focusing on sales of the stub created outbound flight and moving it all over the world. So we think international is going to play a lot.
In the near future with the growth in addition to Walmart target and Amazon So I think.
We're not surprised that the growth we have been very bullish we've almost tripled that business from a very short period of time.
We believe that the potential for lounge lie.
Is unlimited, we think there'll be just many bands wanting to buy soft lines.
Accessories, and hard goods and vinyl figures. So we're very bullish on the future of last month.
Okay, great. Thank you Brian.
And your next question comes from the line of Tami Zakaria with JP Morgan.
One congrats on the expense is down.
I have two questions.
My first question is.
Can you remind us what percentage of sales.
In 2020 came from your own.
That said, Andrew you can see website.
Do you expect that penetration to grow.
In 2020, one and one thing that mean for your gross margin profile.
Yeah, Hey, Terry.
So we did see roughly about 8% penetration of the data feeds business, which is up from less than 4% a year ago. So we did see tremendous growth.
We look forward to 2021, you know one thing to keep in mind is that yes I know.
Net earlier, all tied to rising so.
As a wholesale our EMEA business like everything else can figure that yes, let's shape on that.
Alright.
It changes a little bit so we do expect some increase penetration, but we don't think it'll be a significant simply because.
There is growth in all the channel.
Got it got it.
Super helpful.
And then my second question is.
Can you give us an update.
What percent of the specialty channel.
Still faces clause in the international market and so any number there on that now versus what you saw in the fourth quarter range.
Yeah, and it's really hard to track that as you know because even domestically there's different rules and regulations across the board.
What I would say is that.
What we saw in the second quarter was probably the most challenging that we've seen throughout the course of the year.
Are seeing it come back to business as we noted it did exceed our expectations in Q4 and as they have pivotal data.
Help them illegal.
Some of the accounts as they had internally as well so as we look forward it won't be our.
It'll be a slower back to normal than our other channels and we've anticipated that but we do see eventually it will get back to where it needs to get to.
Got it great. Thank you so much.
That concludes.
Our questions for this time and that concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.
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