Q4 2024 Funko Inc Earnings Call
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Eric Wold, Linda Bolton,
Eric Wold, Linda Bolton,
Speaker Change: Good afternoon, and welcome to Funko's 2024 fourth-quarter financial results conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time.
Speaker Change: Please be advised that reproduction of this call in whole orange park 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 Funko's Director of Investor Relations, Rob Yaffe. Please proceed.
Speaker Change: Hello everyone, and thank you for joining us today to discuss Funko's 2024 fourth quarter financial results.
Rob Jaffe: on the call, or Cynthia Williams, or Chief Executive Officer, and Yves LePendeven, the company's Chief Financial Officer.
Rob Jaffe: This call is being broadcast live at investor.funco.com. A playback will be available for at least one year on the company's website.
Rob Jaffe: I want to remind everyone that during the course of this call, management's discussion will include forward looking information.
Rob Jaffe: These statements represent our best judgment as of today about the company's future results and performance.
Rob Jaffe: Our actual results are subject to many risks and uncertainties that may differ materially from those stated or implied, including those discussed in our earnings release.
Rob Jaffe: Additional information concerning factors that could cause actual results to differ materially is contained in our most recently filed SEC reports.
Rob Jaffe: In addition, during this call, we refer to non-GAAP financial measures that are not prepared in accordance with US generally accepted accounting principles, and may be different from non-GAAP financial measures used by other companies.
Rob Jaffe: Investors are encouraged to review Funko's press release announcing its 2024 quarter financial results, for the company's reasons for presenting non-GAAP financial measures.
Rob Jaffe: A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures is also attached to the company's earnings press release issued earlier today
Rob Jaffe: One item to note. As disclosed in our Q4 press release, following correspondence with the SEC, we no longer adjust our non-GAAP financial measures for one time costs related to inventory.
Rob Jaffe: This change in presentation increases adjusted net loss by $29.3 million and lowers adjusted the EBITDA by $39.0 million for the year ended December 31, 2023.
Rob Jaffe: I will now turn the call over to Cynthia Williams. Cynthia?
Cynthia Williams: Thanks, Rob. Good afternoon, everyone, and welcome to Funko's 2024 fourth-quarter financial results conference call.
Cynthia Williams: In 2024, we began laying the foundation for Funko's future. We stabilized net sales at over $1 billion and drove gross profit and adjusted EBITDA growth by more than $100 million.
Cynthia Williams: We gained momentum in Q4, delivering 294 million dollars of net sales, which was at the top end of our guidance range and, up over 1% year-over-year, thanks in part to direct to consumer growing to 29% of our overall sales.
Cynthia Williams: Able to provide a deeper look at our financial result shortly.
Cynthia Williams: I continue to be proud of our team's ability to exceed expectations and bring fandom to life, and Q4 exemplifies this.
Cynthia Williams: We saw major wins across our key growth areas, particularly in sports, top yourself, and D-Pop, where we continue to build momentum.
Cynthia Williams: In just the last quarter of 2024, we grew our core collectibles business over 10% and sales outside of the U.S. grew by 23%.
Cynthia Williams: This excitement was echoed by our retail and distribution partners that we recently met with at three major global toy fairs in London, Nuremberg, and New York.
Cynthia Williams: They're overwhelming enthusiasm for innovative products, reaffirms the strength of our strategy and the opportunities ahead.
Cynthia Williams: One strong example was the feedback we received from retailers and media for Biddy City, a Biddy Pop expansion where fans can build the miniature world of their dreams, which we revealed at the New York Toy Fair this past weekend.
Speaker Change: I'm going to highlight Wands in Q4 and couple them with examples of how we're driving results further in Q1.
Speaker Change: Sports product launches and new licensing agreements in the back half of 2024 open exciting avenues to engage fans across multiple leagues and teams.
Speaker Change: A recent collaboration with the NFL and NBA have already redefined how fans express their fandom and we are just beginning to tap into the $35 billion sports memorabilia market.
Speaker Change: Currently, sports represent only 4% of our total revenue, and we see tremendous potential for growth in this category.
Speaker Change: In Q4, Pop yourself took center stage with our expanded NFL partnership, allowing fans to customize figures with their favorite teams logos.
Speaker Change: The energy around this launch was undeniable as we saw a sharp spike in sales for the NFL product throughout the season.
Speaker Change: Building on this momentum, in Q1 of this year, we launched NBA-themed Pop Yourself Customization, leveraging the NBA All-Star Game in February to introduce this experience to a massive audience of basketball fans.
Speaker Change: This partnership and expansion mark a significant step in bringing millions of new sports enthusiasts into the Funko ecosystem.
Eric Wold, Linda Bolton, Yves Pendeven,
Speaker Change: Capitalizing on fan excitement, we launched items tied to major sporting events.
Speaker Change: In November following the Los Angeles Dodgers World Series victory, our commemorative release of the strong year-over-year revenue growth.
Speaker Change: Similarly, right after the Super Bowl, we released the Philadelphia Eagles 2025 Super Bowl Champions Five Pack in partnership with Fanatics, which flew off the virtual shelves.
Speaker Change: Expanding into collegiate athletics, we launched our first-ever name-image-likeness pop in November featuring U.S.C. Basketball Phenom, Juju Watkins.
Speaker Change: The presale, which included an exclusive Chase variant, limited to just 25 signed figures, generated immediate demand, and positioned us as an emerging player in the NCAA merchandise space.
Speaker Change: expanding top yourself into new geographies and strengthening partnerships, particularly in the NFL and MBA, to drive deeper fan engagement across our product lines.
Speaker Change: Music remains a critical category for Funko. In 2024, the Doja Catpop was a top-selling figure in our direct-to-consumer channel, bringing in a new wave of customers and reinforcing the power of artist collaborations.
Speaker Change: Doja's team approached us with the idea of creating a special edition pop to commemorate her headline performance at Coachella.
Speaker Change: Similarly, this year, within minutes of her Grammy win, we launched the Sabrina Carpenter pop rock figure, tapping into the massive enthusiasm surrounding her record-breaking success.
Speaker Change: Our partnerships with artists continue to grow, reflecting that music icons across genres and generations want to work with us as much as their fans want to express their passion for the artist.
Speaker Change: In the area of gaming, in November , Mondo launched a presale for blizzards, World of Warcraft, 20th anniversary soundtrack, timed in conjunction with their celebratory live stream.
Speaker Change: This $90 collector album was our first Blizzard Collaboration and one of Mundo's highest revenue albums of the year.
Speaker Change: We continue to be excited about the potential of Mando and its ability to serve the growing community of high-end collectors, gamers, and music enthusiasts alike.
Speaker Change: Turning to our core fans, we continue to delight them across best-selling pop culture genres.
Speaker Change: In Q4, anime product sales grew 7% year-over-year. In fact, one piece.
Speaker Change: The world's most popular anime franchise was the top selling property after our own IP for the full year. Within the entertainment fandom, wicked excitement reached fever pitch with the movie release in November .
Speaker Change: Funko and Lunsford both played a key role in bringing the magic of odds to our fans.
Speaker Change: The excitement was further amplified by the social media buzz around Ariana Grande wearing the Lounge-like Glenda Bag while arriving in London for the premiere.
Speaker Change: Even without a tentpole movie release, the loved, evergreen properties like Harry Potter, Star Wars and Batman continue to delight core fans.
Speaker Change: We've seen these evergreen characters work particularly well in our bitty pop line, building on the growing miniature collectibles trend.
Speaker Change: In fact, our bitty line grew an impressive 83% year-over-year in Q4. And as noted before, there's real excitement about the world-building extension with Bitty City.
Speaker Change: At Funko, we believe everyone is a fan of something, and we continue to delight core fans in celebration of blockbuster entertainment releases and locked evergreen characters, while also expanding into large fandoms like sports, music, and gaming.
Speaker Change: We are well positioned to serve these fandoms through our industry leading portfolio of licensed IP and partnerships.
Speaker Change: Our Director Consumer Channel enables us to learn more about our fans and how to better serve them.
Speaker Change: We saw data see increased to 29% of gross sales, up from 25% in Q4 2023.
Speaker Change: This channel continues to deliver higher margins and critical consumer insights, helping us refine product offerings and enhance personalization.
Speaker Change: Pop yourself, which is currently available through our direct-to-consumer channel, has been our fastest growing product line with year-over-year growth of 110% in Q4 and 185% in all of 2024.
Speaker Change: This has also been a terrific customer acquisition channel, bringing nearly 800,000 new fans into the Funko ecosystem in 2024 alone, proving personalization is a powerful way to connect with new fans.
Eric Wold, Linda Bolton,
Speaker Change: Our Fan Loyalty Program, Fan Rewards, added 120,000 new members in 2024, bringing total membership to over 280,000.
Speaker Change: These THON addicts, our most valuable customers, account for 26% of US website sales and spend nearly twice as much as non-members.
Speaker Change: With over 40% of loyalty members joining in the last year, we see a huge opportunity to continue growing membership and improving their experience through further enhanced personalization and exclusive offerings.
and Yves LePendeven.
Speaker Change: Additionally, I want to share some updates on how we've strengthened our leadership team with key additions.
Speaker Change: Jason Harenstein, CFO of Collector Holdings, joined our board in December , bringing deep expertise in collector trends and behaviors across sports memorabilia grading, trading
His insights further enhance and already engaged and innovative forward.
We upleveled two key positions and added one new position.
Speaker Change: Jen Reeves, a new SVP of brand, previously helped drive Stanley 1913's viral success and skyrocketing sales of the Quinter.
Speaker Change: We are excited to see her elevate Funko's brand positioning and drive deeper engagement with our fans.
Speaker Change: Glenn Abel, SDP of North America sales brings extensive experience from Mattel, Moose Toys, and LEGO, positioning Funko for global distribution expansion and transformative sales operations.
Speaker Change: Z. Gatham has joined as VP in head of business development, bringing extensive sports licensing expertise from his senior roles at the Major League Baseball Players Association and top trading company.
Speaker Change: His leadership will be instrumental in expanding our presence in sports fandoms.
Speaker Change: As we move into 2025, we anticipate modest top-line growth with momentum accelerating in the back half of the year as our strategic initiatives begin taking effect.
Speaker Change: Similar to others in our industry, we're experiencing saltine consumer behavior in the US market and we're navigating the uncertainty of tariffs and inflation.
Speaker Change: However, we remain optimistic in our ability to navigate these external challenges thanks to our proactive mitigation plans, a high performing leadership team, and continued discipline execution.
Speaker Change: With that, I will hand it over to Eve to share more about our financials and our outlook for the year ahead. Eve?
Thanks, Cynthia. Hey, everyone. Thanks for joining us today.
Speaker Change: For the fourth quarter, total net sales were $293.7 million, up 1% over the same quarter in 2023, and at the top end of our guidance range [inaudible]
Speaker Change: Director Consumer Sales increased 20% year-over-year and comprised 29% of our growth sales compared with 25% in last year's Q4.
Speaker Change: Sales in Europe were up more than 20% driven by strong seasonal performance at our key retail partners across our G5 markets.
Speaker Change: This helped offset softness in the U.S. where some mass retailers limited purchases to end the year with weener inventory positions.
Gross Profit was $124.4 million and Gross Margin was 42.4%
Speaker Change: Last year's Q4 gross profit was $109.4 million, equal to 37.6%, meaning we delivered a 480 basis point improvement.
Speaker Change: This was driven by a more favorable sales mix, lower product costs, and reduced freight and inventory reserve charges.
Speaker Change: SGNA expenses were $102.8 million, slightly above our guidance range, largely due to higher than anticipated marketing expenses to help fuel DTC sales.
Speaker Change: S.GNA expenses included $1.6 million of non-recurring charges compared with $8 million in Q4, 2023.
Speaker Change: Adjusted net income was $4.4 million or $0.8 per diluted chair well above our guidance range for the quarter. This marks a $4.3 million improvement over $0.1 million in Q4 of 2023.
Speaker Change: And finally, Adjusted Yvita was $26.3 million, which also was well above our guidance range.
Speaker Change: For the full year, net sales were 1.05 billion dollars compared to 1.1 billion dollars for 2023.
Speaker Change: Adjusted EBITDA significantly improved to $94.7 million compared to negative adjusted EBITDA of $11.8 million for 2023.
Turning to our balance sheet.
Speaker Change: At December 31st, we had cash and cash equivalence of $34.7 million, which is after paying down $40.6 million of debt in the fourth quarter.
Speaker Change: Our total debt was approximately $182.8 million down considerably from $273.6 million at the end of last year and down from $223.4 million at the end of the third quarter.
Speaker Change: That inventory was $92.6 million, down more than 20% from the end of 2023, and down more than 60% from the end of 2022.
Speaker Change: and total company liquidity increased to $124.7 million from $83.5 million at the end of last quarter and $57 million at the end of 2023.
Turning now to our Outlook
Speaker Change: We expect 2025, full-year net sales to be up modestly over 2024 and adjusted Yvada to be slightly lower than 2024 at the midpoint of the range.
Speaker Change: Before I get into the specifics, I would like to provide context.
Speaker Change: Our outlook includes the anticipated impact of 20% tariffs on imports from China that have been announced through February 27th, 2025. It does not, however, account for any further tariffs as the impacts of such actions remain uncertain.
Speaker Change: It's worth noting that after the initial 10% tariffs on China imports, we plan to give stronger guidance for both net sales and adjusted EBITDA.
Speaker Change: But we've now incorporated both the incremental 10% tariffs and weakening consumer behaviors in the US market.
Speaker Change: With our current guidance, we now expect both net sales and adjusted EBITDA to be down your year in the first half of 2025 and then up in the second half of the year.
Speaker Change: Our confidence in the second half-growth is based on things we can control, which include
Speaker Change: First, mitigating the impact of tariffs through all available strategies, including renegotiating factory costs
Speaker Change: Accelerating our shift in production to other sourcing countries and implementing pricing adjustments.
Speaker Change: Second, driving direct to consumer sales, our most profitable channel, by expanding pop yourself into new international territories in late 2025, and enhancing our customer acquisition practices through Funko.com experiences.
Speaker Change: Third, investing in trade marketing with our strategic retail partners and opening new points of distribution.
Speaker Change: Thanks to our focus on inventory management, we have all the eliminated sales of our Funko Pop products into discount channels, which we anticipate will revitalize our brand value and shopping experience for our fans.
Speaker Change: Our consonants in these actions is bolstered by the strength of our brand as evidenced by the continued growth we have seen in Emea, including the double digit POS growth over the last four weeks.
Speaker Change: For the full year 2025 outlook, we expect net sales between $1.05 billion and $1.102 billion.
An Adjusted EBITDA between $80 million and $100 million and $100 million.
Speaker Change: For the 2025 first quarter, our guidance is net sales between $188 million and $198 million.
Gross Margin of Approximately 39%
SGNA expense of approximately $91 million dollars.
Speaker Change: Adjusted net loss between $25 million or $48 cents per share and $22 million or $40 cents per share Finally, we expect a negative adjusted EBITDA between $14 million and $9 million [inaudible]
Cynthia Williams: Cynthia, that's it for our financial results. Back over to you.
Cynthia Williams: Thanks Eve. In summary, we ended 2024 on a positive note with a better than expected overall financial performance for the quarter.
Cynthia Williams: I'm confident in our ability to navigate the current complexities and deliver our future growth, propelled by our strength and team, our strategic roadmap, and our dedicated fans.
With that, we'll open the call for questions.
Operator
Speaker Change: Thank you. We'll now open the line for questions. If you'd like to ask a question, please dial star one on your telephone keypad. If for any reason you need to remove that question, you can dial star two. Again, to ask a question, please dial star one.
Speaker Change: The first question is from the line of Stephen Leichick with Goldman Sachs. Stephen, your line is now open.
Thank you.
Steven Leitchik: A great thanks for taking the questions. Maybe to start off here, maybe for both Cynthia and Yves, if you want to jump in as well. I'm curious to speak a little bit more about the assumptions you're underwriting in your guidance for the year. I know you called out Tara's and consumer sentiment. It also seems like there's some green shoots.
Steven Leitchik: Also on the business and perhaps on the direct consumer side and sports side. I was wondering if you could maybe isolate some of the headwinds and tailwinds you're expecting to see this year from those factors and if there were upside or downside risks to the guide for the year where I think those those upside and downside risks might might lock in.
Steven Leitchik: Hi, Steven and Cynthia. Thanks for the question. You're right. There's a lot of green shoots that we're seeing right now that we are excited about.
Speaker Change: In particular, I'll start with the most recent, the reaction we got at New York toy fair this weekend to the bitty city that we revealed that we can I'm sorry I missed you when you came by the booth I've already left
Speaker Change: Um, but I hope you enjoyed seeing it as well. You can see that it's a mix of Lifestyle P and our own IP that allows you to build the
Speaker Change: I have to say I had the opportunity to show it to several of our major retailers and got phenomenal feedback about it during the meeting. So that's certainly one green shoot.
Speaker Change: Seeing every single major retailer in Europe , the app Double Digits and POS is reason to believe about the strength of our brand and our products.
Speaker Change: A lot of what you hear us talking about that we're going to be doing and the U.S. retail is based out what we see working later.
Beautifully Executed
Speaker Change: We've now hired a trade marketing person to help us do similar things in our meetings with the retailers. I'd say right now we have a list of requests longer than what we're probably able to do in a given year. So we'll be prioritizing some of those, but we're excited.
Speaker Change: to elevate that. And I'd say the third one I'll talk about before I jump into sports, the moral and retail execution is our inventory level.
Speaker Change: We're at a very healthy position in our inventory levels. To the point that, we really won't have inventory that we would be selling directly into close-out channels.
Thank you. Thank you.
Speaker Change: Now, that has a slight impact on our top details, but it will have a real benefit on not only our margin, but on our perception at retail.
Speaker Change: It doesn't do the brand any good if you fan as bought the product.
and then they go into a close-out channel.
and see that same product for $4. It just...
Speaker Change: Delutes the value of the brand. So I'm very excited that we're at a place that we don't see that happening to a very minor degree this year.
on the sports front.
The NBA Crossover of That [inaudible]
Speaker Change: was I wasn't there but my team is talking about how jam packed the booth was and how long the lines were for pop yourself so we're seeing that excitement for the personalization of pop yourself in conjunction with sports.
Speaker Change: and I can't share anymore today but there are more weeks coming. There and we have a number of activations that we're excited about on that front.
So stay tuned for more.
Sarah, but I would tell you [inaudible]
I'm incredibly optimistic.
Speaker Change: about our long-term future. Unfortunately, some of these things actually don't take us back until the second half of the year. And so, I can sound very excited about it and know that you're going to see more of that impact in the back half.
Eric Wold, Linda Bolton,
Speaker Change: Evella, you talk a bit about the assumptions that are built into the guidance.
Yves LePendeven: Sure, hey, Steven. Yeah, so as I mentioned, you know, we've incorporated the 20% tariffs from China, which would be the ones that...
Yves LePendeven: that would impact us. As we've mentioned before, we have roughly a third of our global product purchases coming from China.
Yves LePendeven: We've incorporated both the actual dollar amount from the tariffs as well as the impact that we're seeing.
Cynthia Williams: on the U.S. consumer, because, as Cynthia mentioned, and Emma, we're doing quite well. I would say that, you know, it's obviously a very fluid situation. We're seeing new headlines and announcements, even as recently as a couple hours ago about delays in the implementation of some of the tariffs. So,
Cynthia Williams: to the best of our ability. We've kind of explained the range.
Cynthia Williams: given what we know about the tariffs and what we see with the US consumer. Obviously, upside and downside, if there were exemptions, if there were delays, that would obviously help us.
Cynthia Williams: if we see rebounding of consumer sentiment as well, to the downside, obviously further kind of, you know, tariff escalation.
Cynthia Williams: would be to the downside, but we're comfortable kind of navigating what we know of today. As I said, we have a number of mitigation strategies in place.
Cynthia Williams: and we've proven really over the last couple of years that we're able to navigate complex challenges and be resilient and that's really thanks to the power of our brand and the support of our fans.
and Yves LePendeven. Thank you. Thank you.
Rob Jaffe: That's great. Thanks for that. And then maybe second, you sent you to wait for this year, one of the.
Speaker Change: One of the things that certainly stood out though was the focus on sports. I think we've seen some nice momentum over the last year from you guys on that day. Thank you mentioned your prepared remarks with it's only about 4% of revenue today.
Speaker Change: Just curious where you see the sports strategy going over the next three or five years.
Speaker Change: How big of a business could that be for you? And maybe as a follow-up to that on the margin profile the sports category is there any way you can maybe size a margin profile of sports items for you or maybe have a comparison to other license IP that you have in the marketplace today?
Thank you.
Yeah, thanks for that. I'm glad you enjoyed the booth.
Speaker Change: I hear what I tell you is we're seeing a really positive reaction to the activations we're doing both in our mainline product.
Speaker Change: as well as some products like the NFL Advent Calendar was one of our top selling products.
Speaker Change: in Q4, so we're seeing sports work across the product line.
Speaker Change: As you saw on the toy fair, we've got some fun ways in Bitty City for you to create maybe your ideal soccer game or your ideal football game and so I think that'll be a lot of fun and we're looking forward to that we're looking forward to that.
Speaker Change: I'm very excited about some of the other sports activations that are already planned that you'll hear us talking about later this year and regional capsules we mentioned we've identified four cities.
Speaker Change: The first one will be Seattle, so that we can do a lot of testing and learning in our hometown, but you'll see that be a
Speaker Change: a celebration of all the professional sports in a given city so that you can have the fans be able to celebrate the legend.
Speaker Change: the current athletes, their love of the team, and there'll be some unique experiences along the way, so we're really excited about that. And I really am looking forward to us doing more with other international teams and leagues.
Speaker Change: So, I'd say the runway there is long. You know, the sports member of billion market, I think I said in a prepared remarks is like a $34 billion market segment
Speaker Change: and we are just getting started. So I don't have a percentage to share with you today on how big I think that can be but you'll see that really gaining momentum for us in the back half of the year and into 2026.
In terms of the margin profile,
Speaker Change: Well really, it's more or less the same as the rest of the business, you know, and pop yourself.
Speaker Change: When we're doing this, we're paying our licensing fee just on the accessory and so that still means that the pop yourself is a much higher margin than our mainline pop products.
Speaker Change: But you should expect the margin profile on these to be really similar to the rest of our business.
Thank you.
Great, thank you.
You're welcome. Thanks for the question.
Speaker Change: Thank you. The next question is from Linda Weiser with TA Davidson. Linda, your lines are now open.
Linda Weiser: Yes, hi. So, I was curious. You mentioned that U.S. retailers, I guess maybe you've got to study the math retailers.
Linda Weiser: You know, at math, and then more broadly, like, because you serve a lot of specialty kind of retailers. So is your PLS declining? Or is it clad, or is it growing? And then what kind of a gap then was there between your cell in and your cell through? [inaudible]
in the U.F. retail channel in fourth quarter.
Speaker Change: Hi, Linda. Thanks for the question. You know, the good news is that our POS in the fourth quarter was growing, and I'm not going to split it by channel, but
Speaker Change: Clearly, you know that our mass channels are sizable. None of them have more than 10% with Amazon being the largest at about 8%. But I'll give you a sense of how the POS was going.
Speaker Change: If we use our internal measures, which is the wholesale customers who report to us, plus our direct to consumer, our POS in the fourth quarter was up 4% year-over-year.
Speaker Change: Now, that's global, so I'm going to split it for you a little bit. In the US, it was 1% and it was double digit. I think the number 17% and the rest of the world. So
Speaker Change: We were seeing this strength in Europe even as we closed out the year. So, our selling and sell through in math in the US. What I tell you was there wasn't there was this massive gap so much as
Speaker Change: As they went into the end of the season, they were really working towards
ending up with very healthy inventory levels.
which they really have.
You would...
When you look out where they're at,
Speaker Change: We're not seeing the name for a lot of significant discounting from them either. Now if you were looking at Wal-Mart's numbers, you'd see it be a little bit up the calls of Bitty Pop. They have to carry a higher and more level.
Speaker Change: to keep the impulse, single-bitty parts in stock across the chain, but it's...
Speaker Change: You know, it's just a matter of we're all ending with really healthy inventory and now with the US consumer.
Speaker Change: showing ability to tighten their wallet a little bit and having lower foot traffic in the target in Walmart, you know, we're seeing the softening of US consumer service.
Thank you. Thank you.
and Yves LePendeven.
Eric Wold, Linda Bolton,
Okay, that's very, very helpful. Thank you. And then
Speaker Change: So then when I look at your guidance, the first quarter, kind of a bigger decline year of year in sales.
Speaker Change: So I guess that would be what exactly? Why would that be? If your POS is fairly healthy and
Speaker Change: Why is the decline getting so much bigger in the first quarter?
Speaker Change: I'd say it's two things that I'll highlight for you. The first one, you've probably heard some of our major retail partners make public comments about their specific.
Speaker Change: and how it's lower and been negatively impacted, and that we are seeing that impact their replenishments.
So, that's item one.
Speaker Change: I'd say, and we're seeing the US consumer be more cautious about their spending and our direct-to-consumer channels. I think you put out a report about this yesterday so you're seeing our credit card data.
Speaker Change: You were spot on about it. What we're seeing is people are just being more cautious, that we're seeing slightly lower average order values when they are purchasing. It's a bit softer.
Speaker Change: But then again, I look at Europe and it's so strong with the double-digit POS sales in every major retailer. So it really makes me feel like we are dealing with the macroeconomic environment.
Speaker Change: that we're going to have to navigate through. And so we'll be doing that. I'll tell you the second piece I was going to highlight for you that is also impacting that POS credit card data you spotted.
as the terrorists have been announced.
Speaker Change: We've seen some disruption and the border crossing from Mexico into the United States.
Speaker Change: as the Mexican government is trying to make sure that they are compliant with whatever the rules of the moment are about the terrorists.
and our pop yourself is built in Mexico.
Speaker Change: and so we've seen delays in the trucks getting across to the extent that we have started having to turn expedited shipping.
on and off.
Speaker Change: to protect the consumer experience on that, and it's a short-term thing, but it's the right thing for the customer experience long-term and a product that's new, is as new as top yourself is, and so that's having a bit of an impact for us as well.
Thank you. Thank you. Thank you.
Speaker Change: Okay. So on that topic, then, of Mexico and the tear up.
Speaker Change: So, I mean, are you saying that you're not, you're pop yourself, which may assemble in Mexico? Your guidance doesn't include the Mexican, the tariff on the Mexican products brought in, or is it the minimum ritual, or what are you thinking there?
Speaker Change: Well, actually, this is what we have in the guidance, and so I just want to be clear that this is about the disruption at the border more than it's the terror.
Speaker Change: So, we bring the components for pop yourself over which are made in China and so we're paying we've got within our guidance the tariff from China on the pop yourself component.
Now when the product is compiled
Speaker Change: or Made in Mexico. We don't have an additional tariff on that as it comes back across the border. But the disruption at the border with the trucks being backed up and then trying to assess what they should let through and should let through.
Speaker Change: has impacted our delivery times to our customers, and therefore how much we're spending, you know, on marketing and whether or not we are allowing, well, on when we pull the marketing [inaudible]
Speaker Change: and whether or not we have on the expedited shipping. And with the giftable product, you know, it's a problem when the gift is late.
and Yves LePendeven.
Speaker Change: Yeah, okay. Okay, I got it on the next go. So then, again, with the tariffs and everything, does your guidance include mitigating actions that you're taking, like any potential price increases? Like, what are you thinking along those lines in terms of taking some pricing to ask that?
Speaker Change: It does, actually, we are looking at all levers and all possibilities for that.
Speaker Change: When I was at New York toy fair, I was meeting with some of our vendors. We were talking about some of the call sharing we were talking about
Speaker Change: some opportunities to shift more of our production. We've been working on the diversification of our supply chain for years and we'll continue doing that.
Linda Weiser: and pricing adjustments are a lever for us, and so we don't have anything to announce on that today, Linda, but it's certainly incorporated into our guidance.
Eric Wold, Linda Bolton, Cynthia Williams
Eric Wold, Linda Bolton, Cynthia Williams
Okay.
and Steven Nave. Thank you. Thank you.
Speaker Change: Thank you. There are no further questions. I'll hand the call back over to the management team for concluding remarks.
Speaker Change: That concludes today's conference call. Thank you for your participation. You may now disconnect your lines.