Loungefly’s geeky backpacks are a big deal for Funko

You can tell from the Star Wars posters on the walls of their house and the shelves filled with Disney Princess and Masters of the Universe merchandise that Derrick Baca and Liz DeSilva really are the super nerds they claim. to be.

The couple run Loungefly, a collectible fashion and accessories brand owned by pop culture giant Funko – and business is going well.

On Thursday, the company announced that sales of Loungefly-branded products climbed 132% to $ 29.6 million in the second quarter. While Loungefly only accounted for 12.5% ​​of Funko’s total sales, it’s a fast-growing brand and thrived even during the pandemic, thanks in part to Baca and DeSilva.

“I honestly think they could be as big as Funko someday,” said Brian Mariotti, CEO of Funko. “We are just taking giant leaps.”

Funko’s net sales rose 141% to $ 236.1 million in the second quarter, from $ 98.1 million a year earlier. Robust revenue growth helped the company to post net income of $ 20.9 million, or 34 cents per share. A year ago, he lost $ 15 million, or 30 cents a share. After adjustments, Funko gained 40 cents per share in the last period.

Funko’s stock closed at $ 20.12 on Thursday, raising its market cap to $ 980 million. Shares have risen more than 93% since January.

Due to the pandemic, Funko has been forced to invest more in its direct-to-consumer business. From April to June, those sales increased 190% and now represent 11% of all Funko sales. This online strategy benefited Funko’s main line of collectible pop action figures – which saw second-quarter sales increase 137% to $ 185.4 million – as well as Loungefly.

Mariotti has been in charge since he bought Funko in 2005 from founder Mike Becker. That will change on January 3 when he steps down as CEO and takes on the role of Creative Director. Andrew Perlmutter, president of Funko, will become CEO and Mariotti will continue to serve on the board of Funko.

As CEO, Mariotti acquired smaller companies to create new retail opportunities, namely a Funko Games division, which makes board games, and Loungefly, which designs accessories, and now clothing.

Mariotti said he tried to buy Loungefly for about three years before finally making a deal.

“I just saw this amazing little company bring out the coolest backpacks and handbags,” he said.

Founded in 1998, the brand was acquired by Funko in 2017. Baca and DeSilva joined two years later. The former is vice president of sales, merchandising and business development for Loungefly, and DeSilva is vice president of creative.

High-end backpacks, wallets, handbags and fanny packs have been his specialty, but recently they have spilled over into clothing and enamel pins. Most recognizable are Loungefly’s mini backpacks, which often feature bold designs based on popular entertainment franchises or are fashioned to resemble iconic characters.

“Loungefly has been a great success under the ownership of Funko, ”said Stephanie Wissink, Managing Director of Jefferies. “They found the right balance between fostering growth through capital investment, advice, access to more licenses and talent while allowing the brand to truly flourish. It’s the same brand as the purchase, it’s just bigger and more accessible. “

It also proved that Funko can successfully use acquisitions to grow, according to Wissink.

“Success speaks not only of the company’s ability to identify quality assets, but also of its ability to break into new categories that are still tied to the same core philosophy: fan culture.”

Part of the credit goes to Baca and DeSilva, who said they saw an opportunity to elevate the brand. With decades of licensing and merchandising experience, the duo made several major changes when they got on board.

Previously, they said, retailers like Hot Topic, Box Lunch and Disney Parks dictated what Loungefly created based on what they wanted to sell. Baca and DeSilva regained control. They created a base line of Loungefly products and then worked with retailers to design exclusives.

They’ve also partnered with more mom-and-pop retailers and beefed up Loungefly’s online offerings. At the same time, the duo prioritized social media and engaged with their fans to build community.

Baca and DeSilva also improved the quality, adding waist straps and intricate details such as embossed metal rivets. This allowed the company to raise prices.

The number of distributors and third parties Amazon sellers have also been cut. This decision allowed the brand to control its price standards.

“We do well online and with a lot of our moms and dads who have websites because the consumer knows what they’re going to get when you get a Loungefly,” Baca said on a home video conference. ‘he shares with DeSilva. . “You have a level of confidence in the quality, especially as we have raised it over time.”

This served Loungefly well during the pandemic, when its customers were unable to venture into physical locations to purchase bags, wallets and handbags. Instead, they bought products online.

“[Mom-and-pops] made up a very small percentage of our business, and we’ve grown exponentially, ”Baca said. “In fact, that’s a big part of why you saw 82% growth [in the first] trimester.”

DeSilva works with a team of artists and designers to create unique, avant-garde accessories that “tell a story”.

A new line of mini backpacks, for example, features villains scanning the world of iconic Disney heroes – Hades flies over Hercules battling a hyrda, the Evil Queen overlooks a magical mirror with Snow White, and Ursula smiles behind a magical orb starring Ariel.

DeSilva said she and Baca love to look beyond the style guides that licensors love. Disney, Warner Bros. and Universal provide them and describe the times fans connect the most. This includes making bags that feature Stitch from “Lilo and Stitch” in a hula outfit or Pascal, the animal chameleon from “Tangled”, wearing a pink dress Rapunzel made for her.

Loungefly plans to expand its licenses to Major League Baseball, National Football League, various anime properties, and old favorites like My Little Pony and She-Ra.

Mariotti said the brand, which he playfully calls “Geeky Gucci” and “the Chanel of pop culture,” has grown tenfold in less than four years.

“You know, you can’t walk around with your Pop,” he said, when asked how Loungefly fits into the Funko portfolio, “but you can definitely walk around with your bag. backpack or your purse or your wallet. It’s so wonderful. way to celebrate the things you love. And when you walk around, people know what your fandom is. “

Disclosure: NBCUniversal is the parent company of Universal Studios and CNBC.