What happened

Toymaker Funko (NASDAQ:FNKO) didn't bring much joy to its investors Friday. Despite Funko reporting earnings that easily outdistanced what Wall Street had predicted, investors sold off the stock, which closed down 21.5% for the day.

Profits for Funko's fiscal third quarter came in a nickel ahead of estimates at $0.27 per diluted share. Sales for the quarter likewise exceeded expectations, with Funko reporting $176.9 million in quarterly sales versus the $166 million that were predicted.

Cartoon characters shocked at a falling stock chart

Despite beating earnings and raising estimates, Funko stock just crashed. Image source: Getty Images.

So what

So why weren't investors happier with the results? For one thing, although Funko succeeded in growing its sales 24% year over year, a big decline of 250 basis points in gross profit margin, plus rising selling, general, and administrative costs, prevented profits from growing at all.

In fact, Funko's net income declined 2% year over year. Although it beat earnings, that result had to come as a disappointment.

Now what

Despite these obstacles, Funko raised guidance for the rest of 2018, predicting it will end this year with sales of anywhere from $645 million to $650 million and "adjusted Pro Forma EPS" (earnings per share) of from $0.68 to $0.73. Furthermore, Funko noted that it believes 2019 will "be a banner year for pop culture content" toys, such as those Funko specializes in.

There's no estimate for what a "banner year" works out to in terms of dollars and cents just yet -- but with luck, Funko will quantify that for us when it reports Q4 earnings, three months from now.

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