What happened

Shares of Funko (FNKO 0.82%) were taking a dive today despite a better-than-expected second-quarter earnings report. It's not clear why the toy maker's stock fell, though investors may have been disappointed by a decline in profits and expectations for decelerating growth.

As of 1:14 p.m. ET, the stock was down 18.2%.

So what

Funko, best known as the maker of the popular POP! figurines, posted strong second-quarter results. Revenue was up 34% to $315.7 million, which easily beat analysts' estimate of $292.6 million. Loungefly, its brand that makes pop-culture-focused accessories like handbags, saw sales jump 114% to $70 million, and direct-to-consumer sales were up 26%, showing consistency even as e-commerce growth slowed broadly.

However, as the company had predicted, profits fell in the quarter. Funko had said that higher freight costs and one-time expenses for a distribution center relocation and a software implementation would weigh on profits in the second quarter, which explains why adjusted EBITDA fell 22.7% to $31.8 million. Adjusted earnings per share also slipped from $0.40 to $0.26, but that still beat estimates for $0.23 in per-share earnings. 

CEO Andrew Perlmutter said, "We are thrilled to report record second quarter net sales to cap off the strongest first half net sales in Funko's history. All of our reported brand categories grew double digits, indicating robust demand across the brand portfolio." 

Now what

It wasn't clear why the stock fell despite beating estimates. Funko had warned investors that profit margin would fall in the second quarter before recovering in the second half, and it still topped bottom-line expectations in the report.

The company also raised full-year guidance, calling for $1.3 billion-$1.35 billion in revenue, implying 26%-31% growth, up from a prior range of $1.275 billion-$1.325 billion. On the bottom line, it called for adjusted EPS of $1.88-$1.99, up from an earlier forecast of $1.80-$1.90. 

However, the raised guidance implies revenue growth of 16% in the second half of the year, which would represent a significant decline. Given the macroeconomic uncertainty and the faddish nature of toys, management may be just being conservative with its guidance, but that seems like the best explanation for the consumer discretionary stock's surprising slump today.