TOMY COMPANY (7867) FY2026 Q3 Earnings Report

Quick View

Executive Summary

Despite higher revenue, the Company reported lower operating income and net income, resulting in an increase in revenue but a decrease in earnings, as declining profitability and temporary impairment losses weighed on profit. Revenue was ¥2086.4B (+7.0% YoY), operating income was ¥215.9B (-6.4%), and net income was ¥95.5B (-33.9%). Revenue growth was driven by expansion in Japan and Asia, while higher company-wide expenses and a 51.2B goodwill impairment loss in the Americas weighed on earnings.

Factors Affecting Performance

【Revenue】Revenue increased 7.0% YoY to ¥2086.4B. By region, Japan expanded to ¥1755.9B (84.2% of total revenue, +8.3% YoY) and Asia to ¥524.3B (+22.7% YoY), while the Americas recorded ¥230.2B (-7.3% YoY), Europe ¥62.3B, and Oceania ¥21.9B, with revenue declines occurring in some regions. Most of the consolidated revenue growth was attributable to expansion in Japan.

【Profit and Loss】Operating income was ¥215.9B (-6.4% YoY), and the operating margin declined to 10.4% from 11.8% in the previous year. Total segment profit was ¥267.1B, limited to a 1.2% YoY decline, but company-wide expenses increased 28.0% YoY to ¥48.3B, becoming a factor depressing consolidated operating income. Of special losses totaling ¥54.0B, impairment losses amounted to ¥48.8B, including a 51.2B goodwill impairment loss in the Americas. This temporary factor compressed profit before tax to ¥162.2B. Together with the 41.1% effective tax rate, it left net income at ¥95.5B (-33.9% YoY). Revenue increased, but earnings declined.

Segment Analysis

Japan maintained its role as the core earnings driver, with revenue of ¥1755.9B, operating income of ¥244.5B, and a profit margin of 13.9%, although the margin declined from 15.0% in the previous year. Asia continued its high growth, with revenue of ¥524.3B, operating income of ¥18.3B, and a profit margin of 3.5%. The Americas improved, recording operating income of ¥4.6B on revenue of ¥230.2B and a profit margin of 2.0%, but profitability remained low, and a 51.2B goodwill impairment loss was recognized. Europe recorded an operating loss of ¥1.6B on revenue of ¥62.3B, while Oceania generated profit of ¥1.3B on revenue of ¥21.9B, indicating significant profitability disparities among regions.

Key Financial Metrics

【Profitability】The operating margin was 10.4%, approximately 150bp lower than the previous year’s 11.8%. The gross margin was maintained at 40.7%, but the SG&A expense ratio of 30.4% pressured profitability. The net profit margin remained at 4.6%; in addition to the decline in operating income, impairment losses weighed on profitability.【Cash Flow Quality】The effective tax rate was high at 41.1% against profit before tax of ¥162.2B, and the tax burden is limiting the recovery of net income.【Investment Efficiency】ROE was 8.6%, decomposed into a net profit margin of 4.6% × total asset turnover of 1.18x × financial leverage of 1.59x. While this indicates a structure that does not rely on leverage, the weakness of the net profit margin is depressing ROE.【Financial Soundness】The equity ratio was 62.9% and the current ratio was equivalent to 223.7%, both high levels. Including cash and deposits of ¥465.0B, the financial foundation remains stable.

Cash Flow Analysis

Although a cash flow statement has not been disclosed, fund movements can be inferred from the balance sheet. Cash and deposits were ¥465.0B, down from ¥561.6B in the previous year, while accounts receivable increased substantially to ¥460.6B from ¥295.0B, potentially placing pressure on working capital. Inventories also increased to ¥249.4B from ¥199.8B, suggesting that higher inventory levels are affecting liquidity management. Meanwhile, the equity ratio remained high at 62.9%, preserving the stability of the financial foundation.

Earnings Quality

Of current-period net income of ¥95.5B, special losses of ¥54.0B, including impairment losses of ¥48.8B, had a significant impact as a temporary factor, making the figure less representative of ordinary business earnings power. Non-operating income of ¥5.6B and non-operating expenses of ¥5.4B were nearly balanced, limiting their impact on recurring earnings. Comprehensive income was ¥133.7B, ¥38.2B above net income, with other comprehensive income, primarily foreign currency translation adjustments of ¥29.2B, contributing to the increase. The effective tax rate of 41.1% reflects the tax treatment of impairment losses, and the conversion rate from profit before tax to net income remained at 58.9%. Based on the above, current-period net income was significantly affected by temporary impairment losses, and recurring earnings power is more appropriately assessed on an operating-income basis.

Earnings Forecasts and Guidance

Progress against the full-year forecast was 80.2% for revenue, 91.9% for operating income, 92.8% for ordinary income, and 95.5% for net income. Revenue progress exceeded the standard 75% level and is proceeding steadily toward achieving the full-year forecast of ¥2600.0B. Meanwhile, the high progress rates for earnings suggest that the full-year plan incorporates a substantial decline in the operating margin in Q4. The remaining amounts versus the full-year forecast are ¥513.6B for revenue, ¥19.1B for operating income, and ¥4.5B for net income. Q4 therefore reflects either a conservative plan or a level incorporating uncertainty in the overseas business.

Shareholder Returns

The full-year dividend forecast is ¥64.00 per share. Based on the interim dividend of ¥32.00, the planned year-end dividend is also ¥32.00 per share. The forecast payout ratio, calculated using forecast full-year net income of ¥100.0B and the average number of shares outstanding during the period of 88,992,906 shares, is approximately 57.0%. This is a payout ratio covering dividends only and is not the Total Return Ratio, which includes share repurchases. The forecast payout ratio is below 60% and can be considered sustainable within the earnings plan. However, because current-period net income includes the impact of impairment losses, the recovery of earnings power in the overseas business will determine the stability of future dividend resources.

Risk Factors

1. Americas business profitability risk: External sales declined 7.3% YoY, and the segment profit margin remained at 2.0%. TOMY International, Inc. recognized a 51.2B goodwill impairment loss. The impairment suggests downward revisions to future earnings expectations, and the success or failure of business restructuring will affect future performance.

2. Regional profitability disparity risk: Compared with Japan’s operating margin of 13.9%, the Americas posted 2.0% and Europe was loss-making, indicating that overseas sales expansion is not necessarily translating into improved consolidated margins. Company-wide expenses also increased 28.0% YoY, creating a continuing source of pressure on profitability.

3. High tax burden and lengthening collection period risk: The effective tax rate was high at 41.1%, and the tax treatment of impairment losses is delaying the recovery of net income. Accounts receivable amounted to ¥460.6B, representing 26.1% of total assets, and increased substantially from the previous year, requiring attention to the rising working capital burden.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The operating margin exceeds the industry median, while the net profit margin is below the median due to the impact of impairment losses.

Growth and Capital Efficiency

The revenue growth rate substantially exceeds the industry median, indicating that the revenue growth trend is relatively strong within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Although higher revenue in Japan and Asia lifted consolidated revenue, increased company-wide expenses and the goodwill impairment loss in the Americas pressured earnings, resulting in earnings growth failing to keep pace with revenue growth.

2. Earnings progress against the full-year forecast exceeded 90%, and the fact that the Company’s plan incorporates a decline in profitability in Q4 will be an important point to monitor in assessing future performance trends.

3. The financial foundation remains stable, including an equity ratio of 62.9% and high liquidity. The restructuring of the Americas business and changes in inventory and accounts receivable levels will be key factors in evaluating the future earnings structure.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,235–¥1,305 at cost of equity ±1%; ¥1,269–¥1,270 at ω±0.1.

Notes:

• Because net income progress against the full-year forecast (95%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with progress ahead of plan tend to exceed forecasts. The adjustment may be excessive for businesses with strong seasonality).
• Net income is substantially compressed relative to operating income due to the tax burden, acquisition-related expenses, and non-controlling interests, among other factors (net income ÷ operating income: 43%). This value reflects that compression at face value; if the factors are temporary, the underlying earnings power may be higher.
• Net assets as of the quarter-end were used (there is a timing difference versus the full-year forecast).

(Calculation model: Residual income model (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee future share prices.)

---

This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with a professional as necessary.

---End of Report---

---

AI Financial Analysis

Executive Summary

Takara Tomy delivered solid top-line growth in FY2026 Q3 but lower operating profitability and materially weaker reported net income, principally because of a large Americas goodwill impairment. Nine-month revenue rose 7.0% year on year to ¥208.64bn. Gross profit increased 6.1% to ¥84.93bn, but gross margin declined 34bp to 40.7% from 41.0%. SG&A expenses increased 11.2% to ¥63.33bn, materially faster than revenue growth. Consequently, operating income declined 6.4% to ¥21.60bn and the operating margin compressed 149bp to 10.4% from 11.8%. Ordinary income fell only 2.6% to ¥21.62bn, indicating that the underlying operating deterioration was comparatively contained before extraordinary items. Net income attributable to owners fell 33.8% to ¥9.55bn, with net margin declining 281bp to 4.6% from 7.4%. The principal cause was ¥4.88bn of impairment losses, almost entirely in the Americas, including a ¥5.12bn reduction in goodwill at TOMY International. This impairment represented 51.3% of reported net income, making reported bottom-line earnings materially non-recurring and less representative of normalized operating performance. The effective tax rate was elevated at 41.1%, and the tax burden of 0.589 was below the normal benchmark, likely reflecting limited tax deductibility of the impairment and other tax effects. Revenue growth was led by Japan and Asia, while the Americas and Oceania recorded lower external sales. Japan remains the core business, generating ¥163.04bn of external revenue and ¥24.45bn of segment profit. The Americas segment returned to a modest ¥0.46bn segment profit from ¥0.03bn a year earlier, but the goodwill impairment demonstrates that recovery assumptions and asset values require close monitoring. The balance sheet remains liquid, with a 223.7% current ratio, ¥46.50bn of cash, and equity of ¥110.90bn. However, receivables rose 56.1% year on year to ¥46.06bn, substantially outpacing revenue growth and taking annualized DSO to approximately 60 days. Management's full-year guidance implies that the company expects to retain most of the nine-month operating profit through Q4, while full-year net income guidance of ¥10.00bn indicates limited incremental reported earnings after the impairment charge. The FY2026 forecast dividend of ¥64 per share implies a dividend payout ratio of approximately 57.0% based on forecast EPS of ¥112.37, which is within a sustainable range based on earnings but should be assessed alongside future cash generation.

Profitability Analysis

The reported annualized DuPont ROE is 11.5%, a good absolute level under the stated benchmark but below the level implied by the prior period's materially higher earnings. Its three components are a 4.6% net profit margin, 1.577x annualized asset turnover, and 1.59x financial leverage. The weakest component is net margin, which was depressed by the ¥4.88bn impairment loss; this is more significant than the modestly conservative leverage level. The 10.3% EBIT margin remains in the good 8-15% benchmark range, although it fell from approximately 11.8% in the prior-year nine-month period. Gross margin declined to 40.7% from approximately 41.0%, showing modest pressure in product mix, pricing, sourcing, or currency-adjusted procurement costs. More importantly, SG&A grew 11.2% versus 7.0% revenue growth, producing negative operating leverage and accounting for the larger operating-margin compression. Japan segment profit declined 1.5% despite 8.3% growth in external sales, consistent with cost growth diluting the benefit of domestic revenue expansion. The Americas segment improved from ¥0.03bn to ¥0.46bn in segment profit, but its approximately 2.0% segment margin on total segment sales remains low. Europe remained loss-making at negative ¥0.16bn, though the loss narrowed from negative ¥0.21bn. Asia produced ¥1.83bn of segment profit, down 19.4% despite 22.7% external-sales growth, indicating margin dilution in a high-growth region. Operating profitability is therefore adequate but requires evidence that SG&A growth can normalize below sales growth and that overseas growth can translate into sustainable segment margins. The reported five-factor interest burden of 0.751 is not evidence that interest costs consumed 25% of EBIT: the gap between EBIT and profit before tax is predominantly explained by the ¥5.40bn extraordinary loss, including impairment, whereas disclosed interest expense was only ¥0.31bn and interest coverage was a strong 70.8x.

Growth Assessment

Nine-month revenue growth of 7.0% was broad enough to offset weaker external sales in the Americas and Oceania. Japan external revenue increased 8.3% to ¥163.04bn and remained the dominant driver of group growth. Asia external revenue rose 22.7% to ¥14.20bn, making it the fastest-growing reported region. Europe external revenue increased 7.2% to ¥6.22bn, although it remained structurally unprofitable at the segment level. In contrast, Americas external revenue declined 7.3% to ¥22.99bn and Oceania declined 2.3% to ¥2.19bn. The combination of Americas revenue contraction and the TOMY International goodwill impairment points to execution and demand risks in that market despite the reported segment-profit improvement. Full-year revenue guidance is ¥260.00bn, and nine-month progress is 80.2%, 5.2 percentage points above the standard 75% Q3 progress level. Operating-income progress is stronger at 91.9% of the ¥23.50bn full-year forecast, 16.9 percentage points above the standard pace. Ordinary-income progress is 92.8% of the ¥23.30bn forecast. Net-income progress is 95.5% of the ¥10.00bn forecast, reflecting that the impairment has already been recognized. These progress rates imply a seasonally softer Q4 and leave limited room for further cost overruns, impairment, or overseas weakness. Full-year guidance calls for 3.9% revenue growth and a 5.5% operating-income decline, indicating that management does not expect a full restoration of operating margins in the final quarter. Revenue sustainability will depend on continued Japanese franchise strength, conversion of Asian sales growth into profit, and stabilization of Americas demand and profitability.

Financial Health

Liquidity is strong, with current assets of ¥128.40bn against current liabilities of ¥57.41bn, yielding a current ratio of 223.7%. The quick ratio is also robust at 180.2%, supported by ¥46.50bn of cash and ¥46.06bn of trade receivables. Working capital totaled ¥70.99bn, providing a substantial buffer for seasonal inventory purchases and customer collections. There is no current-ratio warning because the ratio is well above 1.0x. The reported debt-to-equity ratio is 0.59x, below the 2.0x warning threshold, and total liabilities represent 37.1% of total assets. Interest coverage of 70.8x and disclosed interest expense of ¥0.31bn indicate very limited financing-cost pressure. Current liabilities include ¥1.40bn of current long-term loan maturities and ¥3.86bn of current lease obligations; these are comfortably covered by cash and liquid current assets, limiting maturity-mismatch risk. Accounts payable increased 38.3% to ¥20.47bn, partly funding the 56.1% rise in receivables, but payables grew less rapidly than receivables in absolute terms. Receivables increased by ¥16.56bn to ¥46.06bn, materially above the ¥13.67bn revenue increase, and represent 26.1% of total assets. This movement should be monitored for collection timing, channel inventory, or sales concentration effects. Goodwill fell 54.1% to ¥5.11bn following the Americas impairment, substantially reducing future goodwill impairment exposure relative to equity. Goodwill is now only 4.6% of equity and 2.9% of assets, while total intangible assets equal 10.5% of assets; neither balance-sheet concentration is elevated. Treasury stock increased by ¥2.78bn to negative ¥9.35bn, equivalent to 5.3% of total assets, reflecting capital allocation that should be considered together with dividend commitments.

Notable B/S Changes

Accounts receivable: +¥16.56bn (+56.1%) to ¥46.06bn, versus revenue growth of 7.0% - collection timing, customer credit exposure, and potential channel inventory require monitoring; annualized DSO is approximately 60 days. Accounts payable: +¥5.67bn (+38.3%) to ¥20.47bn - increased supplier funding partly offsets working-capital needs, but the increase is materially smaller than the receivables build. Goodwill: -¥6.03bn (-54.1%) to ¥5.11bn - principally reflects the ¥5.12bn TOMY International goodwill impairment in the Americas; remaining goodwill exposure is low at 4.6% of equity. Treasury stock: increased by ¥2.78bn to -¥9.35bn (+42.2% in negative balance magnitude) - indicates meaningful capital deployment into repurchases or treasury-share accumulation, to be assessed with dividends against future cash generation.

Cash Flow Quality

Cash-flow quality cannot be directly quantified because operating cash flow, investing cash flow, financing cash flow, capital expenditure, and free cash flow are not reported in the available financial data. Accordingly, OCF-to-net-income conversion, free-cash-flow coverage of dividends, and cash conversion cannot be assessed. The ¥4.88bn impairment is a non-cash extraordinary expense, so reported net income understates operating cash earnings before any associated tax effects. Conversely, the 56.1% increase in accounts receivable to ¥46.06bn is a material potential use of operating cash and warrants close monitoring. Using annualized nine-month revenue, receivable days are approximately 60 days, marginally above the 60-day warning threshold. The HIGH_RECEIVABLE_DAYS alert is therefore valid: the root cause is receivables growth far exceeding revenue growth, the context is weaker collection efficiency or quarter-end sales timing, and the impact is potential pressure on operating cash conversion if the increase does not reverse. Inventories were ¥24.94bn, concentrated in finished goods, which were also ¥24.94bn; this reinforces the importance of sell-through and inventory discipline for a toy manufacturer. Accounts payable increased by ¥5.67bn, partially offsetting working-capital funding needs, but it did not fully offset the receivables increase. There is no evidence in the reported data of cash-flow manipulation, but the receivables build is the principal working-capital item to test against subsequent collections. The impairment is not a direct cash outflow, but it confirms that prior acquisition-related cash deployment in the Americas has not fully met carrying-value expectations.

Dividend Sustainability

The interim dividend was ¥32 per share. The calculated payout ratio based on the interim dividend and nine-month reported net income is 31.4%, which is conservative on the reported cumulative earnings base. Full-year guidance specifies a ¥64 annual dividend per share and forecast EPS of ¥112.37. This implies a forecast dividend payout ratio of approximately 57.0%, below the 60% sustainability benchmark. The expected full-year dividend therefore appears covered by forecast earnings, although the coverage cushion is narrower than the interim cumulative payout ratio suggests. Reported net income has been reduced by the non-cash Americas goodwill impairment, so dividend affordability should be interpreted with attention to operating cash generation rather than impairment-affected accounting earnings alone. The company has ¥46.50bn of cash and strong liquidity, which supports near-term distribution capacity. Treasury stock increased by ¥2.78bn year on year, so any further buyback activity should be evaluated using a total return ratio rather than the dividend payout ratio alone. Free-cash-flow coverage cannot be confirmed from the available data. Maintaining the dividend outlook will depend on stable Japan earnings, cash collection from the enlarged receivables balance, and avoiding further material Americas restructuring or impairment charges.

Risk Assessment

Business risks include Americas execution and valuation risk: external sales fell 7.3% to ¥22.99bn, and TOMY International goodwill was impaired by ¥5.12bn. The impairment signals that expected cash flows from this business have weakened and raises the importance of monitoring whether the modest ¥0.46bn segment profit is sustainable., Japan margin risk: Japan is the core business, contributing ¥24.45bn of segment profit, but segment profit declined 1.5% despite 8.3% external-sales growth. This indicates cost or mix pressure in the group’s main earnings engine., Asian profitability risk: external sales grew 22.7%, but segment profit fell 19.4% to ¥1.83bn. Failure to convert rapid growth into margin expansion would reduce the strategic value of regional expansion., Toy and consumer-products industry risk: demand is exposed to consumer discretionary spending, product-cycle volatility, licensing and character popularity, retailer inventory adjustments, and seasonal concentration around key selling periods., Inventory and sell-through risk: finished goods totaled ¥24.94bn. For a toy manufacturer, weaker sell-through can require markdowns, increase inventory obsolescence risk, and pressure gross margins..

Financial risks include Receivables risk: annualized DSO is approximately 60 days and receivables rose 56.1%, well above revenue growth. The HIGH_RECEIVABLE_DAYS alert is a valid warning because slower collection or channel inventory build-up could weaken operating cash conversion., Tax burden risk: the HIGH_TAX_BURDEN alert is valid. The 41.1% effective tax rate and 0.589 tax burden reduced conversion of pre-tax profit to net income; the impairment charge may have had limited tax deductibility, making the current period’s tax burden unusually heavy., Non-recurring earnings risk: the HIGH_ONE_TIME_ITEMS alert is valid. Impairment losses of ¥4.88bn equaled 51.3% of reported net income, reducing comparability and highlighting acquisition-asset valuation risk., Capital-allocation risk: treasury stock increased to ¥9.35bn while the company targets a ¥64 annual dividend. Cash-flow coverage of aggregate shareholder returns cannot be verified from the reported data..

Key concerns include The HIGH_INTEREST_BURDEN alert requires qualification. The reported 0.751 interest-burden metric is driven predominantly by extraordinary impairment losses between EBIT and pre-tax profit, not by financing costs. Actual interest expense was only ¥0.31bn and interest coverage was 70.8x, so debt-service risk appears low., Operating margin contracted 149bp because SG&A grew 11.2%, faster than revenue growth of 7.0%. Sustained negative operating leverage would weaken earnings even if sales continue to grow., Full-year operating-income guidance is already 91.9% achieved at Q3, implying limited Q4 earnings contribution and sensitivity to any year-end cost, demand, or inventory pressures..

Investment Implications

Key takeaways include Revenue momentum is positive, led by Japan and Asia, but group operating income declined because expenses rose faster than sales., The Americas goodwill impairment is the dominant reason for the 33.8% net-income decline and materially reduces reported earnings quality in FY2026., The balance sheet remains strong, with high liquidity, conservative reported leverage, and low remaining goodwill concentration., Receivable growth and approximately 60 annualized DSO are the most important near-term cash-conversion indicators., Full-year operating and net-income forecast progress is well ahead of a standard Q3 pace, implying that the final quarter is expected to contribute relatively little..

Metrics to watch include Americas external-sales trend, segment profit, and any additional restructuring or impairment indicators, Japan segment-profit margin and the relationship between SG&A growth and revenue growth, Asian segment margin conversion relative to continued sales growth, Trade receivables, annualized DSO, subsequent-period collections, and finished-goods inventory movement, Gross margin, operating margin, and evidence of pricing, sourcing, product-mix, or promotional pressure, Operating cash flow and free cash flow relative to dividends and any share repurchases.

Regarding relative positioning, Takara Tomy combines a good reported annualized ROE of 11.5%, a healthy 10.3% EBIT margin, and strong liquidity with a consumer-products earnings profile that is currently constrained by negative operating leverage and an Americas acquisition-asset impairment. Its low goodwill-to-equity ratio after the impairment and 70.8x interest coverage are relative balance-sheet strengths, while margin conversion in Japan and Asia, receivables discipline, and Americas recovery are the principal relative operating issues.