TOMY COMPANY (7867) FY2027 Q1 Earnings Report

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Executive Summary

The company achieved profit growth exceeding revenue growth, resulting in a higher-revenue, higher-profit performance driven by operating leverage. Revenue was ¥640.5B (+7.7% YoY), Operating Income was ¥55.1B (+19.9%), Ordinary Income was ¥56.3B (+13.4%), and Net Income was ¥40.6B (+19.6%). In addition to maintaining a gross profit margin of 42.3% while controlling the growth of SG&A expenses, the return to profitability in the Americas and strong growth in Asia expanded the overseas earnings base.

Factors Affecting Performance

【Revenue】Revenue was ¥640.5B, up +7.7% YoY. Japan was the largest market, accounting for 78.6% of the total, with external revenue of ¥503.4B and growth of +4.2%. Asia (+53.2%), Europe (+44.8%), and Oceania (+40.3%) posted strong growth, while the Americas was the only segment to record a decline, with external revenue down -6.7%.

【Profit and Loss】Operating Income was ¥55.1B (+19.9%), representing profit growth 12.2pt above the revenue growth rate. The gross profit margin of 42.3% absorbed the increase in the SG&A ratio to 33.7%, and the Operating Income margin improved by approximately 90bp from the previous year to 8.6%. Ordinary Income was ¥56.3B (+13.4%), while non-operating income and expenses made only a limited net contribution of ¥1.16B. Extraordinary income and expenses were virtually nonexistent, resulting in little distortion from temporary factors. Net Income was ¥40.6B (+19.6%); the decrease from Profit Before Tax reflects the normal tax burden, with an effective tax rate of 27.9%. This was a high-quality earnings performance in which profit growth exceeded revenue growth.

Segment Analysis

Japan accounted for ¥61.6B, or 84.3%, of total segment profit of ¥73.1B and remains the core business. Japan's revenue, including intersegment revenue, was ¥564.3B (+8.0%), while profit was ¥61.6B (+5.3%), with a profit margin of 10.9%, a slight decline from 11.2% in the previous year. Asia was the center of overseas growth, with revenue of ¥204.6B (+20.9%) and profit of ¥8.4B (+29.8%). The Americas returned to profitability with profit of ¥4.0B despite revenue of ¥51.0B (-6.7%), compared with a loss in the previous year. Europe expanded to revenue of ¥14.7B (+45.3%), but continued to post a loss of -¥1.3B, although the loss narrowed from the previous year. Oceania reported revenue of ¥7.3B (+40.3%) and profit of ¥0.4B. Company-wide expenses were ¥14.9B, with growth limited to +5.1% YoY, supporting the improvement in the consolidated Operating Income margin.

Key Financial Indicators

【Profitability】The Operating Income margin improved by approximately 90bp YoY to 8.6%, while the Net Income margin remained at a favorable level of 6.3%. The gross profit margin of 42.3% serves as the foundation of profitability.【Cash Quality】Extraordinary income and expenses were almost entirely absent, and Net Income was primarily generated from operating profit. Inventories totaled ¥267.6B, primarily consisting of finished products of ¥267.6B, and accounted for 16.7% of total assets. Inventory management will affect cash-generation capacity.【Investment Efficiency】ROE was 3.7%, decomposed into a Net Income margin of 6.3%, total asset turnover of 0.399x, and financial leverage of 1.47x. The low total asset turnover is a constraint on capital efficiency.【Financial Soundness】With an Equity Ratio of 67.9%, current assets of ¥1,122.5B, and current liabilities of ¥444.7B, the financial foundation is conservative and stable.

Cash Flow Analysis

As individual figures from the statement of cash flows are not included in the disclosed information, funding trends are assessed based on changes in the balance sheet. Cash and deposits were ¥386.3B, down from ¥510.9B in the same period of the previous year. The decline appears to have been affected by cash outflows for the acquisition of treasury shares, with treasury shares at -¥171.5B compared with -¥127.8B in the previous year. Accounts receivable increased to ¥334.7B from ¥294.5B in the previous year, while inventories expanded to ¥267.6B from ¥230.5B, indicating an increase in working capital accompanying business growth. Against Operating Income of ¥55.1B, Net Income was ¥40.6B, indicating that earnings were generated primarily from operating activities.

Earnings Quality

Net Income of ¥40.6B was generated by adding net non-operating income of ¥1.16B to Operating Income of ¥55.1B, recording virtually no extraordinary loss at ¥0.03B, and applying a tax burden at an effective tax rate of 27.9%. Distortion from temporary gains and losses was limited. Non-operating income was ¥3.7B, equivalent to only 0.6% of revenue, and the level of Ordinary Income was strongly supported by operating income. Comprehensive Income was ¥50.8B, exceeding Net Income of ¥40.6B, primarily due to foreign currency translation adjustments of +¥9.2B. Valuation gains from translating overseas businesses into yen boosted Comprehensive Income, but this is a variable factor linked to foreign exchange rates and should be distinguished from recurring earnings power.

Earnings Forecasts and Guidance

The full-year company forecasts remain unchanged at revenue of ¥2,850.0B (+5.4%), Operating Income of ¥260.0B (+7.2%), and Ordinary Income of ¥260.0B (+5.9%). Neither the earnings forecasts nor the dividend forecast has been revised. Q1 progress rates were 22.5% for revenue, 21.2% for Operating Income, and 22.5% for Net Income, based on a provisional calculation against the forecast of ¥180.0B. Although slightly below the standard 25% benchmark, these figures are within the range expected for Q1. The full-year plan assumes an Operating Income margin of 9.1%, above the Q1 actual result of 8.6%; therefore, further improvement in profitability toward the second half of the year will be necessary to achieve the plan.

Shareholder Returns

The full-year dividend forecast remains unchanged at ¥70.00 per share. Based on the full-year forecast EPS of ¥207.26, the Payout Ratio is calculated at 33.8%, below the sustainability guideline of less than 60%. With financial flexibility supported by cash and deposits of ¥386.3B and an Equity Ratio of 67.9%, the company has a solid foundation for maintaining dividends. Treasury shares increased from ¥127.8B in the same period of the previous year to ¥171.5B, indicating that share repurchases are also being implemented as part of shareholder returns.

Risk Factors

1. Inventory turnover efficiency: Annualized inventory turnover days are 66 days, exceeding the manufacturing efficiency benchmark of 60 days. If the sale of finished-product inventories of ¥267.6B is delayed, the gross profit margin of 42.3% could be pressured through discounting or inventory write-downs.

2. Concentration of regional earnings: Japan accounts for 84.3% of segment profit, meaning that domestic consumption trends and the success or failure of product hits have a significant impact on consolidated performance. Europe continues to post a loss of -¥1.3B despite revenue growth of +45.3%, indicating that overseas revenue growth has not translated into improved profitability.

3. Decline in Americas revenue: Revenue declined by -6.7%, making the Americas the only segment to record a decrease, while profit turned positive at ¥4.0B. Because the profit increase has not been accompanied by a recovery in revenue, its sustainability requires monitoring.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Profitability is slightly below the industry median but remains within the middle range of the IQR.

Growth and Capital Efficiency

The revenue growth rate exceeds the industry median, placing the company in a relatively favorable position within the industry in terms of growth.

※Source: Compiled by the Company

Key Earnings Highlights

1. Revenue grew +7.7%, while Operating Income and Net Income increased +19.9% and +19.6%, respectively, achieving profit growth exceeding revenue growth. The maintenance of the gross profit margin and control of SG&A expense growth lifted the Operating Income margin by approximately 90bp, indicating a qualitative improvement in the earnings structure.

2. Japan accounts for 84.3% of segment profit, while the return to profitability in the Americas and strong growth in Asia (+29.8%) indicate an expansion of the overseas earnings base. However, Europe continues to operate at a loss despite revenue growth, and the progress of profitability improvements by region requires continued monitoring.

3. Inventory turnover days of 66 days require monitoring from the perspectives of finished-product inventory sell-through and inventory write-down risk. Achieving the full-year Operating Income margin plan of 9.1% will require an improvement from the Q1 actual result of 8.6%.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,524–¥1,615 at ±1% for the cost of equity, and ¥1,561–¥1,580 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used; there is a timing difference from the full-year forecast.

(Calculation model: Residual income model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated values based solely on publicly disclosed data; these are not forecasts of market prices or recommendations for specific investment actions, and do not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release 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 responsibility, after consulting with professionals as necessary.

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AI Financial Analysis

Executive Summary

Takara Tomy delivered a strong FY2027 Q1 earnings result, with profit growth materially outpacing revenue growth. Revenue rose 7.7% YoY to ¥64.05bn. Operating income increased 19.9% YoY to ¥5.51bn. Net income attributable to owners rose 19.6% YoY to ¥4.06bn, while EPS increased to ¥46.70 from ¥37.96. Gross profit expanded 16.0% YoY to ¥27.10bn, substantially faster than sales. The gross margin improved 304bp YoY to 42.3% from 39.3%, indicating favorable product mix, pricing and/or procurement leverage. Operating margin improved 88bp YoY to 8.6% from 7.7%. Net margin increased 64bp YoY to 6.3% from 5.7%. SG&A increased 15.1% YoY to ¥21.59bn, faster than sales growth, but was more than offset by the gross-profit expansion. Japan remained the core earnings base, generating segment profit of ¥6.16bn. The Americas returned to segment profitability, while Asia delivered particularly strong sales growth. Europe remained loss-making despite a substantial increase in revenue. Q1 revenue and operating-profit progress against full-year guidance were 22.5% and 21.2%, respectively, modestly below the standard 25% first-quarter run rate but not sufficiently divergent to indicate a material guidance risk. The balance sheet remains highly liquid, with a 252.4% current ratio and ¥38.63bn of cash and deposits. The principal operating issue is inventory efficiency: annualized inventory days of 66 exceed the 60-day benchmark and warrant monitoring given the consumer-products and toy-industry exposure to demand cycles, seasonality and product obsolescence.

Profitability Analysis

Annualized DuPont ROE is 14.9%, comprising a 6.3% net profit margin, 1.597x asset turnover and 1.47x financial leverage. The margin component is the principal driver of current profitability, with gross margin rising to 42.3% and operating margin reaching 8.6%. The operating-margin expansion reflects gross profit growth of 16.0%, which exceeded the 15.1% increase in SG&A and the 7.7% revenue increase. This represents positive operating leverage at the gross-profit level, although SG&A growth above sales growth means that continued margin expansion requires gross-margin resilience. The annualized ROE is within the 10-15% good range but remains marginally below the 15% excellent benchmark. Financial leverage of 1.47x is moderate and indicates that returns are not dependent on aggressive balance-sheet leverage. The 5-factor decomposition also supports earnings resilience: tax burden was 0.721, above the 0.70 normal threshold, and interest burden was 1.021, reflecting net non-operating income rather than a meaningful financing drag. Interest coverage was very strong at 45.55x. Ordinary income of ¥5.63bn exceeded operating income by only ¥0.12bn, indicating that earnings were predominantly derived from operations. The ¥0.03bn extraordinary loss on fixed-asset disposal was immaterial relative to net income. Under JGAAP, goodwill amortization can depress operating and net earnings relative to IFRS reporters; however, goodwill was only 4.4% of equity, limiting balance-sheet dependence on acquisition value retention.

Growth Assessment

Revenue growth was broad-based geographically, although the scale and profit contribution of the regions differed significantly. Japan, the core business by segment-profit contribution, recorded external sales of ¥50.34bn, up 4.2% YoY, and segment profit of ¥6.16bn, up 5.3%. Asia posted the strongest sales expansion among the large regions, with external sales rising 53.2% YoY to ¥6.43bn and segment profit increasing 29.8% to ¥0.85bn. The Americas recorded external sales of ¥5.09bn, down 6.7% YoY, but improved from a ¥0.25bn segment loss to a ¥0.40bn segment profit. Europe increased external sales 44.8% YoY to ¥1.46bn, but its segment loss was ¥0.13bn; the loss narrowed from ¥0.21bn in the prior year. Oceania grew external sales 40.3% YoY to ¥0.73bn and generated segment profit of ¥0.04bn. Segment-profit margins, calculated against external sales, were strongest in Asia and Japan, whereas Europe remains below break-even. Full-year guidance calls for revenue of ¥285.0bn, operating income of ¥26.0bn and net income attributable to owners of ¥18.0bn, representing management's expected YoY growth of 5.4%, 7.2% and a continued earnings expansion trajectory. Q1 progress was 22.5% for sales, 21.2% for operating income, 21.7% for ordinary income and 22.5% for net income attributable to owners. These progress rates are below the standard 25% Q1 benchmark by 2.5-3.8 percentage points, but the deviation is below the 10 percentage-point alert threshold and can be consistent with seasonality in toy and entertainment products. Management has not revised either earnings guidance or dividend guidance.

Financial Health

Liquidity is strong, with current assets of ¥112.25bn against current liabilities of ¥44.47bn, producing a current ratio of 252.4%. The quick ratio of 192.2% confirms that liquidity remains robust even excluding inventories. Working capital was ¥67.78bn, providing a substantial buffer for seasonal inventory and receivable movements. Cash and deposits were ¥38.63bn, equivalent to 24.1% of total assets and sufficient to cover current lease obligations of ¥3.37bn by a wide margin. Total liabilities were ¥51.48bn versus equity of ¥108.97bn, and the reported debt-to-equity ratio was a conservative 0.47x, well below the 2.0x warning threshold. Current liabilities materially exceed non-current liabilities, but this does not create an apparent maturity mismatch because current assets exceed current liabilities by ¥67.78bn. Trade payables increased ¥3.99bn, or 33.7% YoY, to ¥15.86bn, partly supporting working-capital financing alongside higher inventory and receivables. Accounts receivable increased ¥4.12bn YoY to ¥33.47bn, broadly aligned with revenue growth but requiring monitoring alongside inventory levels. Treasury stock increased by ¥4.37bn to negative ¥17.15bn, reducing equity and reflecting a meaningful capital-allocation movement. Total equity declined ¥2.20bn YoY despite ¥4.06bn of quarterly net income, with the larger treasury-stock balance a significant contributor. Goodwill of ¥4.80bn equals 3.0% of assets and 4.4% of equity, while intangible assets represent 12.0% of assets; both are within the stated balanced-risk benchmarks. Lease obligations total ¥5.80bn, consisting of ¥3.37bn current and ¥2.42bn non-current obligations, and should be considered within the company’s fixed financing commitments.

Notable B/S Changes

Treasury stock: -¥17.15bn from -¥12.78bn, a ¥4.37bn increase in the negative balance (-34.2%) - a material capital-allocation movement that reduced reported equity despite quarterly earnings. Accounts payable: ¥15.86bn from ¥11.87bn, up ¥3.99bn (+33.7%) - supplier financing increased alongside working-capital requirements and should be monitored against inventory conversion.

Cash Flow Quality

The reported income statement shows that operating income of ¥5.51bn and net income of ¥4.06bn were primarily operational in origin, as the difference between operating and ordinary income was limited. Interest and dividend income was ¥0.22bn, while interest expense was only ¥0.12bn, supporting the strong 45.55x interest-coverage ratio. Foreign-exchange losses were ¥0.08bn, equivalent to only 1.4% of operating income and not material to the quarter’s earnings profile. Extraordinary losses were ¥0.03bn, or less than 1% of net income, so reported profit was not meaningfully dependent on one-time items. Working-capital intensity is the principal quality item to monitor. Inventories increased ¥3.71bn YoY to ¥26.76bn, and annualized inventory days were 66, above the 60-day efficiency benchmark. For a toy and consumer-products manufacturer, elevated finished-goods exposure increases the risk of markdowns, obsolescence or slower sell-through if product demand weakens. The increase in trade payables to ¥15.86bn provides some supplier financing, but its sustainability depends on inventory conversion and sell-through discipline.

Dividend Sustainability

The full-year dividend forecast is ¥70 per share, unchanged from guidance. Based on forecast EPS of ¥207.26, the implied dividend payout ratio is 33.8%. This is comfortably below the 60% sustainability benchmark and leaves substantial retained earnings capacity. Retained earnings were ¥84.60bn at quarter-end, supporting financial flexibility. The company’s liquidity profile is also supportive, with ¥38.63bn of cash and deposits and a 252.4% current ratio. The larger treasury-stock balance indicates that capital allocation should be assessed on a total-return basis if additional repurchases occur, rather than through the dividend payout ratio alone. Dividend guidance has not been revised.

Risk Assessment

Business risks include Inventory and product-cycle risk: annualized inventory days of 66 exceed the 60-day benchmark. The balance is concentrated in finished goods, exposing the group to markdown, obsolescence and sell-through risk in seasonal toy and entertainment categories., European profitability risk: Europe generated a ¥0.13bn segment loss despite 44.8% YoY external-sales growth, indicating that greater scale has not yet translated into sustainable regional profitability., Americas demand risk: external sales in the Americas declined 6.7% YoY to ¥5.09bn. The swing into a ¥0.40bn segment profit is positive, but revenue stabilization is needed to validate the turnaround., Consumer-discretionary and licensed-content risk: demand for toys, collectibles and character products can be sensitive to household spending, hit-product cycles, retailer inventory management and the durability of intellectual-property popularity., Foreign-exchange risk: the company recorded ¥0.08bn of FX losses in Q1, and overseas operations create continuing exposure to currency translation and transaction movements..

Financial risks include Working-capital risk: trade receivables rose to ¥33.47bn and inventories to ¥26.76bn. A slower conversion of these balances could pressure liquidity even though current liquidity is currently strong., Capital-allocation risk: treasury stock increased by ¥4.37bn YoY to negative ¥17.15bn, contributing to a ¥2.20bn YoY decline in total equity despite profitable operations., Lease commitment risk: lease obligations total ¥5.80bn, including ¥3.37bn due within one year, although cash resources provide ample current coverage..

Key concerns include Highest priority: reduce inventory days toward or below 60 while preserving product availability; this is the explicit quality alert and the clearest potential constraint on earnings quality., High priority: demonstrate sustained profitability in Europe and maintain the Americas’ return to positive segment income., Moderate priority: maintain gross-margin gains, because SG&A increased faster than sales and future operating-margin expansion depends on gross-profit discipline., Moderate priority: track the relationship between treasury-stock accumulation, equity reduction and shareholder-return capacity..

Investment Implications

Key takeaways include Q1 operating income growth of 19.9% materially exceeded 7.7% revenue growth, supported by a 304bp gross-margin improvement and an 88bp operating-margin expansion., Japan remains the earnings anchor, while Asia is the strongest growth region and the Americas has returned to segment profitability., The balance sheet is conservatively positioned, with a 252.4% current ratio, 192.2% quick ratio, 0.47x debt-to-equity ratio and 45.55x interest coverage., The key operating watchpoint is 66 annualized inventory days, above the 60-day benchmark, particularly given the finished-goods-heavy inventory profile., The implied FY dividend payout ratio of 33.8% is moderate relative to forecast EPS and retained earnings..

Metrics to watch include Inventory days and finished-goods sell-through, Japan and Asia revenue growth and segment-profit progression, Europe’s path to segment profitability, Americas revenue stabilization following the Q1 sales decline, Gross margin versus SG&A growth, Q2 cumulative progress toward FY sales guidance of ¥285.0bn and operating-income guidance of ¥26.0bn, Treasury-stock movements and total shareholder-return intensity.

Regarding relative positioning, Takara Tomy combines good annualized profitability, with a 14.9% ROE and 8.6% operating margin, with a stronger-than-average liquidity and solvency profile. Its financial risk is lower than that of highly leveraged consumer-product peers, while its operating profile remains dependent on inventory discipline, successful product and intellectual-property cycles, and the conversion of overseas revenue growth into durable segment profitability.