Nintendo (7974) FY2026 Q3 Earnings Report

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Executive Summary

For the nine months ended Q3, Revenue doubled, increasing 99.3% year on year, while Operating Income rose only 21.3%, indicating a structure in which profit growth has failed to keep pace with rapidly expanding sales. Revenue was ¥19,058.8B (¥9,562.2B in the same period of the previous year), Operating Income was ¥3,003.9B, Ordinary Income was ¥4,558.4B (up +39.4%), and Net Income attributable to owners of the parent was ¥3,588.8B (up +51.3%). The Operating Margin was 15.8%, substantially below the level calculated from the actual result for the same period of the previous year (approximately 25.9%), suggesting that the composition of the sales increase, including changes in product mix and higher selling, general and administrative expense burdens, affected profitability. The fact that the growth in Ordinary Income and Net Income exceeded that of Operating Income was attributable to gains on foreign exchange, equity in earnings of affiliates, gains on sales of investment securities, and other non-operating and extraordinary gains and losses.

Factors Affecting Results

【Revenue】Revenue increased 99.3% year on year to ¥19,058.8B, with the increase in Revenue reaching approximately ¥9,495B. Although segment-level breakdown data have not been disclosed, an increase of this magnitude is likely to have been primarily driven by expanding demand for major products and services.

【Profit and Loss】Operating Income was ¥3,003.9B (up +21.3%), and its growth was limited relative to the scale of the increase in Revenue. The Operating Margin declined substantially to 15.8% from approximately 25.9% estimated for the same period of the previous year. The gross margin was 37.4% and the SG&A ratio was 21.6%, suggesting that SG&A expenses may have expanded more than gross profit. Ordinary Income was ¥4,558.4B (up +39.4%), driven by non-operating income of ¥1,561.7B, including a ¥478.9B foreign exchange gain and ¥648.1B equity in earnings of affiliates. Profit Before Tax included a ¥326.6B gain on sales of investment securities, recognized as an extraordinary gain, which boosted profit as a temporary factor. Net Income attributable to owners of the parent was ¥3,588.8B (up +51.3%), and the Net Profit Margin remained high at 18.8%, in contrast to the decline in the Operating Margin. While the results can be summarized as increases in both Revenue and profit, they were characterized by a decline in profitability at the operating level and greater reliance on non-operating and extraordinary gains and losses.

Key Financial Indicators

【Profitability】The Operating Margin was 15.8%, the gross margin was 37.4%, and the Net Profit Margin was 18.8%. While the Operating Margin declined substantially from the estimated figure of approximately 25.9% for the same period of the previous year, the Net Profit Margin remained high, supported by Net Income growth of 51.3%.【Cash Flow Quality】Inventory was ¥4,101.9B, accounting for 10.6% of total assets, and inventory turnover days were approximately 94 days on an annualized basis, suggesting that inventory consumption may be somewhat lagging behind the sharp increase in Revenue.【Investment Efficiency】ROE was 12.1%, supported by the high Net Profit Margin, while the contribution of financial leverage was limited.【Financial Soundness】The Equity Ratio was 77.0% (80.2% in the previous year), and cash and deposits were ¥18,740.5B, accounting for 48.5% of total assets. With total liabilities of ¥8,869.6B and net assets of ¥29,763.9B, the Company has an exceptionally strong financial foundation.

Cash Flow Analysis

Although detailed statements of cash flows are not included in the disclosed data, the changes in the balance sheet indicate substantial financial capacity. Cash and deposits were ¥18,740.5B, up from ¥15,862.8B in the previous year, accounting for 48.5% of total assets. Inventory had accumulated to ¥4,101.9B, and inventory turnover days were approximately 94 days on an annualized basis, suggesting that the pace of inventory consumption may be somewhat slow amid a doubling of Revenue. Accounts receivable were ¥3,125.8B and accounts payable were ¥3,085.2B, which were broadly balanced, with no sharp deterioration in working capital. Given the ample cash and deposits and investment securities of ¥3,986.2B, concerns regarding short-term liquidity are considered limited.

Quality of Earnings

Profit growth for the period was characterized by growth in Ordinary Income and Net Income of +39.4% and +51.3%, respectively, exceeding Operating Income growth of +21.3%. The primary drivers were non-operating income and extraordinary gains. Of non-operating income of ¥1,561.7B, the ¥478.9B foreign exchange gain represented approximately 15.9% of Operating Income and, together with ¥648.1B in equity in earnings of affiliates, significantly boosted Ordinary Income. The ¥326.6B gain on sales of investment securities included in extraordinary gains was a temporary factor, accounting for approximately 9.1% of Net Income attributable to owners of the parent of ¥3,588.8B. Comprehensive Income was ¥3,986.6B, exceeding Net Income of ¥3,588.8B, with the difference primarily attributable to foreign currency translation adjustments of ¥564.6B, reflecting the yen translation difference on overseas assets and foreign subsidiaries. Accordingly, a portion of profit for the period depended on non-recurring factors such as foreign exchange market conditions and sales of securities. The trend in the Operating Margin is therefore a more important indicator for assessing the Company’s underlying operating earnings power.

Earnings Forecasts and Guidance

Progress toward the full-year Company plan as of the nine months ended Q3 was 84.7% for Revenue (plan: ¥22,500B), 81.2% for Operating Income (plan: ¥3,700B), and 99.1% for Ordinary Income (plan: ¥4,600B). Net Income reached 102.5% against the plan of ¥3,500B, with Ordinary Income and Net Income nearly achieving or exceeding their respective plans. The progress rates for Revenue and Operating Income exceeded the 75% benchmark for the nine-month point, indicating steady progress. On the other hand, the fact that the progress of Ordinary Income and Net Income substantially exceeded that of Operating Income suggests dependence on factors with uncertain repeatability in Q4, such as foreign exchange gains and gains on sales of securities.

Shareholder Returns

The Q2 dividend was ¥42.00 per share, and the full-year annual dividend forecast is ¥181.00. Based on the difference, the year-end dividend is expected to be ¥139.00. The Payout Ratio against the full-year forecast EPS of ¥300.62 is approximately 60.2%, which is somewhat high for dividends alone. However, given the substantial cash and deposits of ¥18,740.5B, concerns regarding the Company’s ability to make the payments are limited. As the available data do not confirm the implementation status of share buybacks, the assessment is limited to the Payout Ratio rather than the Total Return Ratio.

Risk Factors

1. Inventory Accumulation Risk: Inventory was ¥4,101.9B, accounting for 10.6% of total assets, and annualized inventory turnover days were approximately 94 days. As Revenue increased 99.3% year on year, inventory accumulation was observed. If a divergence arises between the demand outlook and inventory levels, there is a possibility of deterioration in the gross margin due to valuation losses or discount sales.

2. Operating Margin Decline Risk: The Operating Margin was 15.8%, substantially below the level of approximately 25.9% calculated from the actual result for the same period of the previous year. Changes in sales composition and an increased SG&A expense burden are considered possible factors, and the sustainability of earnings power at the operating level requires monitoring.

3. Dependence on Non-Operating and Extraordinary Gains and Losses: Growth in Ordinary Income and Net Income was significantly supported by non-operating and extraordinary factors, including the ¥478.9B foreign exchange gain, ¥648.1B equity in earnings of affiliates, and ¥326.6B gain on sales of investment securities. As these factors are affected by market conditions and transaction timing, attention should be paid to the widening divergence from the Company’s operating performance.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Both the Company’s Operating Margin and Net Profit Margin substantially exceeded the industry median, placing its profitability among the top tier in the industry.

Growth and Capital Efficiency

The Revenue Growth Rate substantially exceeded the industry median, and the pace of growth for the period was exceptional within the industry.

※Source: Compiled by the Company

Key Takeaways from the Earnings

1. While Revenue doubled, increasing 99.3% year on year, the Operating Margin declined from approximately 25.9% estimated for the same period of the previous year to 15.8%. The relationship between the quality of the Revenue increase and profitability will be a key focus going forward.

2. Growth in Ordinary Income and Net Income was highly dependent on non-operating and extraordinary factors, such as foreign exchange gains, equity in earnings of affiliates, and gains on sales of investment securities. These factors must be evaluated separately from the Company’s underlying operating earnings power.

3. Annualized inventory turnover days were approximately 94 days. Trends in inventory levels amid rapidly expanding Revenue will be closely watched as an indicator of future gross margin trends.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,823–¥2,985 at Cost of Equity ±1%; ¥2,894–¥2,914 at ω±0.1.

Notes:

• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does 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 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 responsibility, after consulting with professionals as necessary.

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