Nintendo Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

The quarter resulted in a substantial increase in profit despite lower revenue, demonstrating an improvement in the quality of the earnings structure through better pricing and product mix. Revenue declined to ¥5,178.1B (-9.5% YoY), while Operating Income increased substantially to ¥1,426.0B (+150.5%), Ordinary Income to ¥2,061.5B (+115.1%), and Net Income attributable to owners of the parent to ¥1,474.1B (+53.5%). The decline in revenue was accompanied by a 38.9% YoY reduction in cost of sales, with the gross profit margin improving significantly to 54.3% from 32.3% in the same period of the previous year. This was the primary factor driving Operating Income higher. In addition, foreign exchange gains of ¥168.5B, interest income of ¥132.0B, and equity in earnings of affiliates of ¥303.1B increased non-operating income and amplified the growth in Ordinary Income.

Factors Affecting Performance

【Revenue】Revenue was ¥5,178.1B, representing a 9.5% decline from ¥5,723.6B in the same period of the previous year. Although business-level details cannot be ascertained because the company reports a single segment, cost of sales contracted by 38.9% YoY, significantly exceeding the decline in revenue. Changes in shipment volumes and sales mix are believed to have contributed to the improvement in the cost ratio.

【Profit and Loss】Operating Income was ¥1,426.0B (¥569.3B in the same period of the previous year, +150.5%), while the Operating Income margin improved to 27.5% from 9.95%, an increase of +17.6pt. Although the gross profit margin expanded by +21.9pt to 54.3% from 32.3%, the SG&A expense ratio also rose by +4.4pt to 26.8%. Operating leverage therefore took effect, with the improvement in gross profit substantially exceeding the increase in SG&A expenses. Ordinary Income was ¥2,061.5B (+115.1%), driven not only by Operating Income but also by foreign exchange gains of ¥168.5B, interest income of ¥132.0B, and equity in earnings of affiliates of ¥303.1B. Extraordinary gains and losses were minimal, consisting of extraordinary gains of ¥0.03B and extraordinary losses of ¥0.16B. Unlike the ¥323.0B gain on the sale of investment securities recorded in the same period of the previous year, virtually no temporary factors occurred in the current period. Net Income was ¥1,474.1B (+53.5%), and the Net Income margin was 28.5% (16.8% in the same period of the previous year). Overall, the results reflect higher profit despite lower revenue, with the increase in profit supported by both improved profitability at the operating level and higher non-operating income.

Key Financial Indicators

【Profitability】The Operating Income margin improved to 27.5% from 9.95% in the same period of the previous year, an increase of +17.6pt, while the Net Income margin improved to 28.5% from 16.8%, an increase of +11.7pt. The gross profit margin expanded to 54.3% from 32.3%, while the SG&A expense ratio increased to 26.8% from 22.4%. However, the improvement in gross profit exceeded the increase in SG&A expenses, resulting in an expansion of the Operating Income margin.【Cash Flow Quality】Cash and deposits declined by 13.8% to ¥15,440.9B from ¥17,918.0B in the same period of the previous year, while inventories increased to ¥6,180.1B (+14.5% YoY) and accounts receivable increased to ¥1,739.0B (+17.9% YoY). The accumulation of working capital was directly associated with the decline in cash balances.【Investment Efficiency】ROE was 5.1%. Since the total asset turnover ratio remained low relative to the growth in Net Income, at 0.14x on a quarterly basis (Revenue / total assets), the improvement in capital efficiency was less pronounced than the improvement in profit margins.【Financial Soundness】The Equity Ratio was 76.5%, slightly down from 77.6% in the same period of the previous year but remaining at a high level. Current assets of ¥29,882.8B compared with current liabilities of ¥8,015.2B resulted in a current ratio of 372.8%, indicating a robust financial foundation.

Cash Flow Analysis

Although the company does not disclose a cash flow statement, changes in the balance sheet provide insight into funding trends. Cash and deposits decreased by ¥2,477.1B (-13.8%) to ¥15,440.9B from ¥17,918.0B in the same period of the previous year. Increases in working capital, including a ¥782.1B increase in inventories and a ¥264.2B increase in accounts receivable, are believed to have absorbed cash. Accounts payable also increased by ¥457.2B, indicating an expansion in purchasing and procurement, while income taxes payable declined by ¥711.8B, suggesting cash outflows related to the payment of taxes accrued in the previous period. Property, plant and equipment increased by ¥180.5B, indicating progress in capital expenditures. Net assets were ¥29,189.5B, slightly down from ¥29,551.8B in the previous year, with shareholder returns such as dividend payments reflected in the decrease in retained earnings of approximately ¥566.3B.

Quality of Earnings

The current period’s profit was composed primarily of recurring items, indicating an improvement in earnings quality from the previous year. In the same period of the previous year, a temporary extraordinary gain of ¥323.0B from the sale of investment securities boosted Ordinary Income and Net Income. In contrast, extraordinary gains and losses in the current period were minimal, consisting of extraordinary gains of ¥0.03B and extraordinary losses of ¥0.16B, indicating a significant reduction in reliance on temporary factors. However, non-operating income of ¥637.3B made a substantial contribution to Ordinary Income, comprising foreign exchange gains of ¥168.5B, interest income of ¥132.0B, equity in earnings of affiliates of ¥303.1B, and other income of ¥33.7B. As these items are linked to foreign exchange rates, interest rate levels, and the performance of equity-method affiliates, they are unlikely to be as stable as Operating Income. Comprehensive Income was ¥1,677.6B, ¥203.5B higher than Net Income of ¥1,474.1B, with the main difference being foreign currency translation adjustments of +¥160.4B. The divergence between Net Income and Comprehensive Income resulted from foreign currency translation differences at overseas subsidiaries and should be considered separately from the company’s underlying earnings power.

Earnings Forecast and Guidance

Progress against the full-year company forecasts was 25.3% for Revenue against a forecast of ¥20,500.0B, 38.5% for Operating Income against a forecast of ¥3,700.0B, 47.9% for Ordinary Income against a forecast of ¥4,300.0B, and 47.5% for Net Income against a forecast of ¥3,100.0B. While Revenue progress was close to a simple one-quarter level, profit-related indicators had exceeded 40% after only one quarter of the first half, indicating that profit progress was front-loaded due to the improvement in gross profit margins and the increase in non-operating income. The full-year Ordinary Income forecast calls for a 20.7% decline from the previous fiscal year, suggesting that the level of non-operating income in Q1, particularly foreign exchange gains and equity-method investment income, is not expected to continue at the same level throughout the full year. As of the current quarter, neither the earnings forecast nor the dividend forecast has been revised.

Shareholder Returns

The annual dividend forecast is ¥162.00, implying a Payout Ratio of approximately 60.2% against the full-year EPS forecast of ¥268.90. The company’s basic policy is to pay dividends twice a year, consisting of an interim dividend and a year-end dividend. As of Q1, there has been no revision to the current-period dividend forecast, and no change has been made to the breakdown. The company holds 134,431 thousand treasury shares, equivalent to 10.4% of the 1,287,260 thousand issued shares. Given its ample financial foundation, including cash and deposits of ¥15,440.9B and an Equity Ratio of 76.5%, the company’s capacity to pay dividends is considered to remain high.

Risk Factors

1. Foreign Exchange Sensitivity: Foreign exchange gains accounted for ¥168.5B of non-operating income of ¥637.3B and made a significant contribution to the increase in Ordinary Income. If the yen reverses course, this positive impact could diminish.

2. Accumulation of Working Capital: Inventories increased to ¥6,180.1B (+14.5% YoY), while accounts receivable increased to ¥1,739.0B (+17.9% YoY), and cash and deposits declined by 13.8% over the same period. The simultaneous increase in inventories and accounts receivable alongside declining revenue requires monitoring from the perspective of cash-generation capacity.

3. Reliance on Non-Operating Income: Foreign exchange gains, interest income of ¥132.0B, and equity in earnings of affiliates of ¥303.1B contributed to the increase in Ordinary Income of ¥2,061.5B. These items are linked to market conditions and the performance of equity-method affiliates. The full-year forecast calls for a 20.7% decline in Ordinary Income from the previous fiscal year, and changes in the level of these non-operating factors could affect full-year performance.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Return

The company’s Operating Income margin and Net Income margin significantly exceed the industry medians, placing its profitability at a high level within the industry.

Growth and Capital Efficiency

The Revenue growth rate is below the industry median, indicating that the company’s top-line performance lags its peers.

Source: Compiled by the company

Key Points in the Earnings Results

1. Despite declining revenue, the Operating Income margin expanded by +17.6pt from 9.95% in the same period of the previous year to 27.5%. The fact that the improvement in the gross profit margin (+21.9pt) exceeded the increase in the SG&A expense ratio (+4.4pt), strengthening the earnings structure, is a key point in evaluating the quality of the results.

2. Foreign exchange gains, interest income, and equity in earnings of affiliates made substantial contributions to the increase in Ordinary Income. Although reliance on temporary factors declined compared with the previous period, when results depended on gains from the sale of investment securities, the fact that the level of non-operating income itself is linked to market conditions remains a structural source of volatility requiring close monitoring.

3. Inventories and accounts receivable increased while cash and deposits declined. Working capital trends will be a key point to assess when evaluating future cash-generation capacity.

Theoretical Stock Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market price or a recommendation to take any specific investment action.

Sensitivity: ¥2,703–¥2,858 at a ±1% change in the cost of equity, and ¥2,773–¥2,787 at a ±0.1 change in ω.

Notes:

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

(Calculation model: Residual income model / Interest rate reference month: 2026-07 / This value does not forecast or guarantee the future stock price)

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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 a professional as necessary.

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