Nintendo Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.10T
• Operating Income: ¥145.18B
• Net Income: ¥108.67B
• EPS: ¥170.87

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Nintendo (7974) reported FY2026 Q2 consolidated results under JGAAP showing very strong top-line momentum but with profits supported materially by non-operating items. Revenue reached ¥1,099.6bn, up 110.1% YoY, indicating an exceptional sales quarter likely driven by hardware and first-party software strength and/or timing effects. Operating income was ¥145.2bn, up 19.5% YoY, which is significantly slower than revenue growth, pointing to operating margin dilution and/or elevated cost bases. Gross profit was ¥317.9bn, implying a gross margin of 28.9%, which is low relative to Nintendo’s historical profile and suggests a hardware-heavy mix, promotional intensity, or data presentation differences. Net income rose 83.1% YoY to ¥198.9bn, well ahead of operating income growth, indicating that non-operating gains were a major driver of bottom-line performance. Ordinary income was ¥236.0bn versus operating income of ¥145.2bn, implying sizable non-operating gains (e.g., FX gains or interest income on cash) that bridged the gap. Using income tax expense of ¥38.4bn and ordinary income as a proxy for pre-tax, the implied effective tax rate is roughly 16–17%, lower than a typical normalized rate, which also aided net income. DuPont decomposition indicates ROE of 7.06%, driven by a net margin of 18.09%, asset turnover of 0.302x, and financial leverage of 1.29x, consistent with a low-leverage, asset-rich balance sheet. Liquidity remains robust with a current ratio of 460.5% and quick ratio of 379.1%, supported by current assets of ¥2,752.4bn against current liabilities of ¥597.6bn. The balance sheet shows total equity of ¥2,818.4bn against total assets of ¥3,636.2bn, implying an equity ratio around 77–78% (despite the reported 0.0% placeholder), confirming a conservative capital structure. Inventories are ¥486.4bn, which is meaningful relative to current liabilities and warrants monitoring for sell-through risk. Cash flow line items are unreported this quarter (zeros are placeholders), constraining assessment of earnings-to-cash conversion and free cash flow. Dividend data and share counts are also unreported; EPS is provided at ¥170.87, so payout analysis cannot be completed this quarter. Overall, the quarter demonstrates strong commercial traction, but profitability quality leans on non-operating gains and the operating margin appears compressed versus the scale of revenue growth. Key areas to monitor include gross margin normalization, the sustainability of non-operating income, and working capital dynamics, particularly inventory. Data limitations around cash flows and dividends require caution in assessing cash generation and capital return sustainability.

Profitability Analysis

ROE_decomposition: ROE 7.06% = Net margin 18.09% × Asset turnover 0.302 × Financial leverage 1.29. The ROE is respectable for a low-leverage company, but the net margin exceeds the operating margin due to non-operating income, indicating ROE support from below-the-line items. margin_quality: Gross margin is 28.9% (¥317.9bn/¥1,099.6bn). Operating margin is ~13.2% (¥145.2bn/¥1,099.6bn). Net margin is 18.09%. The spread between operating and net margins reflects substantial non-operating gains (ordinary income ¥236.0bn vs operating income ¥145.2bn). Effective tax rate, inferred at ~16–17%, further boosted net margin. The relatively low gross margin suggests a hardware-tilted mix or pricing/promotional factors this period. operating_leverage: Revenue grew 110.1% YoY while operating income rose 19.5% YoY, indicating negative operating leverage in this snapshot (costs scaling faster than revenue or mix shift to lower-margin products). The gap implies higher cost of sales and/or increased SG&A/R&D relative to sales, or timing of expense recognition.

Growth Assessment

revenue_sustainability: The +110.1% YoY revenue surge is extraordinary and unlikely to be a steady-state run rate. Sustainability depends on the product launch calendar, hardware cycle dynamics, and software lineup cadence; without qualitative disclosures here, durability is uncertain. profit_quality: Net income growth (+83.1% YoY) outpaced operating income (+19.5% YoY) due to non-operating contributions. This mix reduces the durability of bottom-line growth if FX/financial income normalizes. outlook: Key swing factors include mix normalization (potentially lifting gross margin), the trajectory of non-operating gains (likely volatile), and inventory sell-through. Assuming stable demand and reduced reliance on non-operating items, margins could improve; conversely, a reversion in FX or interest income would pressure net margin.

Financial Health

liquidity: Current assets ¥2,752.4bn vs current liabilities ¥597.6bn imply a current ratio of ~4.61x and a quick ratio of ~3.79x, indicating very strong liquidity. Working capital is ¥2,154.7bn, providing a substantial buffer. solvency: Total equity ¥2,818.4bn vs total assets ¥3,636.2bn implies an equity ratio around 77.5%, consistent with a conservative balance sheet. Debt-to-equity of 0.24x (likely total liabilities/equity) underscores low structural leverage. capital_structure: Interest expense is unreported (0 placeholder), consistent with minimal interest-bearing debt historically. Ordinary income well above operating income indicates meaningful financial income/FX effects from a large net cash position.

Cash Flow Quality

earnings_quality: OCF is unreported this quarter, so OCF/NI and FCF cannot be assessed. Given ordinary income’s outsized contribution, headline earnings may not fully reflect underlying cash generation from operations. FCF_analysis: Free cash flow is not disclosed (0 placeholder). Without capex/OCF detail, we cannot quantify FCF coverage of dividends or reinvestment capacity this period. working_capital: Inventories at ¥486.4bn are material; with limited COGS visibility, turnover cannot be reliably computed. The scale warrants monitoring for obsolescence risk if hardware/software sell-through slows.

Dividend Sustainability

payout_ratio_assessment: DPS and payout ratio are unreported placeholders this quarter. EPS is ¥170.87, but without DPS we cannot compute payout. Historically, assessment would consider ordinary income reliance and cash generation, which are not available. FCF_coverage: Undeterminable this quarter due to missing OCF and capex data (0 placeholders). policy_outlook: With a strong equity base and typically robust cash generation, capacity for dividends is usually solid; however, absent cash flow disclosure and with profits aided by non-operating items this quarter, a conservative stance is warranted pending fuller information.

Risk Assessment

Business Risks:

• Platform cycle risk and hardware demand cyclicality
• Hit-driven software pipeline and title timing risk
• Gross margin sensitivity to hardware vs software mix
• Inventory obsolescence risk tied to cycle transitions
• FX volatility impacting revenues and non-operating income
• Digital vs physical mix shifts affecting margins
• Supply chain and component procurement risks

Financial Risks:

• Earnings volatility from FX valuation and interest income swings
• Potential margin compression if promotional activity increases
• Working capital swings (inventory and receivables) in peak launch periods
• Limited visibility on cash flow conversion due to unreported OCF/FCF

Key Concerns:

• Operating leverage negative in the period despite strong sales
• Heavy reliance on non-operating income to bridge operating and net profit
• Low reported gross margin versus historical profile suggesting mix or pricing pressure
• Data gaps (cash flows, dividends, share counts) constrain assessment of capital returns and cash conversion

Investment Implications

Key Takeaways:

• Exceptional top-line growth (+110.1% YoY) but slower operating profit growth (+19.5% YoY) implies margin/mix pressure
• Net income strength (+83.1% YoY) is partly non-operating driven (ordinary income >> operating income)
• ROE 7.06% supported by low leverage and elevated net margin; sustainability depends on margin mix and non-operating normalization
• Liquidity and solvency are very strong (current ratio ~4.6x; equity ratio ~77–78%)
• Inventory level is elevated and a key watchpoint for cycle risk
• Cash flow data are not disclosed, limiting confidence in earnings-to-cash conversion analysis

Metrics to Watch:

• Gross margin trajectory and software/hardware mix
• Ordinary income components (FX gains, interest income) and sensitivity to rates/FX
• Operating margin progression and SG&A discipline
• Inventory levels and sell-through indicators
• OCF and FCF once disclosed; OCF/NI conversion
• Effective tax rate normalization
• ASP and unit trends for key platforms and titles

Relative Positioning: Balance sheet strength and brand IP underpin resilience relative to peers; however, current-quarter profitability relies more on non-operating gains and shows weaker operating leverage than typical best-in-class software-driven peers.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis