Sanrio Company,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

Sanrio’s Q1 of the fiscal year ending March 2027 posted double-digit increases in both revenue and earnings. However, profit margins contracted from the previous year relative to the rate of revenue growth, and earnings growth lagged revenue growth. Revenue was ¥520.4B (¥431.0B in the previous year, +20.7%), Operating Income was ¥224.3B (¥202.0B in the previous year, +11.1%), Ordinary Income was ¥226.2B (¥202.1B in the previous year, +12.0%), and Net Income attributable to owners of the parent was ¥155.2B (¥142.8B in the previous year, +8.8%). The primary drivers of revenue growth were Japan (+21.8%) and strong growth in Europe and South America. However, selling, general and administrative expenses increased at a faster pace than revenue (+25.3%), causing the Operating Income margin to decline to 43.1% from 46.9% in the previous year.

Factors Affecting Performance

[Revenue] Revenue of ¥520.4B increased 20.7% year on year. By segment, Japan was the largest driver at ¥384.8B (73.9% of total revenue, +21.8%), followed by Asia at ¥135.6B (+15.4%), North America at ¥61.6B (+5.5%), Europe at ¥34.0B (+53.9%), and South America at ¥10.8B (+64.1%). Although Europe and South America recorded high growth rates, their scale remains small, limiting their impact on overall company-wide growth.

[Profit and Loss] Operating Income of ¥224.3B increased 11.1%, but the gross margin declined to 78.2% from 80.7% in the previous year, while the SG&A expense ratio rose to 35.1% from 33.8%. As a result, the Operating Income margin narrowed to 43.1%, down 3.8pt from 46.9% in the previous year. Ordinary Income increased slightly faster than Operating Income to ¥226.2B (+12.0%), partly due to an improvement in non-operating income and expenses, including interest income. Net Income was ¥155.2B (+8.8%), with the earnings growth rate declining further from the Ordinary Income stage partly due to the tax burden. In conclusion, the company achieved higher revenue and earnings, but profit margins diluted from the previous year.

Segment Analysis

The Japan segment posted higher revenue and earnings, with revenue of ¥384.8B (+21.8%) and Operating Income of ¥149.2B (+25.1%). Its share of total company-wide Operating Income was 61.4%, making it the core business and leading earnings growth. Asia recorded revenue of ¥135.6B (+15.4%) but a decline in Operating Income to ¥55.1B (-4.9%). Although its margin remained high at 40.6%, it declined from the previous year. North America recorded higher revenue of ¥61.6B (+5.5%) but a significant decline in Operating Income to ¥22.0B (-19.9%). Its margin of 35.8% was below the company-wide average, making improvement in profitability a key issue. Europe continued to deliver strong growth, with revenue of ¥34.0B (+53.9%) and Operating Income of ¥8.6B (+38.8%), although its margin of 25.2% was relatively low. South America maintained strong growth as a small-scale segment, with revenue of ¥10.8B (+64.1%), Operating Income of ¥2.8B (+11.6%), and a relatively low margin of 25.9%.

Key Financial Indicators

[Profitability] The Operating Income margin declined to 43.1% from 46.9% in the previous year, while the Net Income margin also declined to 29.8% from 32.9%. The gross margin was 78.2% (80.7% in the previous year), and the SG&A expense ratio was 35.1% (33.8% in the previous year). Expense growth exceeding revenue growth was the primary factor behind the contraction in margins. [Cash Quality] Cash and deposits totaled ¥1,360.7B, representing 54.9% of total assets. Interest-bearing debt was limited, consisting of short-term borrowings of ¥33.7B and long-term borrowings of ¥19.6B, resulting in substantial net cash of approximately ¥1,300B. [Investment Efficiency] ROE was 9.5%, a sound level given the capital structure of total assets of ¥2,477.1B and net assets of ¥1,633.8B. [Financial Soundness] The Equity Ratio was exceptionally high at 66.0%. Liquidity was also more than sufficient, with current assets of ¥1,791.5B compared with current liabilities of ¥568.9B.

Cash Flow Analysis

Although this report does not directly disclose a statement of cash flows, fund movements can be inferred from changes in the balance sheet. Cash and deposits increased by ¥106.3B to ¥1,360.7B from ¥1,254.3B in the previous year, suggesting that earnings growth and the accumulation of contract liabilities (advances received) supported cash generation. Accounts payable increased significantly to ¥65.7B from ¥45.2B in the previous year, indicating increased working capital usage associated with the expansion of production and procurement activities. Meanwhile, long-term borrowings declined to ¥19.6B from ¥27.4B in the previous year, indicating continued deleveraging. The simultaneous accumulation of cash and reduction in interest-bearing debt suggest that funds generated from business activities exceeded investment and debt repayment needs.

Quality of Earnings

Non-operating income was ¥6.2B, approximately 1.2% of revenue, primarily consisting of interest income of ¥2.9B and foreign exchange gains of ¥1.8B. Both were composed mainly of recurring income ancillary to the core business. Extraordinary losses were minor at ¥0.2B, with no indication that temporary factors materially affected performance. The difference between Ordinary Income of ¥226.2B and Operating Income of ¥224.3B was limited to approximately ¥1.9B, indicating that the profitability of the core business was the primary driver of performance. Comprehensive income was ¥166.2B, exceeding Net Income of ¥155.3B, due to the addition of a positive foreign currency translation adjustment of ¥14.0B. The foreign currency translation effect from overseas operations pushing up comprehensive income is a point to note.

Earnings Forecast and Guidance

Progress against the Full-Year forecast was 22.6% for revenue at ¥520.4B/¥2,298.0B, 25.1% for Operating Income at ¥224.3B/¥895.0B, and 25.1% for Ordinary Income at ¥226.2B/¥902.0B. Compared with the standard Q1 progress benchmark of 25%, progress on the earnings side was broadly in line, while revenue was somewhat behind schedule. Neither the earnings forecast nor the dividend forecast has been revised, suggesting that the company expects to achieve its initial plan.

Shareholder Returns

The company’s forecast calls for Full-Year EPS of ¥52.62 and annual DPS of ¥16.00, implying a Payout Ratio of approximately 30.4%. On April 1, 2026, the company conducted a 1-for-5 stock split, and the per-share metrics in the Full-Year forecast are based on the post-split number of shares. No revision has been made to the dividend forecast. Although a trend of consecutive dividend increases cannot currently be confirmed based on the disclosed information, the substantial cash and deposits of ¥1,360.7B support dividend sustainability.

Risk Factors

1. Regional concentration risk: The Japan segment accounts for 73.9% of revenue and 61.4% of Operating Income, meaning that fluctuations in domestic demand and market conditions could have a significant impact on overall performance.

2. Declining profitability in the North America segment: North America recorded a 5.5% increase in revenue but a 19.9% decline in Operating Income, with its margin deteriorating from the previous year to 35.8%. Progress in improving profitability will be a key monitoring point.

3. Accelerating growth in SG&A expenses: SG&A expenses increased 25.3%, exceeding the revenue growth rate of 20.7%. If this trend continues, it could become a factor behind further contraction in the Operating Income margin.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (trading)

Profitability and Returns

The company’s Operating Income margin and Net Income margin substantially exceed the industry median, positioning it as a company with exceptionally high profitability within the industry.

Growth and Capital Efficiency

The revenue growth rate also substantially exceeds the industry median, placing the company among the industry’s high-growth group.

Source: Company analysis

Key Points from the Results

1. Although the company achieved higher revenue and earnings, profit margins contracted from the previous year. The combined effect of a -2.5pt change in the gross margin and a +1.2pt change in the SG&A expense ratio caused the Operating Income margin to decline to 43.1% from 46.9% in the previous year. Whether expenses continue to increase faster than revenue growth will be a key focus going forward.

2. By region, Japan led the core business with higher revenue and earnings, while North America posted higher revenue but lower earnings. The deterioration in North America’s margin has had a certain impact on the dilution of the company-wide margin, creating a structure in which disparities in profitability between regions influence the quality of earnings.

3. Full-Year progress was at a standard pace of approximately 25% on the earnings side, while revenue was somewhat behind at 22.6%. Neither the earnings forecast nor the dividend forecast has been revised, indicating that the company expects to achieve its current plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥281–¥299 at ±1% for the cost of equity, and ¥285–¥297 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end are used (there is a timing difference from the Full-Year forecast).
• Because 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 a professional as necessary.

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