Toei Animation Q2 FY2027: Rights sales rise, but operating profit falls

Toei Animation reported revenue of ¥46.612 billion for the first half of FY2027, up 3.7% from a year earlier. Operating profit fell 8.9% to ¥15.161 billion, while net income attributable to owners of the parent declined 8.4% to ¥11.893 billion. Higher selling, general and administrative expenses weighed on earnings despite sales growth, leaving revenue gains disconnected from profit growth.

• Gross profit: Rose 1.6% year on year to ¥25.203 billion, while SG&A expenses climbed 22.8% to ¥10.042 billion.
• Operating profit: Fell ¥1.477 billion from a year earlier, and the operating margin declined to 32.5% from about 37.0%.
• Ordinary profit: Declined 9.6% to ¥16.182 billion. The company also had no gain from the sale of investment securities, which it recorded in the year-earlier period, contributing to the decline in net income.

Major franchises including "One Piece" and the "Dragon Ball" series supported revenue, which returned to growth after falling in the year-earlier period. But both cost of sales and SG&A expenses rose, preventing stronger sales from translating into higher profit. Restoring margins will require not only expanding sales of titles and rights, but also building a business model that can absorb rising overhead.

The licensing business, Toei Animation's main revenue driver, posted gains in both sales and profit, while merchandise and events also grew. The video production and sales business, however, saw declines in both revenue and profit. Segment revenue figures below include intersegment transactions as reported in the earnings release.

Licensing Business posted revenue of ¥25.083 billion, up 6.0% year on year, and segment profit of ¥13.013 billion, up 0.3%. Overseas sales of "One Piece" merchandising rights and merchandising and game rights for the "Digimon Adventure" series were strong. In Japan, however, sales of game rights for "Dragon Ball" and "One Piece" did not match the momentum of the previous year.

Video Production and Sales Business recorded revenue of ¥15.240 billion, down 4.9%, and segment profit of ¥4.425 billion, down 32.0%. Contributions included activity from "Detective Precure the Movie: The Mysterious Garden and the Two Secrets," more new television anime episodes and voice production for games. These were offset by a pullback in sales of "Girls Band Cry" video products and the renewal and review of streaming rights contracts in Asia.

• Merchandise Sales Business: Revenue rose 24.0% to ¥4.456 billion and profit increased 9.5% to ¥361 million. The "Dragon Ball" shop and Precure e-commerce performed well.
• Other Businesses: Revenue increased 15.4% to ¥2.168 billion and profit jumped 274.5% to ¥231 million. Events and character shows featuring "Precure" and "One Piece," among others, grew.

Licensing accounts for more than half of companywide revenue, with overseas rights sales driving growth. But lower profit in video production and sales weighed on consolidated earnings. Toei Animation's ability to turn popular titles into multiple revenue streams, including merchandise, games and streaming, will be key to performance ahead.

Total assets rose 3.2% from the end of March 2026 to ¥208.772 billion, while the equity ratio remained high at 84.4%. Growth in cash and deposits and accumulated retained earnings supported the balance sheet.

The earnings release did not include cash flow statement figures. Cash and deposits increased ¥4.287 billion from the previous fiscal year-end, while treasury shares rose ¥500 million following the introduction of a stock-based compensation ESOP trust. The release did not announce a share buyback.

Toei Animation says it aims to balance financial soundness, strategic investment and shareholder returns. Its medium-term management plan, "VISION2030," covering FY2027 through FY2031, sets a dividend payout ratio of at least 40%. The company targets a total return ratio of 50% in the plan's final year and plans to maintain stable dividends while taking investment strategy and business performance into account.

Toei Animation left its FY2027 forecast unchanged from the outlook announced on Oct. 28, 2026. Revenue is projected to rise 4.8% from the previous year, while operating profit is expected to fall 14.9% and net income attributable to owners of the parent to decline 20.2%.

The approximate previous-year figures are calculated from the forecast amounts and year-on-year rates shown in the earnings release. Toei Animation says it aims to secure and expand stable earnings from its major franchises, but first-half operating profit was below the year-earlier level. Meeting the full-year outlook will depend on growing licensing and other revenue in the second half and how far the company can restore its profit margin.

For a business model built on turning popular titles into revenue, contract conditions for rights sales and market trends in each region can shape performance. Toei Animation also cautions that economic conditions, market trends and foreign-exchange movements could cause actual results to differ substantially from its forecasts.

• Streaming rights contract changes: Regular renewals and reviews of streaming rights contracts in Asia reduced revenue in the video production and sales business. The timing and terms of contracts can cause sales to fluctuate.
• Reversals in title and rights sales: Domestic game-rights sales did not match the previous year's momentum, while video product sales also eased after a strong year. Sales trends for titles that grew in the prior year can make year-on-year comparisons more difficult.
• Foreign exchange and overseas markets: Overseas rights sales are an important source of earnings, leaving results potentially exposed to currency movements and changing market conditions in each region.
• Margin pressure: SG&A expenses rose in the first half, resulting in lower operating profit despite revenue growth. Balancing sales expansion with cost control is a challenge for meeting the full-year outlook.

Expanding intellectual property such as "One Piece" and "Dragon Ball" across regions and uses is a strength, but results remain exposed to the performance of individual titles and contract renewals. Investors will be watching whether overseas licensing remains strong and whether profitability recovers in the video production and sales business.