Toho Q1 FY2027 Earnings Deep Dive Report

Toho Co., Ltd. announced its financial results for the first quarter of fiscal year 2027 (March 1, 2026 – May 31, 2026). This report provides a deep dive analysis of the company's latest performance, segment-specific details, future growth strategies, and capital policies, based on the provided materials.

1. Q1 FY2027 Consolidated Earnings Highlights and Key Factors

For the first quarter of fiscal year 2027, Toho reported consolidated operating revenue of 88.7 billion yen (up 4.6% year-on-year) , achieving revenue growth. However, operating profit decreased to 13.8 billion yen (down 28.3% year-on-year) , and net profit attributable to owners of parent was 8.1 billion yen (down 29.1% year-on-year) . The significant decline in profit despite revenue growth is primarily attributed to consolidation adjustments in the IP & Anime business.

This consolidated earnings highlight table comprehensively presents the financial status for the current quarter. Operating revenue increased from 84,878 million yen in the prior year to 88,742 million yen. However, cost of sales increased by 11.8%, limiting gross profit growth to 3.5%. Furthermore, a 19.6% increase in selling, general, and administrative expenses led to a substantial decrease in operating profit. Specifically, consolidation adjustments related to the company split of TOHO Global in the IP & Anime business were the main factor pushing down reported operating profit. This adjustment is explained as a change in the accounting method for overseas revenue and does not reflect a deterioration in actual business activities. When compared on a 'conventional basis' before consolidation adjustments, the IP & Anime business reportedly achieved both revenue and profit growth, making it crucial to understand the impact of this accounting treatment for a correct evaluation of the current quarter's performance.

2. Segment Performance Overview and Factor Analysis

Segment performance is as follows:

• Film Business : Operating revenue was 43.3 billion yen (up 7.8% year-on-year), and operating profit was 9.6 billion yen (up 6.1% year-on-year), achieving both revenue and profit growth . This was driven by the success of hit titles such as 'Demon Slayer' and 'Chainsaw Man' . However, a decrease in production investments for films distributed by other companies had some impact.
• IP & Anime Business : Operating revenue was 18.3 billion yen (down 4.0% year-on-year), and operating profit was 0.5 billion yen (down 91.8% year-on-year), resulting in decreased revenue and profit . As mentioned, the consolidation adjustment due to the TOHO Global company split was the primary cause. On a conventional basis before adjustments, the segment reportedly saw revenue and profit growth, indicating that the business itself is progressing smoothly.
• Theater Business : Operating revenue was 5.9 billion yen (up 15.5% year-on-year), and operating profit was 0.5 billion yen (up 578.6% year-on-year), marking significant growth in both revenue and profit . This was due to the strong performance of self-produced plays like 'Rebecca' and 'VOICARION 10th Anniversary Performance,' coupled with improved theater operational efficiency.
• Real Estate Business : Operating revenue was 20.4 billion yen (up 1.4% year-on-year), and operating profit was 5.6 billion yen (down 6.8% year-on-year), showing revenue growth but a profit decline . While real estate leasing remained solid, the profit decrease was mainly due to the expiration of the price slide effect recorded in the road business in the previous year.
• Other Businesses : Operating revenue was 0.8 billion yen (up 128.4% year-on-year), and operating profit was -0.02 billion yen (down 148.9% year-on-year), showing revenue growth but a profit decline. This was influenced by the recognition of TOHO-ONE membership revenue and promotional expenses related to point programs.

3. Long-Term Growth Strategy for the IP & Anime Business

The IP & Anime business is positioned as a critical growth driver for the Toho Group. Toho has set an ambitious target to expand the operating profit of the IP & Anime business by over 200% by fiscal year 2032 compared to fiscal year 2025 (22.2 billion yen). The key growth drivers for achieving this goal are TOHO animation (including games) and the Rights Business Division/Godzilla Division domestically, and TOHO Global internationally.

This slide illustrates the long-term growth strategy and specific targets for the IP & Anime business, making it crucial for understanding the overall growth story of the Toho Group. A clear numerical target is presented: to exceed 44.4 billion yen in operating profit by FY2032, up from 22.2 billion yen in FY2025. This growth is planned to be achieved through strengthening the 'TOHO animation' brand domestically, expanding the rights business utilizing powerful IPs like Godzilla, and developing overseas markets through 'TOHO Global.' The expansion of overseas business, in particular, is positioned as an indispensable element for diversifying revenue sources and accelerating future growth. The consolidated operating profit target is also set at 75 billion to 100 billion yen for FY2032, with the IP & Anime business expected to contribute significantly to this achievement.

4. Strategic Initiatives and Price Revision in the Film Business

In the film business, TOHO Cinemas revised movie ticket prices effective July 1, 2026. General admission increased by 200 yen, and student/senior tickets by 100 yen. This measure addresses changes in the cost environment surrounding theater operations and aims to ensure the continued provision of stable services. Additionally, Toho plans to acquire all shares of OS Cinebrazers Co., Ltd., which operates cinemas primarily in Kobe, in October. With Nishinomiya OS Cinemas Mint Kobe (8 screens) and OS Cinemas Kobe Harborland (10 screens) joining the TOHO Cinemas Group, Toho aims to expand its cinema business scale and strengthen its regional strategy .

5. Policy-Held Shares Reduction Policy and Capital Efficiency Improvement

Toho has formulated a policy to reduce its policy-held shares with the aim of improving capital efficiency and enhancing shareholder returns. Specifically, the company targets to reduce the book value of policy-held shares by over 50 billion yen by the end of fiscal year 2030, bringing the consolidated net asset ratio below 10% . Funds generated from these sales will be primarily allocated to growth investments while also serving as a source for shareholder returns to improve capital efficiency.

This slide indicates a significant turning point in Toho's capital policy. The reduction of policy-held shares is an initiative directly linked to strengthening the balance sheet and improving capital efficiency. The graph illustrates the trend of book value and consolidated net asset ratio from FY2020 to FY2026, visually presenting the clear goal of significantly reducing the book value and bringing the consolidated net asset ratio below 10% by the end of FY2030. This policy demonstrates a strong commitment to enhancing shareholder value , and by allocating sales proceeds to growth investments and shareholder returns, Toho aims for sustained corporate value improvement.

6. Strategic R&D for Next-Generation Entertainment Creation

Looking ahead to future growth, Toho has initiated strategic R&D aimed at creating next-generation entertainment . While specific details are not yet fully disclosed, this indicates the company's proactive stance in investing not only in strengthening existing businesses but also in new business areas and technological innovation.

7. Full-Year FY2027 Earnings Forecast Unchanged

The full-year earnings forecast for fiscal year 2027 remains unchanged from the initial forecast. The figures of 345.0 billion yen for operating revenue, 62.0 billion yen for operating profit, and 41.0 billion yen for net profit attributable to owners of parent have not been revised. The main reasons for maintaining the forecast are a complex interplay of positive factors, such as the TOHO Cinemas movie ticket price revision, partial sale of owned real estate, and partial sale of policy-held shares, alongside negative factors like the impact of the TOHO Global company split, uncertainty in equity method investment gains/losses, and the recording of 2.0 billion yen in fixed asset dismantling costs. The company states that the impact of these factors is currently being carefully assessed.

8. IP & Anime Business Revenue by Source and Overseas Expansion

Looking at the IP & Anime business revenue by source, distribution revenue, character licensing revenue, and merchandise sales are key components. In Q1 FY2027, distribution revenue was 4.87 billion yen (down 28.4% year-on-year), and character licensing revenue was 1.69 billion yen (down 26.3% year-on-year). This was mainly due to the strong contribution from 'Demon Slayer' and 'My Hero Academia' in the prior year, as well as the transfer of some overseas revenue to TOHO Global. Conversely, game revenue significantly increased to 0.75 billion yen (up 82.1% year-on-year), with contributions from 'Jujutsu Kaisen Phantom Parade' and 'Sakuna: Of Rice and Ruin.' The ratio of overseas sales decreased from 14.6% in Q4 FY2026 (on a conventional basis before consolidation adjustments) to 6.8% in Q1 FY2027. However, this is an accounting effect due to the transfer of overseas business to TOHO Global and does not imply a substantive reduction in overseas operations. Rather, it is part of a strategy to achieve further expansion of overseas business by having TOHO Global directly handle international sales.

9. Trends in Key Consolidated Income Statement Items

The gross profit margin for Q1 FY2027 was 43.6% , a decrease from 47.2% in the prior year, primarily due to an increase in cost of sales. Consolidated selling, general, and administrative (SG&A) expenses increased year-on-year to 24.78 billion yen. SG&A expenses include personnel costs, advertising expenses, and depreciation. Notably, an increase in depreciation expenses associated with the launch of TOHO-ONE is recorded as an adjustment. These changes in cost structure are points to monitor when assessing future profitability.

Conclusion

Toho's Q1 FY2027 financial results showed solid growth in operating revenue , while accounting consolidation adjustments in the IP & Anime business led to a decrease in operating profit. However, this profit decline does not reflect the actual state of business activities, as the film and theater businesses maintained strong performance . Particularly, the IP & Anime business has set a clear long-term growth strategy to achieve over 200% operating profit by FY2032, with the strengthening of domestic IP and overseas expansion being key. Furthermore, a concrete policy for reducing policy-held shares has been announced, demonstrating a clear commitment to improving capital efficiency and enhancing shareholder value. While the full-year earnings forecast remains unchanged, strategic initiatives for the future, such as price revisions, M&A, and R&D investments, are steadily progressing. The extent to which these measures will contribute to future performance remains a key area of focus.