TAY TWO CO.,LTD. Q4 FY2025 earnings call

Overall Financial Performance

• Achieved 4 consecutive years of consolidated revenue growth since the transition to consolidated reporting.
• Generated 1.4 billion yen in operating cash flow, fully funding future-focused investments including the new office building for wholly-owned subsidiary Yamatoku.
• The company is currently in a re-growth phase, conducting active strategic investments to drive future transformation.

Store Network and Operational Updates

• As of end of March 2025, the "Furuichi" store network totaled 172 combined directly operated and franchised locations, with operations in 43 Japanese prefectures.
• Completed construction of a new office building for wholly-owned subsidiary Yamatoku in Ishikawa Prefecture, consolidating previously dispersed locations to improve operational efficiency, boost profitability, and support stable local employment.

Product and Customer Strategy

• Maintains a flexible store layout strategy that adjusts product mix based on quarterly category trends, across five core categories: books, games, trading cards, hobbies, and other.
• Customer demographics are stable: 70% male, 30% female, with a balanced age distribution across segments.
• Hobbies are designated as a high-priority growth category; management expects the revenue share of hobbies to grow significantly from the current 8% going forward, with plans to launch original IP-based hobby products.

Digital and Technological Developments

• Secured a patent for TAYS, the company's proprietary AI-powered trading card reading and appraisal system.
• Is rolling out a proprietary in-house trading card tablet search tool to all directly operated stores, with plans to offer both TAYS and the tablet search tool as B2B solutions to external companies to drive additional revenue.
• Progressed collaboration with capital and business alliance partner TORICO: Achieved significant reductions in EC system operating costs by leveraging TORICO's engineering capabilities, and announced a plan to open the first joint overseas store in Taiwan before summer 2025.

ESG and Strategic Brand Building

• Launched the "Furuichi 360 Reuse" strategic framework, which expands the company's core reuse business to include community development, place branding, and stakeholder value creation, aligning commercial activity with social impact.
• Expanded entertainment-focused core business by adding IP business and global expansion as new strategic areas, leveraging the global appeal of Japanese content.
• Participates in the Tokiwa-sou Project to develop a manga culture destination in partnership with public entities, building the Furuichi brand tied to Okayama's status as a UNESCO Creative City for literature.

Overall, Teito achieved 4 consecutive years of revenue growth since shifting to consolidated financial reporting. Consolidated revenue maintained year-over-year levels, while operating profit and net profit fell year-over-year due to lower trading card gross margins, increased selling general and administrative (SG&A) costs from new store expansion, and a 0.15 billion yen impairment loss on store fixed assets. By product category: 1. Books: Revenue fell below 100% year-over-year, in line with the broader declining market trend, but the segment maintained steady profitability. 2. New video games: Revenue fell below 100% year-over-year due to variable new title supply from manufacturers, with recovery expected in the current fiscal year. 3. Trading cards (Trading Card Game, TCG): Through the third quarter, weak market pricing reduced gross margins; the company cleared low-margin inventory in the first half of the fiscal year, and a market recovery in the second half (especially the fourth quarter) drove a sharp profit recovery. Long-term, TCG revenue has a clear upward trend. 4. Hobbies: Hobbies are a key growth focus, currently accounting for 8% of revenue, with strong synergy with existing store formats. New and used hobby products drove strong fourth quarter performance. Overall product mix: Used goods account for 52.3% of total revenue, slightly exceeding new goods.

• For the 2026 February fiscal year, management forecasts consolidated revenue of 40 billion yen, operating and ordinary profit of 1.1 billion yen, and net profit of 0.7 billion yen. The forecast accounts for lingering volatility in the trading card market and includes planned future-focused investment costs.
• The company maintains its medium-long term target of 50 billion yen in revenue and 2.5 billion yen in operating profit for the 2029 February fiscal year, and remains committed to achieving this goal.
• Dividend policy is maintained: management plans to continue a 4 yen per share dividend for the 2025 February fiscal year, and will retain the current shareholder benefit program.

• Trading card market pricing is inherently volatile, which created significant gross margin pressure through the first three quarters of the 2025 February fiscal year.
• Broad-based cost inflation across SG&A items, including labor costs, cashless payment fees, and other general expenses, has increased overall cost burdens for the company.
• New video game revenue is heavily dependent on new title supply from manufacturers, creating inherent quarterly revenue volatility for the category.
• The overall book market is in a long-term structural decline, which has created ongoing downward pressure on book segment revenue.

Q: What drove the achievement of full-year EC profitability, and what are the company's future plans for EC growth?

A: Full-year EC profitability was achieved in the prior fiscal year. EC operations are split into three segments: Yamatoku's profitable business, Teito's proprietary Furuichi online site, and sales through third-party internet malls like Amazon. The capital alliance with TORICO significantly reduced EC operating costs, and the mix of in-store purchased goods allocated to EC achieved balanced profitability. The core challenge to grow EC sales is increasing overall purchase volume, as more purchases create more inventory available for EC sales. Teito's core strength is in-store purchasing, so the company is testing a new strategy of leasing inexpensive roadside store locations in regional areas to rapidly scale local purchasing volume. If successful, this model will be rolled out broadly, acting as a growth catalyst for EC sales. Management is also exploring online-first purchasing models to maintain a balanced growth strategy.

Q: What factors drove the fourth quarter performance recovery?

A: The key drivers were the recovery of trading card market prices after the clearance of low-margin inventory in the first half of the fiscal year, paired with same-store sales growth from new store network expansion. New trading cards and new/used hobby products performed particularly strongly, pushing fourth quarter revenue to a multi-year high for quarterly sales.

Q: What are the key initiatives to hit the company's medium-long term growth targets?

A: The core priorities are scaling the store network across 43 prefectures, expanding the revenue share of high-growth hobby products, commercializing proprietary B2B trading card technology tools, and executing the planned first overseas entry into Taiwan via the TORICO alliance. Management is also focused on building the Furuichi brand through cultural initiatives like the Tokiwa-sou Project to drive long-term intangible value growth, and will share more detailed implementation plans publicly as they are finalized.