TAY TWO CO.,LTD. Q2 FY2026 earnings call

• Core Financial Performance

  • Interim cumulative consolidated sales reached 19.33 billion yen, up 10.6% year-over-year, the highest interim sales in 15 years
  • Operating income hit 0.6 billion yen, up 110.9% year-over-year; net income attributable to parent shareholders hit 330 million yen, up 94.1% year-over-year
  • Higher selling, general and administrative costs (up 9% year-over-year) driven by new store-related labor and rent increases, higher cashless fees and overall cost inflation, were fully absorbed by sales growth and active sales initiatives
  • Improved profitability was driven by higher average selling prices for trading cards and hobby products, plus improved inventory turnover
  • Operating cash flow was negative 283 million yen due to inventory growth tied to sales expansion and temporary impacts from accounts payable changes; investment cash flow was impacted by capital expenditures for fixed assets and new store investments

• Physical Retail Expansion & Innovation

  • Resumed regional roadside store openings after a pause, opening the 300-tsubo Furuichi Kurayoshi Store in July 2025, which turned profitable on a standalone basis by its second month (August) and is performing in line with plan
  • The new roadside format tests a purpose-built layout combining core entertainment reuse products with diversified apparel and household goods, to test demand for larger format stores and strengthen product acquisition capabilities
  • Store digital transformation initiatives are underway to streamline buying operations and consolidate internal tools between headquarters and stores

• Strategic Business Initiatives

  • The company is in a re-growth phase, conducting active investments to build future business models, aligned with the group vision of "connecting communities and the world through reuse"
  • For B2B, the company is actively expanding sales of the TAYS automated trading card appraisal machine and is seeing strong inbound inquiry growth alongside its own direct store expansion
  • For EC, the company is currently prioritizing profitable in-store sales, while incrementally strengthening buying capabilities to grow online inventory and build a profitable online operating model, including trial of delivery-based online buying
  • The Taiwan global expansion has posted stronger than expected initial performance, with next steps including logistics improvements and building local used product procurement capabilities ahead of potential additional store openings

1. Reuse Store Segment: Total 175 stores as of end-August, with 44 stores primarily located in Aeon Malls and one large-format new regional roadside store (Furuichi Kurayoshi Store). Product diversification (apparel, household goods) is fully rolled out at 14 stores, with strong early performance from the new roadside location. This segment is the core physical retail footprint for the company.
2. Reuse EC Segment: Subsidiary Yamatoku opened a new 1,600-tsubo consolidated hub at the start of the period to unify dispersed operations, improve efficiency, and grow new product categories. The new hub is performing in line with initial investment recovery plans, with focus on building inventory supply to support the already launched Furuichi Online platform.
3. Reuse BtoB Segment: The segment focuses on selling the proprietary TAYS automated trading card reading and appraisal machine, with a near-term target of 100 million yen in annual profit contribution. It also operates a unique franchise model where TTC holds the inventory and splits profits with partners after covering partner operating costs.
4. Global Segment: The newly opened Taiwan store has posted very strong sales, with Japanese-sourced entertainment products selling out quickly despite its small size.

By product category: Total consolidated interim sales hit 19.33 billion yen, with new product overall accounting for a 2 percentage point higher revenue share year-over-year. New video games (+3 percentage points share) and used trading cards (+2 percentage points share) were the top growth categories, driven by the launch of Nintendo Switch 2 and recovering trading card market conditions.

• Full-year 2026 (February ending) consolidated guidance is maintained from initial targets: 40.0 billion yen in total sales and 1.1 billion yen in operating income
• Medium-term target for the 2029 (February ending) fiscal year is maintained at 50.0 billion yen in total sales and 2.5 billion yen in operating income
• Full-year dividend guidance is maintained at 4 yen per share; future dividend adjustments will be evaluated considering both shareholder returns and balance sheet strength, consistent with the company's policy of progressive dividends tied to performance

• Trading cards are a high-risk product with extreme price volatility, and the industry faces periodic profit declines driven by cyclical events like the 4-year trading card rule revisions
• While digital offerings like Pokémon Trading Card Game Pocket have so far complemented rather than cannibalized physical paper trading card sales, digitalization remains a potential long-term risk to physical product demand
• Aggressive standalone new store expansion faces capital constraints and inherent real estate risk, so the company is prioritizing partnership-based expansion to limit this risk
• Cost inflation for operating expenses (labor, rent, payment fees) creates ongoing margin pressure that requires continued sales growth to absorb

Q: How has the new regional roadside store opening performed, and what is TTC's future expansion strategy for this format? / A: The new Furuichi Kurayoshi Store turned a standalone profit in its second month, much faster than expected. Management has found strong demand from customers across a wide geographic area, as many regional areas are underserved for entertainment retail, and the mix of core entertainment products plus diversified household goods is well received. / A: Going forward, management sees major opportunities as regional retail undergoes a transition, with opportunities to acquire closed retail locations from other operators. The company will prioritize strengthening property selection and partnerships with local firms, rather than aggressive standalone expansion, to limit capital risk while growing its regional buying footprint.\n\nQ: What is TTC's global expansion strategy following the first Taiwan store opening? / A: The company aims to open a second Taiwan store as soon as possible, and will focus primarily on Asian and Southeast Asian markets for physical retail expansion. / A: Management also sees strong B2B export demand for Japanese entertainment secondary market products, with high demand from both Asian and North American markets, and is progressing incrementally on initiatives to meet this demand through multiple channels, with future updates to be provided as plans solidify.\n\nQ: After the current tailwind from used trading card market recovery fades, what strategy will TTC use to sustain profit growth? / A: Management acknowledges that trading cards are a high-volatility product, but notes the overall market has grown threefold to 3000 billion yen in new product sales (plus additional used volume) in recent years, and few national chains have the specialized expertise to manage trading card inventory profitably, making this a core competitive strength for TTC. / A: Digital offerings like Pokémon Trading Card Game Pocket have actually boosted demand for physical cards rather than cannibalizing it, so management sees continued growth opportunity for the category. The company will continue to improve its risk management capabilities for cyclical downturns, while expanding other product categories like hobby goods to offset concentration risk, as trading cards and games already account for ~80% of sales. The company will keep prioritizing floor space efficiency and meeting customer demand to sustain overall profitability.