Sanrio Company,Ltd. Q4 FY2026 earnings call

• Company Background & Recent Turnaround

  • Founded in 1960, with a core corporate philosophy of "Everyone be friends", which guides all hiring and business decisions (e.g., the company will never develop violent shooting games that conflict with this philosophy).
  • A 2020 leadership transition resulted in a dramatic V-shaped recovery after years of declining performance starting in 2015. Changes to the management team, marketing strategy, and individual character strategy, combined with tailwinds from 'oshi-activity' (fan favorite character promotion) demand and inbound tourism, drove strong recent results.
  • Sanrio holds over 450 unique characters, which is its core competitive advantage. The portfolio allows the company to shift focus to high-demand characters annually based on popular vote results, adapting to changing market trends.

• Core Performance Metrics

  • Management developed the "Sanrio Time" metric to quantify customer engagement, combining 'Attachment Time' (time users spend with Sanrio products in daily life) and 'Passion Time' (time users spend engaged with immersive Sanrio experiences like theme parks or games). Both components have grown consistently driven by expanding international sales.

• Character Development & Portfolio Diversification

  • New character development uses audience-driven models: the domestic "NEXT KAWAII PROJECT" uses public voting to select new characters for debut (e.g., Hanamaru Obake debuted in 2023 via this process), while China develops new characters specifically for WeChat stickers and promotes popular variants.
  • Unpopular characters are never retired; long-dormant characters can experience re-popularization via fan demand and subsequent licensing partnerships.
  • Global Hello Kitty revenue dependency has fallen from ~70% a decade ago to 35% today, with balanced growth across the full character portfolio.

• International Growth Progress

  • North America (US): SNS strategy has driven strong growth: the "HELLO KITTY AND FRIENDS" YouTube channel grew from 3.2 million to 4 million subscribers in months, successfully raising awareness of other characters beyond Hello Kitty. Hello Kitty now accounts for ~60% of US revenue, down from 99% a decade ago.
  • China: Kuromi experienced explosive growth driven by influencer viral marketing on TikTok, with Sanrio proactively expanding licensing after demand emerged; Kuromi's sales now nearly match Hello Kitty's in the market, with a diverse character portfolio similar to Japan.

• Long-Term "Lighthouse IP Platform" Vision

  • The new 10-year strategic vision expands beyond existing licensing, merchandising, and LBE to add new vertical categories including video, games, and sports.
  • A key new strategic shift is to manage and grow third-party IP alongside Sanrio's own characters: Sanrio's design capabilities can make existing third-party characters more marketable and merchandise-friendly, creating mutual benefits and long-term portfolio resilience.

1. Licensing Business: Accounts for over 50% of total revenue, with its revenue share gradually increasing as growth in the US and China markets drives expansion. It has a very high operating margin of 60%-70%, far outpacing other business segments. It includes three main sub-types: product licensing, advertising licensing, and space licensing. 90% of domestic Japanese clients are repeat customers, with active cross-selling of different characters to existing large clients.
2. Product Sales (Merchandising) Business: Primarily a domestic Japanese business, with around 140 stores in Japan (half directly operated, the rest via consignment, no franchising). It operates an omnichannel business with a growing online store, supported by the group-wide Sanrio+ membership program to track customer behavior for strategic planning. It has an operating margin of 10%-20%. In China, local merchandising and product manufacturing accounts for nearly half of the market's total revenue, a distinct structure from other international markets.
3. Theme Park (Location-Based Entertainment / LBE) Business: Two domestic parks in Japan: indoor Tokyo Sanrio Puroland and outdoor Harmony Land in Oita Prefecture. It has an operating margin of 10%-20%.
   Overall company-wide operating profit margin is around 35% as of 2025. For the 2025 March full year, total company revenue was 144.9 billion yen, with operating profit reaching a record high of 51.8 billion yen.

• 10-Year Long-Term Target (2035 March Fiscal Year): Sanrio targets 5 trillion yen market capitalization, up from the June 2025 level of ~1.6 trillion yen. A core operational target is growing North American character market share from ~3% to 10% over 10 years.
• Medium-Term Target (2027 March Fiscal Year): Sanrio targets operating profit of over 65 billion yen, up from 51.8 billion yen in the 2025 March fiscal year (a record high). Management has committed to 50 billion yen or more of M&A spending by the end of the 2027 medium-term plan.
• The company targets a minimum average annual operating profit growth of 10% over 10 years, prioritizing stable growth over hitting arbitrary absolute profit or revenue targets to build long-term market confidence.
• Key milestone events on the public roadmap:
  • 2025 July: My Melody & Kuromi animation launches on Netflix
  • 2027 March Fiscal Year: Launch of 2 first-party games, and start of domestic self-produced film development
  • 2028 March Fiscal Year: Launch of Sanrio's first self-produced original character animation
• Sanrio plans to develop a low-budget overseas (ideally US) theme park with partners over the next 10 years; no concrete plans are finalized yet.

• The core business risk is fading character popularity: Sanrio has experienced three major growth booms in its history (1990s Japan, 2010s Europe/US, 2020s current global boom), and declining character popularity would materially hurt financial performance.
• North America currently lacks physical retail touchpoints, which is a key engagement gap that limits growth; all previous Sanrio stores in the US were closed during a prior period of poor performance.
• Expanding into new verticals (video, games) requires capabilities Sanrio does not currently have internally, creating execution risk for the long-term strategy.

Q: What potential is there for large M&A or capital expenditure, given Sanrio's current organic growth trajectory? / A: Sanrio views M&A as a critical strategic tool to enter new, underdeveloped verticals (video, games) that the company does not have existing expertise in. It has targeted at least 50 billion yen in M&A activity through the 2027 medium-term plan, which can include full acquisitions or minority stake investments for strategic partnerships. Sanrio recently announced a partnership with IG Port, a producer of popular animation titles, to strengthen its video business division, an example of this strategy.

Q: What is the reasoning for the 5 trillion yen 10-year market capitalization target, and what are the largest uncertainties to hitting it? / A: The target is an aspiration goal set by leadership, based on the belief that Sanrio has the potential to reach the top tier of Japanese companies by market cap, rather than coming from a detailed granular simulation. To reach 5 trillion yen, 10% annual operating profit growth (the stated minimum) is not enough on its own; the company will need to successfully execute the lighthouse IP platform strategy including growing third-party IP to drive additional value. Management notes the core risk to this goal is fading character popularity, which it plans to mitigate through a consistent pipeline of new events and content to maintain fan engagement globally.

Q: What is the strategic rationale and business model for expanding into third-party IP management? / A: The main strategic goal is to maintain long-term popularity of the entire Sanrio ecosystem: attracting popular third-party IP creates sustained foot traffic and engagement, which can also boost demand for Sanrio's own characters if original Sanrio IP experiences a popularity decline. While profit margins will be lower for third-party IP (profits are typically split between Sanrio and the IP owner), the long-term strategic value of maintaining a popular, dynamic IP portfolio outweighs near-term margin pressure, aligning with the long-term market cap goal.

Q: What is Sanrio's strategy to deepen customer engagement moving forward? / A: The main gap to address is lack of physical touchpoints in key international markets, particularly the US where all Sanrio stores were previously closed during a downturn. Sanrio does not plan to open a large network of stores, but aims to open a small number of high-profile flagship stores in major US locations to drive brand awareness, which will support overall licensing revenue growth (the core profit driver). On the digital side, Sanrio is investing heavily in animation: it is producing a 1.5 billion yen original animation focusing on character backstories set to launch in 2028, which will deepen fan connection to characters by clarifying their worldbuilding, a gap compared to other established IP that originated from animation.