Management Highly Confident in Trading Card and Pre-Owned Game Outlook; Next Growth Phase Targets Overseas Rollout of TAYS and Local Buy-Ins in Taiwan

Summary

1H revenue hit a record high, and operating income reached its highest level since the shift to consolidated reporting. Pre-owned trading cards, pre-owned games, and new hobby products more than offset higher SG&A. In the Q&A, management described the outlook for trading cards and pre-owned games as bright. Next steps include an overseas rollout of TAYS, talent development and the launch of local buy-ins in Taiwan, and EC expansion paired with stronger procurement channels. Full-year guidance was already revised upward on September 25. The dividend was held at JPY 4, balancing shareholder returns against growth investment.

Key Points (Earnings Takeaways and Growth Initiatives)

• Management Strategy and Market View
  • Management expects the trading card market to expand further. It positions trading cards as a core product for both new directly operated stores and growing BtoB transactions, and aims to build out talent and the business foundation quickly
  • The retro game market remains resilient in pre-owned games. The company aims to diversify and expand buy-in channels to capture latent inventory
  • Reflecting shifts in the operating environment since COVID-19, the company has stepped up physical store openings. It has established a clear division of roles: TAY TWO runs stores, while Yamatoku handles EC
• Recent Business Progress and Drivers
  • In 1Q, pull-forward demand ahead of a price hike on new game hardware lifted OPM to a high 6.8%
  • 2Q standalone revenue came in at only JPY 10.40B (JPY 10.77B in the prior-year period). However, OPM improved from 3.6% to 5.2%
  • The pre-owned share of sales rose +2pt (pre-owned trading cards +3pt, new games -2pt). This mix shift drove the gross margin improvement
  • TAY TWO focused its EC sales exclusively on major online marketplaces, improving standalone EC profitability. Better balance between group procurement and sales flowed through to this period's results
• Key Strategic Initiatives and Inflection Points
  • The expanded TAYS installed base has improved the reliability of the product master database. As a next step, the company plans to pilot an overseas rollout
  • Taiwan remains in a pilot phase. The company plans to move from relying mainly on product supply from Japan toward stronger talent development and local buy-ins
  • The IoT vending machine is now being fine-tuned for a 1H 2027 launch. It is positioned as a new BtoB revenue stream in areas without directly operated stores
  • Furuichi Online will close in June 2026, consolidating group EC functions at Yamatoku. In Yashio City, the company plans a roadside site combining a store and a warehouse

Outlook and Strategy

• Full-year guidance has been revised up to revenue of JPY 43,500M, operating income of JPY 2,000M, and net income of JPY 1,000M. 1H progress stands at 50.8% for revenue and 66.6% for operating income (our estimates)
• Full-year guidance implies 2H operating income of JPY 668M, below JPY 771M in the prior-year period, a conservative assumption (our estimates)
• The medium- to long-term target is revenue of JPY 50B and operating income of JPY 2.5B in FY2/29. This assumes new ventures in IP business and global markets on top of the existing retail business
• EC will be expanded in tandem with stronger new buy-in channels. The business is currently being restructured ahead of incorporating this into guidance
• Investment for TAYS overseas preparations and Taiwan store infrastructure is expected to be incurred in stages. The search for a site for a second Taipei store is ongoing
• The dividend forecast is unchanged at JPY 4 per share. The company executed a JPY 248M share buyback in 1Q and plans a total payout ratio of 50.4%

Positive Factors

• September 2026 monthly sales were 129% YoY group-wide and 154% YoY for new products (monthly disclosure). New trading cards led the gains, giving 2H a strong start
• The company hosted 32,540 trading card tournaments in FY2025. It plans to keep exceeding the prior year's count as the store base grows, underpinning a deep customer community
• TAYS is a proprietary, patented system. With the addition of the ancillary POP×THREE service, the company now offers end-to-end support from buy-ins to in-store merchandising and promotion
• Pre-owned games and pre-owned trading cards are capturing inbound tourist demand. Stronger retro game buy-ins position the company to benefit from the resilient market
• Directly operated stores, franchise stores, and BtoB transactions now span every prefecture except Yamagata, plus Taiwan. Recurring revenue from franchise outsourcing continues to build
• The membership base is around 2.4 million. Mall-based stores total 49 cumulatively, and the company has operating know-how that can be replicated at new locations

Concerns and Risks

• The JPY 32M disaster loss from the Kumamoto earthquake is not the final figure. Treatment of damaged stores (the AEON Mall Kumamoto store remains closed) will be discussed with relevant parties
• New hardware sales fell on the payback from the new game console and the price change. 2Q revenue declined YoY, highlighting earnings sensitivity to the hardware cycle
• Personnel costs rose +12% (new stores, higher pay levels) and fees rose +17%. Drivers were franchise consignment fees (+JPY 100M) and cashless payment fees (+JPY 34M), and cost pressure persists
• Inventory build pushed operating cash flow to -JPY 150M. Short-term borrowings rose to JPY 2,600M (+JPY 1,100M vs. prior fiscal year-end), making inventory turnover management critical
• Trading cards (new and pre-owned combined) account for 44.0% of sales, and current strength assumes stable card prices. Earnings would be highly exposed to any price volatility
• Both the Taiwan business and the TAYS overseas rollout remain in pilot phases, and the payback timeline for upfront investment is uncertain

Performance Highlights

1H revenue hit a record high, and operating income reached its highest level since the shift to consolidated reporting. Recurring profit was JPY 1,364M (+130.3%), and 1H net income attributable to owners of parent company was JPY 788M (+134.0%). Net income exceeded the level of 1H FY2/21, during the COVID-driven demand boom. Extraordinary losses totaled JPY 64M, mainly the Kumamoto earthquake disaster loss and a loss on the sale of shares in an affiliate.

• Gross Profit Margin: 36.0% (34.7% in prior-year period, +1.3pt)
• SG&A Ratio: 30.0% (31.6% in prior-year period, -1.6pt)
• Operating Income Margin: 6.0% (3.1% in prior-year period, +2.9pt)
• Pre-Owned Share of Sales: 53.7% (+2pt YoY)
• Merchandise Inventory: JPY 5,545M (+JPY 655M vs. prior fiscal year-end)
• Group Store Count: 190 stores (as of October 15, 2026; 175 stores at end-February 2026)
• TAYS Installed Locations: 550+ (as of end-September 2026, including directly operated and franchise stores)

Q&A List

• Q

  How do you view the outlook for your core products, such as trading cards and pre-owned games?

  A

  We expect the trading card market to expand further. We position trading cards as a core product for both new directly operated stores and expanding BtoB transactions, and we aim to build out talent and the business foundation quickly. In pre-owned games, the retro game market remains resilient and buoyant. We are therefore looking to expand a range of buy-in channels to better capture latent inventory. We continue to see a bright outlook for these core products.

• Q

  TAYS, your automated trading card appraisal machine, appears to be rolling out smoothly. How do you plan to develop TAYS-based businesses going forward?

  A

  We feel TAYS is highly valued as a tool supporting buy-in operations at pre-owned goods dealers. With the current expanded footprint, we can also provide a more reliable, higher-quality product master database. We will continue working to convert this into more user acquisition. As the next phase, we would like to pilot an overseas rollout, and we expect related preparatory investment to be incurred in stages.

• Q

  You are expanding stores in Taiwan. What potential do you see in the overseas business?

  A

  We clearly recognize the strong business potential there, and we currently position it as a pilot phase. So far, we have stocked our sales floors with products supplied from Japan. As the next step, we want to strengthen the talent development essential to store operations and launch local buy-ins. Trading cards are also expected to enjoy strong user support there. To deliver the kind of operations we excel at, we plan to build store infrastructure overseas and invest in stages toward overseas expansion.

• Q

  Following the closure of Furuichi Online, you are strengthening sales through external marketplaces. How do you plan to grow the EC business?

  A

  From this fiscal year, we have consolidated group-wide EC functions at Yamatoku, our wholly owned subsidiary, improving efficiency in the EC business. Looking back, the TAY TWO group has faced major shifts in its operating environment since the onset of COVID-19. Through trial and error, we chose to step up physical store openings. As a result, we arrived at a division of roles that leverages the respective strengths of TAY TWO and Yamatoku. From this fiscal year, TAY TWO's standalone EC sales have focused exclusively on major online marketplaces, delivering a significant improvement in the business's own profitability. Better balance between group-wide procurement and sales has been clearly reflected in this period's improved results. Going forward, we will actively consider EC expansion together with strengthening new buy-in channels, and work toward reflecting it in guidance. Our vision is to grow EC steadily in balance with procurement, as we reinforce and expand procurement channels. We are currently making business adjustments with that phase in mind.