In its interim results for the fiscal year ending March 2027, announced on November 5, 2026, Nintendo reported operating profit of 216.5 billion yen, up 49.1% year on year. But that sharp increase owes a great deal to a refund of U.S. tariffs booked in the first quarter. Looking only at the July–September quarter, which included no refund, operating profit fell 16.3% from a year earlier. Nintendo kept its full-year forecast unchanged, and working backward from that forecast implies second-half operating profit will fall 28.6% year on year. Here is what the company's disclosures show about its earnings structure and the challenges ahead, beyond the headline first-half growth rate.
A refund of about $300 million drove the first-half profit surge
Nintendo's net sales for April–September 2026 fell 12.1% year on year to 966.0 billion yen. The main cause was lower Nintendo Switch 2 unit sales, which dropped 37.4% from 10.36 million units a year earlier to 6.49 million. These are sell-in figures (shipments to distribution channels) published by Nintendo, and they differ from actual sales to consumers. Meanwhile, profit attributable to owners of the parent rose 11.0% to 220.9 billion yen, so sales and profit moved in opposite directions.
Software, in contrast to hardware, performed well. Nintendo Switch 2 software unit sales rose 18.8% year on year to 24.49 million, and Nintendo Switch software rose 6.8% to 65.73 million. Digital sales on dedicated video game platforms grew 60.5% to 249.6 billion yen, and digital's share of software sales rose 6.2 percentage points from a year earlier to 60.7%.
Explaining why operating profit grew sharply even as sales declined, Nintendo cited in its earnings presentation materials a higher software sales mix and the refund of U.S. tariffs. The largest factor was the refund of tariffs imposed under the U.S. International Emergency Economic Powers Act (IEEPA). Nintendo said it recorded a refund of about $300 million in the first quarter as a reduction of cost of sales. The tariffs that were refunded had mainly been absorbed by Nintendo itself rather than passed on to customers through higher prices.
When tariffs already booked as expenses are refunded, cost of sales falls by that amount and operating profit rises. In other words, profit can grow sharply because of a one-time item even if profit from selling products does not increase. In fact, the gross profit margin for the first half rose 14.2 percentage points, from 36.2% a year earlier to 50.4%. A higher software mix contributed, but the tariff refund clearly played a major role in the margin improvement.
Converted into yen at the first-half average exchange rate of 159.29 yen to the dollar, the refund comes to roughly 48.0 billion yen. Nintendo has not disclosed the actual yen amount it booked, so this is only an estimate. Even so, it equals about two-thirds of the 71.4 billion yen increase in first-half operating profit. In assessing the 49.1% rise in operating profit, this one-time boost needs to be set aside.
July–September profit fell 16% without the refund, and the second-half forecast implies a 29% decline
To judge whether the increase is a one-off effect of the tariff refund, it is important to look at July–September, a quarter with no refund booked. According to the first-quarter earnings summary Nintendo released in August, April–June operating profit jumped from 56.9 billion yen a year earlier to 142.6 billion yen. Subtracting the first-quarter figure from the cumulative first-half operating profit gives July–September operating profit of 73.9 billion yen, down 16.3% from 88.3 billion yen a year earlier. Net sales for the same period fell 15.0%, from 527.2 billion yen to 448.2 billion yen.
These July–September figures are not disclosed by Nintendo as standalone quarterly results; they were calculated by our editorial staff from the difference between cumulative figures in the first-quarter and interim earnings summaries. The calculation uses the million-yen figures in each document, rounded to hundreds of millions of yen. Because both sales and operating profit declined year on year in a period without a tariff refund, it is hard to treat the large first-half increase as a reflection of current underlying earnings growth.
Currency effects also deserve attention. In both the first-quarter earnings presentation and the interim presentation, Nintendo put the foreign exchange boost to operating profit at about 22.2 billion yen. Because the impact barely changed as the cumulative period lengthened, the currency contribution to operating profit in July–September alone can be estimated as roughly zero, within the range of the approximate disclosed figures. The July–September decline therefore came with almost none of the tariff refund or currency tailwinds seen in the first quarter.
The unchanged full-year forecast also points to a cautious outlook. The full-year operating profit forecast is 370.0 billion yen; subtracting the first-half result of 216.5 billion yen leaves second-half operating profit of 153.5 billion yen. Compared with 215.0 billion yen in the second half of the previous fiscal year, that is a 28.6% decline. For net sales, subtracting the first-half figure of 966.0 billion yen from the full-year forecast of 2.05 trillion yen gives 1.084 trillion yen for the second half, down 10.7% from 1.2135 trillion yen a year earlier. The second-half operating margin would be 14.2%, below 17.7% in the previous year's second half and 22.4% in this year's first half.
That said, the second-half forecast does not assume that Nintendo Switch 2 unit sales will keep falling. Nintendo's full-year hardware forecast is 16.5 million units; subtracting the first-half figure of 6.49 million implies 10.01 million units in the second half. Since the previous year's second-half figure was 9.5 million units, the forecast implies a 5.4% year-on-year increase in second-half units. Even so, operating profit is projected to fall by about 29%.
Nintendo's full-year forecast assumes an exchange rate of 150 yen to the dollar and builds in a cost impact of about 100 billion yen, mainly from higher component prices centered on memory, along with tariff payments. However, the company has not explained these as direct reasons for the second-half decline. The roughly 100 billion yen figure covers the full year, and does not mean all of it will arise in the second half. It is also unclear how much of the first-quarter tariff refund was factored into the full-year forecast released on May 8. If the refund was not included in the forecast, the 29% second-half decline derived by backing into the numbers comes from a full-year forecast that does not reflect that upside.
Can software growth offset the profit decline? What to watch next
There are, however, signs that Nintendo's earnings power has improved even after excluding the tariff refund. Subtracting the estimated refund of about 48.0 billion yen from first-half operating profit still leaves about 169.0 billion yen, roughly 16% above the 145.1 billion yen of a year earlier. In addition, with software's share of sales rising and digital sales up 60.5%, Nintendo appears to be shifting toward a structure in which profit is easier to secure even when hardware unit sales decline.
But it should be noted that this improvement did not continue throughout the first half. Most of the increase was concentrated in April–June, and even in July–September, when software and digital sales grew, operating profit was below the prior year. The July–September operating margin was 16.5%, roughly in line with 16.7% a year earlier. The margin did not deteriorate significantly, but it was not enough to offset the 15.0% drop in sales and deliver profit growth.
The factors that will shape future results are the expansion of Nintendo Switch 2 sales and the profitability of software. Nintendo cited titles including Nintendo Switch Sports Resort, released in October, The Legend of Zelda: Ocarina of Time, released in November, and Metroid: Ravenous, scheduled for January 2027, and said it intends to expand adoption of Nintendo Switch 2 through a steady flow of new titles. It also said it will work on promoting existing titles and maintaining the Nintendo Switch user base.
Exchange rates will also affect results. If the actual yen rate stays weaker than the 150 yen to the dollar the company assumes, profit could be lifted through the yen value of overseas sales and other channels. On the other hand, if rising memory prices or tariff burdens exceed expectations, hardware profitability could come under pressure. At this point, it is difficult to estimate precisely how much each factor will contribute to second-half profit.
The key figure to watch in upcoming results is the implied second-half operating profit of 153.5 billion yen. If Nintendo raises its full-year forecast, or if actual second-half operating profit ends up above this level, it would increase the likelihood that the forecast kept unchanged this time was conservative. Can Nintendo keep growing profit through software sales and a better earnings structure once the one-time tariff refund is gone? For a company entering the second year of Nintendo Switch 2, the second half will be an important test of its earnings power.