On August 12, Sanrio, the company behind Hello Kitty, fell sharply in Tokyo trading. Its shares dropped as much as 18% after the company released earnings, marking their steepest intraday decline in nearly a decade as results failed to exceed market expectations.
At first glance, the reaction may seem surprising. Sanrio’s results were hardly weak. In the first quarter of fiscal 2027, ended in June, revenue rose 20.7% year-on-year (YoY) to JPY 52 billion, while net profit increased 9.3% to JPY 15.5 billion.
The disappointment came from operating profit.
Sanrio reported operating profit of JPY 22.4 billion, up 11.1% YoY but below market expectations of JPY 23.4 billion. More importantly, the company left its full-year outlook unchanged after raising guidance following nearly every earnings release over the previous several quarters.
Investors appeared to read that as a sign that Sanrio’s rapid growth could be starting to moderate.
Hello Kitty was created in 1974. With no mouth, no fixed expression, and a simple design, the character went on to anchor one of the world’s best-known character businesses. Sanrio, meanwhile, grew from a gift business into a global IP company.
The path was not always smooth. Beginning in fiscal 2015, Sanrio entered a seven-year period of declining revenue and profit that exposed its heavy dependence on Hello Kitty.
A turning point came in 2020, when founder Shintaro Tsuji’s grandson, Tomokuni Tsuji, took over as president and began restructuring the business around profitability. Sanrio closed unprofitable stores, cut redundant SKUs, shifted from reliance on a single character toward a broader IP portfolio, placed greater emphasis on higher-margin licensing, and expanded overseas.
China became an important part of that recovery, helped by a restructuring of Sanrio’s licensing operations through Alifish.
In July 2022, Alifish, Alibaba Group’s IP trading and innovation platform, signed an agreement with Sanrio for five-year exclusive licensing rights in mainland China covering 26 characters, including Hello Kitty, My Melody, and Kuromi. The partnership took effect on January 1, 2023.
For Alifish, Sanrio became an important growth driver.
Financial results from Damai Entertainment, formerly Alibaba Pictures, showed that IP merchandising, centered on Alifish, generated RMB 2.17 billion (USD 321.7 million) in revenue in the fiscal year ended March 31, 2026, up 60% YoY and making it the company’s second-largest revenue source. Alifish ranked sixth globally in the “2025 Top Global Licensing Agents Report,” with USD 4.1 billion in retail sales.
For Sanrio, meanwhile, the partnership helped address two challenges in China: distribution and local operations.
According to officially disclosed data, more than 200 brands entered licensing partnerships with Sanrio in 2024 alone, bringing more than 30,000 SKUs to market.
Sanrio also expanded its physical retail presence. By the end of December 2025, it had opened a cumulative 59 stores in China, 31 more than in the previous fiscal year. Its China business was therefore expanding beyond licensing into direct retail.
The financial results show how much the broader strategy has changed Sanrio.
In fiscal 2026, ended in March, revenue rose 33.9% YoY to JPY 194 billion, while operating profit increased 48.4% to JPY 79.3 billion.
Sales in China surged 83.2% to JPY 31.4 billion. Kuromi overtook Hello Kitty to become Sanrio’s top-selling character in China, while Cinnamoroll, My Melody, Hangyodon, and others also ranked among the top ten by transaction value.
At the group level, Hello Kitty’s share of revenue fell to 37.3% that fiscal year from 60.6% in 2016. Rather than eliminating its dependence on Hello Kitty, Sanrio has significantly reduced it.
The company nevertheless acknowledged risks in its earnings report. As part of its growth strategy, Sanrio said it plans to focus on expanding in China and North America, while noting there is no guarantee those efforts will succeed.
North America is still dealing with the effects of taxes, while sales growth, despite showing signs of recovery, remains moderate. In China, maintaining the 83.2% growth recorded in fiscal 2026 will become increasingly difficult as the business grows from a larger base.
Sanrio is also operating in a market where newer character companies are growing quickly.
Pop Mart, in particular, has drawn comparisons with Sanrio as Labubu has grown into a global consumer phenomenon since 2024.
The two companies share some similarities. Both have built businesses around character IPs that do not depend heavily on fixed narratives. Hello Kitty has no mouth, and Labubu never speaks, leaving consumers considerable room to project their own emotions and interpretations onto the characters.
Some analysts have described Pop Mart as combining Sanrio’s IP model, Funko’s toy mechanics, and Miniso’s retail efficiency.
But a limited narrative framework can also create a challenge. Without a continuing stream of stories, companies need other ways to keep consumers engaged with their characters over time.
Both Sanrio and Pop Mart have been expanding into areas including games, films, and physical experiences such as theme parks as they seek to deepen their relationships with consumers.
Their underlying business models, however, remain different.
Pop Mart operates a more direct retail model that requires a larger physical footprint. By the end of 2025, it had 630 stores worldwide, giving it greater control over merchandising, pricing, and distribution. Sanrio remains primarily an asset-light licensing business, even as it expands directly operated stores in markets such as China.
That means Sanrio and Pop Mart are not simply competitors. They can also be partners.
In March, Pop Mart launched a vinyl plush pendant blind box series combining The Monsters with Hello Kitty and Friends. The collection sold out through Pop Mart’s official channels within one minute, with more than 30,000 units sold online, according to figures released at the time.
The collaboration gave Labubu access to Sanrio’s established character portfolio while giving Sanrio another way to reach consumers through Pop Mart’s designer toy ecosystem.
The larger question for both companies is how investors value character IP businesses once rapid growth begins to normalize.
For Sanrio, the August 12 selloff suggests that strong growth alone may no longer be enough to satisfy investors after several years of earnings upgrades. The company is increasingly being judged on whether it can sustain growth across multiple characters, regions, and business formats.
That means proving it can do more than license familiar characters or sell merchandise. Sanrio’s next phase will depend on whether it can turn its IP portfolio into a broader business spanning content, products, physical experiences, and digital entertainment.
Pop Mart faces a similar test. As both companies grow larger, the challenge is shifting from creating demand around individual characters to showing that demand can be sustained over time.
KrASIA features translated and adapted content that was originally published by 36Kr. This article was written by Xie Yunzi for 36Kr.
Note: JPY, RMB figures are converted to USD at rates of JPY 158.55 = USD 1 and RMB 6.75 = USD 1 based on estimates as of August 20, 2026, unless otherwise stated. USD conversions are presented for ease of reference and may not fully match prevailing exchange rates.