January 28, 2014 7:00 pm JST

Bye-bye Kitty; here come the Mr. Men

TOKYO -- Shares of Sanrio, the Hello Kitty company, in September reached 6,270 yen on the Tokyo Stock Exchange, up 800% from four years earlier. The driving force was, of course, that darn cat, which is licensed in more than 100 countries.

     But Hello Kitty turns 40 years this year, an age at which she might have to start looking over her shoulder. If she does, she will see Sanrio's shareholders are no longer entranced by her charms. Sanrio closed Monday trading at 4,165, down more than 30% from its September high.

     Sluggish sales in the company's North America operations are drawing a lot of market attention. The North American business, whose main revenue source is Hello Kitty licensing, accounts for 40% of Sanrio's overall operating profit. The division's operating profit for the September-March period will likely rise a puny 1% on the year, to 4.4 billion yen ($42.58 million). Even on an annual basis, the figure is expected to rise to only 10%, compared with the 50% jump it took the previous fiscal year.

     Sanrio was expecting its gushing North American revenue stream to slow. Once it moved into major retail chains like Wal-Mart and Target of the U.S. -- and mined the low-end of the market -- it had few potential licensees left in its appointment book.

     Meanwhile, sales at Sanrio's European operations, the licensor's second largest profit generator, have also been subdued; profit is expected to grow 1% this fiscal year.

     Sanrio could still license the cat to hotels and other venues, or it could increase its promotional budget in an attempt to grow its customer base.

     But fearing the company's licensing business is dying out, institutional investors are placing large sell orders for the issue, according to a Japanese broker.

     Perhaps investors are waiting for a new character to take advantage of existing sales channels and generate more profit.

     Sanrio thinks it might have a group of candidates. Mr. Happy always has a smile on his yellow, round face. Mr. Tickle has an orange, oval face and long flexible arms. Both are popular characters from the U.K.-born "Mr. Men and Little Miss" picture books and TV cartoons. The characters are not well known in Japan but enjoy huge popularity in Europe. More than 200 million of the books have been sold in over 30 countries.

     Sanrio in 2011 acquired the rights to "Mr. Men and Little Miss" from Chorion, a British media production company. This year it plans to roll out "Mr. Men and Little Miss" character goods in Japan.

     The company's net cash position, excluding interest-bearing liabilities, has turned to the black, at 9.5 billion yen. Sanrio Managing Director Rehito Hatoyama, in charge of the company's licensing business, said Sanrio will spend more on character acquisition.

     Sanrio is drafting a medium-term business plan that will shoot for increasing operating profit for the year ending March 2020 to more than 30 billion yen.

     For now, market players are paying close attention to how Sanrio develops its "Mr. Men and Little Miss" business, which is currently generating an operating profit of only 100 million yen or so. Investors seem to be scratching their heads about whether Sanrio has a Mr. Profit on its hands.

(Nikkei)