Nintendo released its earnings report today for the quarter ended June 30, 2026 — the first quarter of its fiscal year ending March 2027 — and the headline numbers look better than they might first appear.

Net sales came in at ¥517.8 billion, down 9.5% from the same quarter last year, but that decline masks a much stronger underlying story. Operating profit jumped 150.5% year-over-year to ¥142.5 billion, and net profit rose 53.5% to ¥147.4 billion — both comfortably ahead of analyst expectations, which had pegged net profit closer to ¥78.3 billion. Revenue also beat forecasts, coming in well above the roughly ¥445 billion analysts had projected.

Hardware: a tough comparison, not a warning sign. Switch 2 hardware sales fell 34.4% year-over-year to 3.82 million units for the quarter. On its own that number might look concerning, but it's being measured against the console's actual launch quarter last year — the single best quarter Switch 2 will likely ever post, given it included the initial pent-up demand and the fastest hardware sell-through in Nintendo's history. For the full fiscal year, Nintendo is still projecting 16.5 million Switch 2 units sold, about 17% below last year's total but a perfectly healthy pace for a console in its second year.

Software carried the quarter. The real driver was software, and specifically the installed base of both consoles. Original Switch software sales rose 38.6% year-over-year to 33.81 million units in the quarter, boosted heavily by Tomodachi Life: Living the Dream, which has sold 7.94 million copies since its April release. Mario Kart World continues to be a major contributor to Switch 2's software lineup as well. High-margin software sales like these are a big part of why profit grew so much faster than revenue shrank — games carry far better margins than hardware.

The tariff refund. A significant one-time factor: Nintendo recorded roughly $300 million in refunds of tariffs levied under the International Emergency Economic Powers Act, booked as a reduction to cost of sales. Nintendo noted it had been absorbing those tariff costs itself rather than passing them on to consumers through higher prices, which makes the refund a direct boost to this quarter's profit rather than something that changes the underlying business.

Guidance holds steady. Nintendo left its full-year outlook unchanged: ¥2.05 trillion in net sales and ¥310 billion in net profit through March 2027. That guidance already bakes in roughly ¥100 billion in expected costs from higher component prices — particularly memory — and ongoing tariff measures, which Nintendo assumes will persist for the rest of the fiscal year without materially changing the forecast.

Looking ahead, Nintendo pointed to its release pipeline as the reason for confidence in sustaining momentum: Fire Emblem: Fortune's Weave, Nintendo Switch Sports Resort, and The Legend of Zelda: Ocarina of Time remake are all still to come this fiscal year.