Embracer Group (EMBRAC) Q2 25/26 earnings summary

Executive summary

• Q2 net sales fell 19% year-over-year to SEK 3.85 billion, with 6% organic growth after divestments and FX effects; adjusted EBIT was SEK 109 million, or SEK 247 million excluding divested assets.

• Free cash flow over the trailing twelve months was SEK 1.3 billion, with a strong balance sheet and SEK 4.2 billion net cash at quarter-end.

• Coffee Stain Group spin-off is on track for December, with a separate listing and digital capital markets event planned.

• SEK 500 million share buyback program was completed, with a focus on distributing excess cash to shareholders.

• Core IPs like The Lord of the Rings and Kingdom Come: Deliverance outperformed expectations, while new releases underperformed.

Financial highlights

• Net sales for the quarter were SEK 3.85–3.9 billion, impacted by divestments and FX; organic and proforma growth was 6%.

• Adjusted EBIT was SEK 109 million (margin 3%), with Q2 EBIT at SEK -73 million (margin -2%).

• Gross margin was 67%, down 6 points year-over-year, mainly due to divestments; Q2 gross margin also reported at 29%.

• Free cash flow after working capital was -SEK 348 million, but TTM free cash flow improved to SEK 1.3 billion.

• Net cash position at end of September was SEK 4.2 billion, with available funds of SEK 11.9 billion.

Outlook and guidance

• Full-year adjusted EBIT guidance of at least SEK 1 billion is reiterated, including Coffee Stain Group's contribution.

• Q3 is expected to be stronger than Q2, driven by Entertainment & Services and seasonal effects, with major PC/Console releases in Q4.

• Free cash flow in Q3 expected to be similar to Q2 due to inventory build-up; Q4 to benefit from releases and seasonality.

• Coffee Stain Group to be reclassified as discontinued operations after its listing in December.

• Focus remains on investing in core IPs, operational discipline, and targeted cost initiatives.