BTS world tour drives Hybe to record sales of W1.5tr, but net profit falls short

In the three months that BTS played stadium shows across London, Paris, New York and Chicago, Hybe posted the highest sales in its history. Third-quarter sales reached 1.53 trillion won ($1.14 billion) — more than double the 727.2 billion won recorded a year earlier. Operating profit also hit an all-time high. Net profit for the period, however, was limited to 11.3 billion won.

Hybe said Tuesday that third-quarter operating profit on a consolidated basis came in at 188.5 billion won, swinging to a profit from an operating loss of 42.2 billion won in the same period last year. Sales rose 109.8 percent. Both figures surpassed the previous quarterly records set just one quarter earlier — sales of 1.45 trillion won and operating profit of 170.9 billion won in the second quarter. Cumulative sales through the third quarter reached 3.67 trillion won, putting Hybe on track to become the first domestic music label to exceed 4 trillion won in annual sales.

Performances drove the quarter's results. Concert sales surged 196.7 percent year-on-year to 726.8 billion won, setting a new quarterly record and accounting for 47.6 percent of total sales.

BTS performed at stadiums in Brussels, London, Munich and Paris in July before moving to North America from August through early September, playing seven cities from East Rutherford to Los Angeles. Hybe said each show drew up to 70,000 fans. Enhypen's Americas tour, along with performances by Le Sserafim, &TEAM, BoyNextDoor, TWS, Illit, Katseye and Crtis, kept concert venues busy throughout the quarter.

Merchandise sales outside the venues also supported earnings. MD and licensing revenue reached 334.6 billion won, likewise a quarterly record. Hybe Chief Executive Lee Jae-sang said on an earnings conference call Tuesday that the company had "continuously supplied 100 to 150 new items tailored to local demand," adding that tour merchandise sold in North America alone generated 107 billion won in the third quarter. Hybe said it had overhauled its planning, production and retail processes to spread merchandise purchases evenly across the tour rather than concentrating them at the start, and that the approach would be applied to tours by artists on other labels as well.

Album and music sales came in at 282.8 billion won, up 49 percent from a year earlier but down 13 percent from the second quarter's 326.8 billion won, which had been boosted by BTS's fifth studio album "Arirang." The role that albums once played is now being filled by concerts and merchandise — together, concert revenue and MD and licensing revenue accounted for 70 percent of third-quarter sales.

Despite record operating profit, net profit for the period was limited to 11.3 billion won — an 89.7 percent drop from 109.8 billion won in the second quarter. Net profit attributable to owners of the parent swung to a loss of 6.8 billion won, dragged down by a non-operating net loss of 148.6 billion won.

The culprit was the exchange rate. Hybe Chief Financial Officer Lee Kyung-jun said the company holds "large amounts of foreign-currency cash and deposits" and that a decline in the won-dollar rate during the third quarter produced foreign-currency valuation losses. The company characterized the loss as an accounting item unrelated to its core business. It did not, however, disclose the size of its foreign-currency asset holdings or the precise amount of the valuation loss.

Third-quarter sales rose 75.7 billion won from the second quarter, while cost of sales — including concert production costs — increased 74.1 billion won. Gross profit edged up 1.6 billion won to 463 billion won, and the gross margin slipped from 31.8 percent to 30.3 percent. The compression reflects the growing weight of concert revenue, which now makes up 47.6 percent of total sales and carries high production and venue costs.

Selling, general and administrative expenses were the lever that lifted the operating margin. SG&A costs — covering personnel, marketing and related expenses — fell 16 billion won, from 290.5 billion won to 274.5 billion won, reducing their share of sales from 20.0 percent to 18.0 percent. About 91 percent of the 17.6 billion won increase in operating profit came from that reduction, pushing the operating margin up from 11.8 percent to 12.4 percent. In a quarter when rising concert volumes were squeezing cost of sales, tighter SG&A spending preserved profitability.

Fan platform Weverse took a breather. Monthly active users averaged 14.22 million in the third quarter, slightly below the record 14.43 million in the second quarter. Payment volume fell 19 percent from the prior quarter, and average revenue per user dropped 10 percent. Hybe attributed the softness to major artists' activity being concentrated in offline tours.

The next generation of Hybe artists is delivering results. Katseye's "WILD" and Enhypen's "THE SIN : BLISS" topped the Billboard 200 on the Aug. 29 and Sept. 5 charts, respectively. Crtis's second mini-album "GREENGREEN" had sold a cumulative 4.35 million copies as of mid-October, based on Circle Chart data. Chief Executive Lee said the rapid growth of rookie acts is often overshadowed by BTS's achievements, noting that milestones that once took four to five years are now being reached in one to two.

BTS's Arirang world tour wrapped 14 shows across five South American cities in October and moves into its Asia leg starting in Kaohsiung, Taiwan, on Nov. 19. The tour runs through the first half of next year. Lee said the company plans to announce additional shows for the Arirang world tour and that group and solo activities are being prepared for after the tour concludes. Specific schedules and plans beyond 2028 were not disclosed.

Hybe is working to reduce its dependence on any single artist by developing localized groups such as Katseye and &TEAM and nurturing new talent in Southeast Asia. Lee said the company has "made great efforts to hedge BTS dependence from a business perspective." On the day the record earnings were announced, Hybe shares fell 0.84 percent in after-market trading to 153,700 won per share.