The writing has been on the wall for several months, but Nintendo again posted an operating loss and an overall net loss. Some of it was due to the depreciation of the Yen in exchange rates, some was due to investments (such as the stock buy back), while even more was due to an increase in marketing spending. Of course, the biggest deterrent was the admittance that the Wii U is still having a negative impact on profit margins, despite there begin a huge profit potential on software sales.
(1) Fiscal year ended March 31, 2014 Nintendo Co., Ltd. (“the Company”) and its consolidated subsidiaries (together with the Company, “Nintendo”) continues to pursue its basic strategy of “Gaming Population Expansion” by offering compelling products that anyone can enjoy, regardless of age, gender or gaming experience.
During the fiscal year ended March 31, 2014, for “Nintendo 3DS (3DS, 3DS XL and 2DS),” “Pokémon X/Pokémon Y,” simultaneously released globally in October last year, marked 12.26 million units in sales, while “Animal Crossing: New Leaf,” released in Japan in the previous fiscal year and in June last year in the United States and Europe, marked 3.80 million units (7.66 million units on a cumulative basis) in sales.
In addition, key first-party titles such as “Luigi’s Mansion: Dark Moon,” “The Legend of Zelda: A Link Between Worlds” and “Mario & Luigi: Dream Team” showed steady sales, with each title selling more than two million units. Moreover, there have also been hit titles from third-party publishers. As a result, the global sales of the “Nintendo 3DS” hardware and software reached 12.24 million and 67.89 million units respectively.
With respect to “Wii U,” while five key first-party titles, such as “Super Mario 3D World,” “New Super Mario Bros. U” and “New Super Luigi U” became million-seller titles, the “Wii U” business as a whole showed slow growth. The global sales of the “Wii U” hardware and software reached only 2.72 million and 18.86 million units respectively.
Regarding “Nintendo DS (DS, DS Lite, DSi and DSi XL),” the global sales of its hardware and software were 0.13 million and 10.29 million units respectively. Also, the sales of the “Wii” hardware and software were 1.22 million and 26.16 million units respectively.
Net sales as a result were 571.7 billion yen (of which overseas sales were 394.7 billion yen or 69.0% of the total sales). The “Wii U” hardware still has a negative impact on Nintendo’s profits owing mainly to its markdown in the United States and Europe, and unit sales of software, which has high profit margins, did not grow sufficiently, leading to a gross profit of 163.2 billion yen. Total selling, general and administrative expenses exceeded gross profit, resulting in an operating loss of 46.4 billion yen.
Also, due to depreciation of the yen at the end of this period compared with the one at the end of the last fiscal year, exchange gains totaled 39.2 billion yen, leading to an ordinary income of 6.0 billion yen. On the other hand, mainly due to the balance of deferred tax assets reduced in relation to the losses carried over in the United States, there is a net loss of 23.2 billion yen. (2) Outlook for fiscal year ending March 31, 2015 For “Nintendo 3DS,” its consolidated global hardware sales reached 43 million units, which represent a sufficient installed base upon which to expand software sales.
In terms of software, “Mario Golf: World Tour” was released in May globally. Also, “Tomodachi Life,” a title that sold 1.85 million units on a cumulative basis in the Japanese market, in which players can enjoy watching over the carefree daily lives of the virtual characters (Miis) of themselves and those close to them, will be released in the United States and Europe in June.
Also, “Super Smash Bros. for Nintendo 3DS” will be released globally in the upcoming summer. By continuing to provide key titles throughout the next fiscal year, too, Nintendo will strive to generate robust profits from the “Nintendo 3DS” platform business. Regarding “Wii U,” which still faces a challenging sales situation, Nintendo will focus on efforts that seek to stimulate the platform.
By providing software that takes advantage of the “Wii U GamePad,” utilizing its built-in functionality as an NFC reader/writer, and adding “Nintendo DS” Virtual Console titles to the “Wii U” software lineup, Nintendo will seek to enrich the value of the “Wii U GamePad,” the most important differentiator of “Wii U,” and as a result expand the sales of the “Wii U” platform.
In terms of compatible software, by positioning “Mario Kart 8,” scheduled to be released globally in May, and “Super Smash Bros. for Wii U,” scheduled to be released this winter, as two main drivers, both of which are titles that a wide range of consumers can enjoy either alone or with other players, Nintendo will seek to supply high quality games on a continuous basis. Moreover, Nintendo will also strive to proactively pursue its digital distribution business through the “Nintendo eShop.”
Based on these efforts, we project for the fiscal year ending March 31, 2015 net sales of 590.0 billion yen, an operating income of 40.0 billion yen, an ordinary income of 35.0 billion yen and a net income of 20.0 billion yen. Unit sales of the major products used for the forecast are listed on page 15 under the heading of “(5) Consolidated sales units, number of new titles, and sales units forecast” in the “Others” section. Exchange rate assumptions for the major currencies used for the forecasts are 100 yen per U.S. dollar and 140 yen per euro.