Nintendo projects loss despite ordinary income.
Today Nintendo has posted that they have revised their full-year consolidated financial forecasts for the fiscal year which ends on March 31, 2014. They are estimating a new net sales of 590 billion yen, which may not sound bad, until you realize that they had initially expected to have sold a net total of 920 billion yen.
In addition, they are projecting a 35 billion yen loss against the initially projected profit of 100 billion yen, as well as a new ordinary income of five billion yen against the projected 90 billion, with a new net loss of 25 billion yen against the projected income of 55 billion.
In addition to the income adjustments, they have revised their projections of unit sales. They are now expecting 13.5 million units of Nintendo 3DS hardware to be sold, with 66 million units of the software for the console. In addition, they believe 1.2 million units of the Wii hardware will be sold with 26 million units of Wii software. Finally, in regards to the Wii U, they project 2.8 million units of the hardware and 19 million units of the software to be sold.
Overall, Nintendo is doing much worse in terms of sales than they had expected, and they have announced that, if the consolidated financial results are indeed in line with the new financial forecasts, there will be no annual dividend per share at all.
What’s this mean in simple terms? Simply put, Nintendo is expecting to miss their previous forecast by quite a large margin.
For more details, the Nintendo 3DS sold strong, selling a grand total of 4.9 million units. This is still short, however, as they had projected an even 5 million units to be sold. Mr. Iwata states, “However, as I explained before, given that every gaming device from the year 2000 onwards apart from Nintendo DS and Nintendo 3DS did not reach sales of four million units even in their peak years, we can say that the sales figure for Nintendo 3DS in the last calendar year was indeed very high. However, outside Japan, while its market share increased as we continued to release compelling titles throughout the year, Nintendo 3DS did not reach our sales targets in the overseas markets, and we were ultimately unable to achieve our goal of providing a massive sales boost to Nintendo 3DS in the year-end sales season.”
He points to the United States as an example, pointing out that, according to NPD, the Nintendo 3DS had become the top-selling platform in the last calendar year, exceeding 11.5 million units in cumulative sales. Unfortunately, this was still lower than the initial forecast. He goes on to state that in Europe, France was the only market in which they were able to experience relatively strong sales, with their projected levels failing in the other countries by quite a large margin.
The Wii U did well, as Nintendo released several interesting titles and bundles at affordable price points. However even these were unable to allow the company to meet their projected recovery.
This is in addition to the increase of advertising expenses (they added eight billion yen to that budget) and research and development expenses (15 billion yen).
Despite the operating loss, Mr. Iwata states, “We expect that we will post ordinary income despite the operating loss situation. This is because we now assume that the yen will be weaker than our original assumptions at the beginning of the fiscal year, and re-evaluation of assets and liabilities denominated in foreign currencies owned by Nintendo Co., Ltd. at the end of the fiscal year as well as foreign exchange gains at the time of cash receipts and conversions of foreign funds into yen, among other factors, are expected to exceed the projected operating loss.”
He goes on to add, “On the other hand, we expect to post a net loss despite expecting ordinary income mainly because we need to reverse deferred tax assets in relation to the losses carried over from the previous fiscal years mainly in the United States, as we can no longer expect our financial performance to recover in the current fiscal year.”
With the company expecting to make ordinary income, will they continue strong until the next generation of the Wii? Or will they begin to panic and make rash decisions?
For the full report, you can check here.