Console's Sales Hearten Nintendo -- WSJ

By Takashi Mochizuki Features Dow Jones Newswires

Company says profit on the upswing as sales of just-launched game console take off

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OSAKA, Japan -- Nintendo Co. offered a rosy outlook, forecasting that strong sales of its Switch console will lift annual earnings to a seven-year high.

After a successful launch of the Switch last month, Nintendo said Thursday that it expects to sell 10 million of the handheld-hybrid game console in the current fiscal year. The Switch's unpopular predecessor, the Wii U, tallied sales of 13.6 million units since its launch in 2012.

"We have done a lot of things to raise awareness about how the Switch experience can offer something new, and I am just relieved that consumers seem to have accepted it," Nintendo Chief Executive Tatsumi Kimishima said of the console designed for use both in the living room and on the go.

The Switch posted March sales of 2.74 million units, beating the company's initial sales estimate of two million units for the month.

The scale of Switch sales in March surprised the market, analysts said, given that the launch missed the year-end holiday season, Nintendo's biggest profit-generating period.

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Ace Research Institute analyst Hideki Yasuda said Nintendo's 10 million sales forecast is too cautious and that the tally could exceed 15 million units in the current fiscal year.

For the 12-month period beginning this month, Nintendo said it expects operating profit of Yen65 billion ($585 million) on revenue of Yen750 billion. On Thursday, the company reported a profit of Yen29.4 billion for the year ended March 31.

The projected Yen65 billion operating profit, if realized, would be the highest since the year ended March 2011. Profit has declined in recent years because of the weak performance of the Wii U console.

Mr. Kimishima said Nintendo will be spending more this year to promote the Switch, which would restrain operating profit. Earlier this year, for example, Nintendo aired a prime-time television commercial during the Super Bowl.

Compared with game-console rivals Sony Corp. and Microsoft Corp., Nintendo has far more in-house titles featuring famous character franchises that contribute directly to its profits.

The company said it has sold 2.76 million copies of the new "Legend of Zelda" game for the Switch, creating the unusual situation of a single piece of software outselling the console.

"It is surprising that Zelda is doing so well, but it also proved what we have been saying is right: A good game title will spur sales of the platform device," Mr. Kimishima said.

The company plans to release titles featuring its classic Mario character and an addition to its highly popular Splatoon series by the end of this year.

For the year, Nintendo expects 35 million copies of Switch games, including those from other publishers, will be sold.

During the just-ended year, Nintendo earned Yen24.3 billion from smartphone games, including "Super Mario Run" and "Fire Emblem Heroes," a game especially popular among longtime hard-core fans.

Nintendo said Mario Run downloads are nearing the 150 million mark. Fire Emblem's tally was less than one-tenth of that figure, but Fire Emblem earned more than Mario through in-game purchases.

The company plans to release two or more smartphone games during this fiscal year, including an already announced "Animal Crossing" game.

Analysts' earnings forecasts are higher than Nintendo's projection. Macquarie Capital Securities analyst David Gibson pegs operating profit at Yen137 billion for the current fiscal year, assuming Nintendo sells more than 14.5 million Switches over the period and receives revenue contributions from Nintendo-made game software for the Switch and smartphones.

For the recent year, Nintendo recorded net profit of Yen102.6 billion, compared with analyst forecasts of Yen93.6 billion and a year-earlier Yen16.5 billion.

A Yen64.5 billion boost came from the sale of part of its stake in the Seattle Mariners operator.

Write to Takashi Mochizuki at takashi.mochizuki@wsj.com

(END) Dow Jones Newswires

April 28, 2017 02:47 ET (06:47 GMT)