(Bloomberg) -- Nintendo Co.’s operating profit plunged a bigger-than-expected 71% as consumers held off on purchases pending the launch of a flagship new video game console to replace Switch.
The Kyoto-based company reported a profit of ¥54.51 billion ($365.1 million) in the three months through June, compared with ¥185.4 billion a year earlier when earnings were boosted by blockbuster sales of The Legend of Zelda: Tears of the Kingdom and The Super Mario Bros. Movie. It was a far bigger decline than the consensus estimate of ¥93.7 billion.
The results underscore the challenges confronting the company as it wrestles with stagnating demand for the seven-year-old Switch and intense competition from Sony Group Corp.’s PlayStation 5. Nintendo plans to unveil details of a new console by March, and its President Shuntaro Furukawa has warned that it’ll be tough to sustain the old hardware’s sales in the interim.
“The hardware shipments are in line with the dearth of big-name software offerings. The market was too optimistic,” said Morningstar Investment director Kazunori Ito. “The rise in selling, general and administrative expenses due to the weak yen was a negative surprise.”
Industry watchers are awaiting details of the next Switch and the consumer reaction to it, as past experience shows the early reception usually sets the tone for the console’s later performance.
Nintendo plans to sell 13.5 million units of Switch this fiscal year, but analysts predict that the total is likely to be capped at 10 million as consumers await the release of the new console. The company also stuck to its annual Switch software sales outlook for 165 million units and also kept its forex assumption of ¥140 to the dollar.
The company’s stock has retreated since reaching the year’s high in July. Prior to the earnings release on Friday, its shares were up around 8% this year.
“I really wonder how Nintendo wants to achieve their hardware sales target,” said Tokyo-based analyst Serkan Toto. “I am skeptical if Nintendo still has enough fuel in the tank, especially if they plan to get to the target without hardware price reductions.”
The company has lined up a slew of games from its well-known franchises to shore up demand, including The Legend of Zelda: Echoes of Wisdom which will be rolled out in September, Mario & Luigi: Brothership in November and Metroid Prime 4: Beyond in 2025.
--With assistance from Peter Elstrom.
(Updates with analyst commentary and details from earnings statement.)
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