New releases driving sales at Square Enix, but launch costs cause profits to dip

New releases including Kingdom Hearts III, Shadow of the Tomb Raider, and Just Cause 4 are driving sales at Square Enix, which just released its financials for the full-year ended March 31, 2019. 

According to the Japanese company's latest fiscal report, consolidated net sales rose by 8.2 percent year-on-year to 271 billion yen ($2.5 billion), while profits dropped by 28.5 percent to 18.5 billion yen ($169.6 million). 

Looking specifically at the Digital Entertainment segment, which houses the company's video game operations, net sales increased to 204.5 billion yen ($1.87 billion) from 191.4 billion yen ($1.75 billion). Operating income, meanwhile, dropped to 29 billion yen ($265.9 million) from 43.4 billion yen ($397.9 million). 

Digging into those numbers, Square claims that sales upswing was down to the launch of new titles, but added that the "higher costs associated with the release" of those games caused operating income to take a hit.

The company also said that many of its smart device and PC browser games performed "below expectations," and explained that a decrease in licensing income negatively impacted net sales and operating income. 

It was a similar story on the massively multiplayer online front, with net sales and operating income falling year-over-year despite recurring subscriptions revenue remaining "brisk." 

There was another silver lining for Square, however, with digital sales of HD titles continuing to grow, having now risen by an average of 40 percent over the past five years.

Looking ahead, the company expects sales of new titles to decline, and will look to generate recurring revenue through digital sales of catalog titles. 

Square also intends to focus on creating new franchises that will enable "sustainable growth," and will now completely overhaul the development and operational functions of its mobile and PC browser games with a view to creating more hits.

Overall, the company expects the next fiscal year to be one of transition, and explained it will focus on "medium-term targets and laying the groundwork for what lies beyond." With those goals, in mind, Square is anticipating consolidated net sales of 270 billion yen ($2.48 billion) and profits of 16.8 billion yen by the end of the financial year on March 31, 2020 ($154 million).