Sega Sammy Holdings: Actual Results for the First Quarter of the Year Ending March 2015

Key insights

6 takeaways

01
Sega Sammy Holdings reported a 3% decline in net sales and a 42% drop in operating income for the first quarter of the fiscal year ending March 2015.See it on page 1
02
Profitability in the Pachislot and Pachinko segment was significantly impacted by a shift in sales mix toward lower-margin units and rising production costs, resulting in an 8% decline in segment net sales.See it on page 2
03
The Consumer Business segment achieved growth in digital games, led by titles like Phantasy Star Online 2 and Chain Chronicle, but posted an operating loss due to increased advertising expenditures.See it on page 2
04
Management maintained full-year earnings forecasts despite anticipating a 3 billion yen loss in the second quarter related to facility closures at the Phoenix Seagaia Resort.See it on page 1
05
Amusement Center Operations faced declining domestic same-store sales following a consumption tax hike, while the Amusement Machine Sales business saw expanded losses due to a lack of major title launches.See it on page 2
06
Research and development expenses rose during the quarter, primarily driven by the integration of ATLUS into the corporate group.See it on page 1

Summary

Sega Sammy Holdings’ first-quarter results for the fiscal year ending March 2015 reflect a period of mixed performance characterized by a 3% decline in net sales and a 42% drop in operating income compared to the same period in the previous year. The primary driver for the income contraction was a shift in the sales mix within the Pachislot and Pachinko segment, where a decrease in high-margin pachislot unit sales, coupled with rising production costs, significantly impacted profitability. Despite these challenges, the company maintained its previously announced full-year earnings forecasts, citing the need to monitor ongoing digital game performance and the impact of upcoming facility closures at the Phoenix Seagaia Resort, which is expected to incur a 3 billion yen loss in the second quarter.

Segment performance varied across the company’s diverse portfolio. The Pachislot and Pachinko division saw an 8% decline in net sales, though individual titles like Pachinko CR Bakemonogatari performed well. The Consumer Business segment experienced growth in the digital games field, with titles such as Phantasy Star Online 2 and Chain Chronicle achieving strong download milestones and international success. However, this segment posted an operating loss due to increased advertising expenditures. Meanwhile, the Amusement Center Operations business struggled with declining domestic same-store sales following a consumption tax hike, and the Amusement Machine Sales business faced expanded losses due to a lack of major title launches.

Capital expenditure decreased significantly during this period, largely due to a non-recurring land acquisition in South Korea that occurred in the prior year. Conversely, research and development expenses rose, driven by the integration of ATLUS into the corporate group. Management remains cautious, noting that while digital game performance is robust, the company is navigating a transition period marked by planned updates and strategic facility restructuring.