Ahead of its yearly financial results that will be reported in the coming weeks, Capcom has issued an update revising its profit projections down by over 50%. It's a blow for the Japanese company ahead of its results, somewhat reminiscent of Nintendo lowering projections prior to its Q3 results, albeit in this case Capcom's not recording a full loss.
Capcom's original yearly projection was for a net profit of 6.8 billion yen (roughly $66 million) which has now been cut to 3.3 billion yen (roughly $32 million). This is despite the strong performance of Monster Hunter 4 helping to drive net sales up 4.6%; the damage is partially done by the estimated ordinary income profit — the nuts and bolts of Capcom's business — dropping by 16.7%.
Why is Capcom dropping its profit projections despite sales going up? Two main reasons are given — a significant "special" loss of 5 billion yen (roughly $48 million) has been set aside for "post business structural improvement expenses", while its mobile business and Monster Hunter Frontier G underperformed.
Due to rapid changes taking place in the market for games, Capcom is building a sound base for earnings by reorganizing the product development framework and improving development processes. These are two core elements of the company's operations. The objective of these activities is to earn consistent earnings in each fiscal year. However, these initiatives have not yet started to produce benefits mainly in the Mobile Contents. As a result, Capcom has decided to post business structural improvement expenses of approximately 5,000 million yen in consolidated, and approximately 4,300 million yen in non-consolidated forecast, following a comprehensive examination of prospects for recovering the cost of certain fixed assets.
...The forecast for consolidated sales has been increased mainly because of strong sales of "Monster Hunter 4", the biggest title in Capcom's home video games business, and the highly successful pachislo title "Monster Hunter Gekka Raimei". On the other hand, the operating income and ordinary income forecasts have been lowered because of a decline in profitability. The primary reasons for this decline are below expectations of products in the highly profitable mobile contents and "Monster Hunter Frontier G" online game. The net income forecast has been lowered for these reasons as well as to incorporate the special loss explained in the previous section.
Capcom is still turning a profit, ultimately, but against a backdrop of elements of its business struggling. These appear to be challenging times for plenty of big businesses in gaming; Nintendo's yearly results will be revealed on 7th May.