Sega has closed the year in the black, but not nearly as well as was forecast. The company closed the year with ¥30.72 billion ($302.2 million), which is 34.6 percent below the ¥47 billion ($462.37 million) forecast and even below what the company posted in 2013.

Sega says that even though it launched Total War: Rome II and Football Manager 2014, a “harsh market environment” stood in the way of success. Sega posted sales of packaged goods (retail games) that were lower by 8.73 million units.

Total War: Rome II was the publisher's top-selling release of the year with 1.17 million units. Football Manager and Sonic Lost World didn't pass the million mark with 790,000 and 710,000 units sold respectively. Company of Heroes 2, developed by Relic and acquired by Sega following the collapse of THQ, sold only 680,000 units.

The outlook isn’t much better for 2015, as Sega warns of uncertainty “due to worries of economic slowdown.” The company will push away from retail and toward digital releases to realize some savings on inventory and packaging.

Sega is projecting a weak year, with net income of only ¥21 billion ($206.6 million), a 31 percent drop over the most recently completed year. The company anticipates higher net sales over this year, but lower operating income, which indicates an increasingly heavy expense burden. This year's expenses can be attributed in part to the acquisition of Atlus from Index Corporation in a deal worth ¥14 billion ($141.1 million).

The company is also putting enormous weight on the second half of its fiscal year (October 1, 2014 through March 31, 2015), as it projects an operating deficit through the mid-year point. The financial position is growing more precarious.

[Source: Sega (1), (2)]


Our Take
Sega’s stumble evidences a declining portfolio and financial position. The company needs to pull out of this quickly, as a drop of one-third on the net income line isn’t sustainable. 2014 must be a stronger year with significant change. We’ve seen Square Enix recover, and Sega must do the same.