Square Enix Holdings reported revenue declined 15.2% to ¥59.3 billion ($409 million) in the first quarter, as the Japanese gaming company faced reduced sales from its flagship console and PC games division.
Operating income fell 16.8% to ¥9.0 billion ($62 million), while net profit plunged 54.8% to ¥4.8 billion ($33 million) for the three months ended June 30. The company blamed the weaker performance on lower sales of new games compared to last year’s three Kingdom Hearts releases on Steam.
Digital entertainment, the company’s largest division, saw revenue drop 25% as HD game sales disappointed. The segment, which includes major franchises like Final Fantasy and Dragon Quest, lacked the boost from significant new releases that drove performance in the same period last year. Despite the revenue decline, the unit’s operating profit actually improved due to reduced development costs and advertising expenses.
Currency movements also weighed on results, with a foreign exchange loss of ¥2.1 billion resulting from the strength of the yen against other major currencies. This contributed to ordinary income falling 55% to ¥6.9 billion.
The company’s amusement business provided a bright spot, with revenue rising 8.5% to ¥16.5 billion as arcade operations and merchandise sales outperformed expectations. However, publishing and rights divisions both posted declining revenues.
Square Enix has been grappling with strategic challenges in recent years. The company recognized extraordinary losses of 22.1 billion yen ($140 million) in fiscal 2024 due to “content abandonment losses” as it revised its approach to game development to be more selective with resource allocation.
The gaming company maintained its full-year guidance, projecting revenue of ¥280 billion for fiscal 2026, down 13.7% from the previous year. Management expects operating profit to edge up 1% to ¥41 billion.
The Kingdom Hearts series launched on Steam in June 2024, marking the end of the franchise’s exclusivity on Epic Games Store. However, the PC port received criticism for technical issues including frame rate problems and resolution-related lag.
Square Enix shares have declined approximately 20% year-to-date as investors remain cautious about the company’s ability to generate consistent returns from its major gaming properties. The stock closed at ¥4,460 on the Tokyo Stock Exchange.
