The difference here is, Xenoblade is Monolith's main series. That has always been their jam, that's what they are good at.
The only reason Pikmin gets sequels is because that franchise is Shigeru Miyomoto's baby.
I'm not suggesting ARMS was a failure. Infact, I admit that it did quite well for what it was. It probably earned more profit's than Xenoblade 2, as you suggested. However, if you're Nintendo, do you send the Kosuke Yabuki team to.....
a) Make Mariokart 9. A game that is basically guaranteed to sell at least 10 million units on Switch (probably much more than that)
b) sequel to ARMS, something that may not even hit 2 million (first game only sold as well as it did because next to nothing on the switch when the game launched. Now, that advantage will also be gone).
You could put another EPD team on it, sure. But what team? Take the koizumi team off 3D Mario? Take the Aonuma team off Zelda? Take Nogami team off Splatoon? Heck no, to all of these. The only one that would do it is 1,2 Switch/Labo team.
Funny you said the 1-2 Switch/Labo team. Tsubasa Sakaguchi, the director of Labo, was the director of the original Splatoon.
If they want, the directors and programmers can be flexible and do whatever they feel like doing. And Sakaguchi wanted to go outside of conventional game development.
Sakaguchi is quickly becoming one of my favourite directors at Nintendo and I think he'll be one to watch in the future.
Anyways, great number all around. I expected the Switch to have fallen under Ps4 right now launch aligned, but it's actually on par. It probably wont peak early either, certainly not in first year like 3DS did. We will see if it will have more stying power than the Wii, but considering the kind of machine it is, I think it will be just fine.