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Toys 'R' Us' profit jumps 40%

By Staff -- Gifts and Dec, 5/5/2008 2:03:00 PM

WAYNE, N.J.—Toys “R” Us Inc. said on Friday that its net earnings jumped nearly 40 percent for the fourth quarter and fiscal year ended on Feb. 2, 2008, compared to the similar periods in the prior year.

For the fourth quarter, the retailer reported a 39.3 percent increase in net earnings to $312 million, up from $224 million for the fourth quarter ended Feb. 3, 2007. Operating earnings increased 17.5 percent to $671 million while net sales rose 2.6 percent companywide to $5.827 billion.

For the year, Toys “R” Us recorded a 40.4 percent increase in net earnings to $153 million. Operating earnings in fiscal 2007 rose 7.2 percent to $696 million while net sales increased 5.7 percent to $13.794 billion.

“We are very pleased with the continued progress we made in 2007 to improve company performance across all segments of our business,” said Jerry Storch, TRU’s chairman and CEO. “Better gross margins, improved comparable store sales and the positive impact of new store openings all contributed to higher net earnings for both the fourth quarter and the year. These results are especially gratifying given the difficult economic climate and the unique challenges experienced by the toy industry during the past year.”

Divisional results
For the quarter, comparable store net sales rose 3.2 percent at TRU’s U.S. toy stores. Net sales for the period decreased 0.5 percent to $2.897 billion, primarily as a result of the absence of a fourteenth week in the fourth quarter of fiscal 2007 compared to the fourth quarter of fiscal 2006. This was partially offset by increased comparable store net sales.

For the 52 week period, comparable domestic toy store sales rose 2.2 percent. Net sales grew 1.0 percent to $5.955 billion, primarily reflecting the increase in comparable store net sales and Internet-based revenues partially offset by the impact of the closing of 85 stores in fiscal 2006 and the absence of a fifty-third week in fiscal 2007.

Operating earnings for the U.S. toy stores division i-n the fourth quarter were $360 million, up from $318 million in fiscal 2006. The increase in operating earnings was primarily due to an increase in gross margin as a percentage of net sales, reaching 31.9 percent in the fourth quarter of fiscal 2007 compared to 30.0 percent in the fourth quarter of fiscal 2006 as a result of increased sales of private label products and improved comparable store net sales. The increase was partially offset by the absence of a fourteenth week in the fourth quarter of fiscal 2007 and increases in selling, general and administrative expenses due in part to planned increases in promotional activities.

For fiscal 2007, operating earnings at TRU U.S. were $269 million versus $254 million for fiscal 2006. The segment’s improved results were primarily a result of an increase in gross margin as a percentage of net sales, reaching 32.1 percent in fiscal 2007 compared to 31.0 percent in fiscal 2006 due to higher margins driven by private label product sales, positive comparable store net sales growth and a decrease in depreciation and amortization expense as a result of store closures in fiscal 2006. The increases were offset by increases in selling, general and administrative expenses primarily resulting from increased costs to improve store layouts and planned increases in promotional activities and the absence of a fifty-third week in fiscal 2007.

At the company’s Toys “R” Us – International division, comparable store net sales rose 1.2 percent during the quarter, while net sales rose 8.4 percent, to $2.331 billion, primarily due to changes in foreign currency translation of $193 million, new store openings and the increase in comparable store net sales.

For the year, comparable International store net sales rose 2.7 percent, while net sales for the segment increased 11.8 percent, to $5.344 billion. Sales increased primarily due to changes in foreign currency translation of $329 million, new store openings and the increase in comparable store net sales, which were partially offset by the absence of a fifty-third week in fiscal 2007.

Operationally, the International division saw operating earnings rise to $305 million during the quarter, compared with $251 million in fiscal 2006. For the year, operating earnings were $336 million, up from $233 million.

At Babies “R” Us, comparable store net sales rose 1.8 percent during the quarter despite net sales for the segment having fallen by 2.9 percent to $599 million, primarily as a result of the absence of a fourteenth week in the fourth quarter of fiscal 2007, which was partially offset by new store openings and the increased comparable store net sales.

For the year, BRU’s comparable store net sales increased 2.0 percent, while net sales for the segment increased 5.0 percent to $2.495 billion. The increase was primarily a result of new store openings, as well as the increase in comparable store net sales, and was partially offset by the absence of a fifty-third week in fiscal 2007.

Operationally, BRU recorded earnings of $83 million in the quarter, down from $97 million in fiscal 2006. The decrease was primarily due to the absence of a fourteenth week in the fourth quarter of fiscal 2007 and lower gross margin as a percentage of net sales from additional markdowns to keep inventory current. For the year, earnings were $357 million, up from $340 million in fiscal 2006.

Toys “R” Us Inc. ended its fiscal 2007 having pared its debt by $65 million from the prior year, while total cash and short-term investments increased by $154 million. Total long-term debt outstanding at the end of the 2007 fiscal year was $5.874 billion, an increase of $86 million from the prior fiscal year. The increase primarily relates to refinancing $137 million of short-term borrowings as long-term debt subsequent to year-end.

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I don't buy it for a second. As a private company, TRU can make any claim it wants and get away with it. But even if this were to be the case, a 40% increase from where it was isn't anything I'd be publicizing. Toy sales continue to drop and if not for video games, TRU - aka NintendoRUs - would have been in the crapper a long time ago. Where's the service, the aesthetic and appeal? Gone, gone, gone. Good job, Storch.

G Sulli - 2008-05-07 08:32:00 EDT

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