Toys R Us saves its way to profit gain in Q2
By Staff -- Gifts and Dec, 9/8/2009 9:05:00 AM
WAYNE, NJ—Toys R Us' net earnings more than doubled in the second quarter of 2009, helped by lower spending levels and despite a drop in same-store sales.
Net earnings for the three month period from May 3 to August 1, 2009, topped $27 million, up from $13 million for the second quarter of fiscal 2008. Operating earnings increased to $86 million for the second quarter of fiscal 2009, compared to $79 million for the second quarter of fiscal 2008.
“We are pleased with our performance for the first half of this year and believe our results clearly demonstrate that we can successfully operate and achieve results in any economic environment,” said Jerry Storch, chairman and CEO, Toys R Us Inc. “Our second quarter results delivered on our expectations, and the team did a great job growing margin rate while managing expenses.”
Worldwide net sales during 2009’s second quarter were $2.567 billion, down from $2.771 billion for the second quarter of fiscal 2008. Foreign currency translation contributed to $59 million of the decrease.
Comparable store net sales decreased by 7.2 percent domestically and 3.9 internationally during this year’s quarter. The majority of the decline in net sales was in the entertainment products category, specifically video game hardware and software, driven downward by “the industry-wide weakness of those businesses,” the company said. During the quarter, higher-margin products sold “much better” than lower-margin video games, according to TRU, as reflected in its improved gross margin rate of 37.0 percent, an increase from the 36.6 percent rate it recorded in the second quarter of fiscal 2008.
Domestic net sales during the second quarter of fiscal 2009 were $1.576 billion, compared to $1.686 billion for the second quarter of fiscal 2008. Despite the dip in comparable store sales, TRU said its “new and converted store formats performed well and drove sales, providing good returns on capital investments. The consumables business performed very well, and core toy and learning sales performed better than other categories.”
Driving the decrease in domestic net sales were weaknesses in video game hardware and software, along with the seasonal business, apparel, baby gear, bedding and wooden furniture. Gross margin as a percent of net sales was 36.7 percent in the second quarter of fiscal 2009, up from 35.9 percent during the same period in fiscal 2008. The increase in gross margin, as a percentage of net sales, resulted primarily from improvements in product mix and a reduction in the use of clearance pricing within the apparel category.
Net sales for TRU’s international business during the quarter were $991 million, compared to $1.085 billion for the second quarter of fiscal 2008. Its decrease in comparable store net sales was driven primarily by decreases in sales of entertainment products, largely attributable to a decrease in sales of video game hardware and software. Gross margin as a percent of net sales declined by one-tenth of a percent compared to the same period last year.
Companywide SG&A expenses for the quarter decreased 6.4 percent, or $57 million, helped by $22 million related in favorable foreign currency translation. Other income increased to $64 million in the second quarter of fiscal 2009, compared to $53 million in the second quarter of the prior year, aided by a $51 million gain from a litigation settlement with Amazon.com. The second quarter of fiscal 2008 included a $39 million gain on the liquidation of TRU’s Hong Kong subsidiary.
Adjusted EBITDA for the second quarter of fiscal 2009 was $145 million, compared to $147 million in the second quarter of fiscal 2008.
Total inventory at the end of the second quarter was down $29 million or 1.3 percent, compared to the same period in fiscal 2008.
The company ended the second quarter of fiscal 2009 with cash and unused credit lines of approximately $1.543 billion, including approximately $98 million that was available to its Japan subsidiary. Long-term debt was lowered by $409 million to $5.496 billion at the end of the second quarter of fiscal 2009 compared to the second quarter of fiscal 2008, primarily due to the pay down and refinancing of the company’s $1.3 billion unsecured credit agreement. Capital spending for the quarter decreased $82 million to $93 million, as the company “has taken, and continues to take, steps to moderate capital spending prudently in this economic environment.”
“During this quarter, we were very pleased to have completed both [a] $950 million senior unsecured note offering and the extension of our secured revolving credit facility. The execution of these two transactions has well positioned us to address our remaining obligations that mature in the future,” Storch said.
What a spin! So declining sales and cutting expenses is success?
Gobbling up FAO Schwartz and KB Toys doesn't look so good at the moment.
What a contrast between the "monster giraffe" and locally-owned, customer service-oriented, mom-and-pop specialty toy stores that understand the true stakeholders --- the local community!
Samuel Cox - 2009-09-09 12:05:00 EDT
Gobbling up FAO Schwartz and KB Toys doesn't look so good at the moment.
What a contrast between the "monster giraffe" and locally-owned, customer service-oriented, mom-and-pop specialty toy stores that understand the true stakeholders --- the local community!
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Dec 10, 2009 -
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May 5, 2008 -
Toys 'R' Us pares losses despite sales drop
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