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Toys 'R' Us profits grow in fiscal '08

By Staff -- Gifts and Dec, 4/2/2009 9:59:00 AM

WAYNE, N.J.—Toys ‘R’ Us Inc.’s fiscal 2008 numbers are in, and they’re not bad compared to a retail landscape littered with struggling competitors and an overall domestic toy business that saw sales decline during the period.

The retailer's overall net sales for the year ended Jan. 31, 2009, were $13.724 billion, down 0.5 percent from the $13.794 billion Toys ‘R’ Us tallied at the end of its previous fiscal year, when sales grew 5.7 percent. Sales were negatively impacted by a $100 million drop in international business, to $5.24 billion, which offset a $30 million, or 0.4 percent, gain in domestic net sales to $8.48 billion.

The decrease in net sales for fiscal 2008 was primarily due to decreased comparable store net sales across the retailer’s businesses, with domestic sales down just 0.1 percent but off 3.4 percent internationally, resulting primarily from the slowdown in the global economy, according to the company. Partially offsetting this decrease were net sales from new wholly owned stores.

Toys ‘R’ Us’ 0.5 percent domestic comparable store sales decrease was primarily a result of “lower sales in our core toy, learning and seasonal categories, which were all affected by the overall slowdown in the economy. Core toys and learning also experienced declines in sales of mature product lines as well as poor performance of certain new product releases,” the company said.

The decreases in core toy and learning products sales—Toys ‘R’ Us’ "learning" segment includes educational electronics and developmental toys, such Imaginarium products and preschool learning products, activities and toys—were partially offset by increases in TRU's video game-focused entertainment business, fueled by “strong demand” for video game consoles, new video game software releases and related accessories, and the company’s juvenile business, which was positively impacted by the conversion of certain stores to the side-by-side and “R” superstore formats along with increased square footage devoted to juvenile products in TRU's traditional toy stores. Those gains were partially offset by decreases in baby gear and furniture sales.

Net earnings for fiscal 2008 were $218 million, up 42.5 percent from 2007’s $153 million. Net earnings for fiscal 2008 were helped by lowered interest expense (down by $84 million), an increase in "other" income to the tune of $72 million (including $59 million of additional gift card breakage income) and a $58 million decrease in income tax expense. Partially offsetting these increases to net earnings was a decrease in gross margin of $59 million, a $55 million increase in SG&A and a $28 million decrease in net gains on sales of properties. The decreases include the impact of $17 million in negative foreign currency translation.

During the year, Toys ‘R’ Us continued to implement the integration of its Toys ‘R’ Us and Babies ‘R’ Us stores into a “one-stop shopping” environment, combining a refined selection of its toy and entertainment offerings with its specialty juvenile products under one roof—TRU's “side-by-side” and “R superstore” formats. By year’s end, the company had converted 111 of its existing stores into the side-by-side format and built 27 new side-by-side and “R” superstores. Toys ‘R’ Us expects its side-by-side and ‘R’ superstore formats “will continue to be our focus going forward and will eventually become the standard for all of our stores,” the company said.

Additionally, the retailer continues to modify its existing traditional toy stores with the addition of BRU Express and Juvenile Expansion sections, which devote additional square footage for juvenile products. Over the past three years, Toys ‘R’ Us has converted 77 existing stores into BRU Express and Juvenile Expansion formats.

The retailer ended its fiscal 2008 with $783 million in cash and equivalents, up from $751 million. As of Jan. 31, 2009, the company’s total debt was $5.54 billion, including two credit facilities it intends to extend to fiscal 2010—an $800 million secured real estate loan and a $1.3 billion unsecured credit agreement. It had no outstanding borrowings at fiscal year’s end on its $2.0 billion secured revolving credit facility and its multi-currency revolving credit facility, both set to expire in fiscal 2010.

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