Toys R Us pares losses in Q3
Soft video game and juvenile product sales erode revenue
By Staff -- Gifts and Dec, 12/10/2009 8:37:00 AM
WAYNE, NJ—Cost cuts and improved gross margins helped Toys R Us overcome declining same store sales as the retailer tallied its best third quarter operating results in three years.
Net results improved by $37 million to a loss of $67 million for the third quarter of TRU’s fiscal 2009, compared to a loss of $104 million for the third quarter of fiscal 2008. Operating loss improved to $9 million for the third quarter of fiscal 2009, compared to a loss of $54 million for the third quarter of fiscal 2008.
“We are happy to announce that our third quarter performance produced our best operating results for this quarter since 2006,” said Jerry Storch, Chairman and CEO, Toys R Us.
“For our business, the third quarter, which ended October 31, is the prelude to the important holiday season ahead,” Storch added. “It’s the period when we make significant investments in the business by ramping up store staffing, merchandising and marketing, as we make final preparations to welcome holiday shoppers. We were very aggressive in this lead-up to the fourth quarter, and believe we are well-positioned to compete in this economic environment. Now, with Black Friday behind us and the holiday shopping season officially underway, we are pleased and energized by the customer response to our breadth of product selection, our ownership of the hottest toys, and our cadence of value offerings.”
Drivers of the improved third quarter performance were reduced operating expenses and an increased gross margin rate, which combined to more than offset the decline in sales.
Net sales during the quarter were $2.7 billion, compared to $2.8 billion for the third quarter of fiscal 2008. Foreign currency translation contributed a $50 million increase to net sales. Comparable store net sales decreased by 9.3 percent domestically and by 4.7 percent in international markets.
The entertainment product category (which includes video game hardware and software) accounted for “a large majority” of the total sales decline, the company said, while total sales in the traditional toy categories (learning, core, and seasonal) were up slightly. The company shifted the domestic toy “Biggest Big Book” promotional event from the last week of the third quarter in fiscal 2008 to the first week of the fourth quarter in fiscal 2009, and this also contributed to the decline in reported sales for the third quarter.
Net sales for the domestic segment during the third quarter of fiscal 2009 were $1.6 billion, compared to $1.7 billion for the third quarter of fiscal 2008, while operating earnings increased to $33 million in the third quarter of fiscal 2009 from $8 million in the third quarter of fiscal 2008. Weakness in the entertainment category (which includes video game hardware and software) made up close to half of the total sales decline, while high-ticket juvenile products were also soft. Gross margin rate was 34.9 percent in the third quarter of fiscal 2009, up from 33.2 percent during the same period in fiscal 2008, resulting primarily from a shift in sales mix away from lower margin video game hardware and software products and improvements in margin on full price and clearance sales of seasonal and core toy products.
Net sales for the retailer’s International division were $1.1 billion, up slightly compared to the third quarter of fiscal 2008, while operating earnings increased to $24 million from $12 million in the third quarter of fiscal 2008.
The retailer’s overall gross margin rate in the third quarter was 35.6 percent, which represents a 1 percent increase from the third quarter of fiscal 2008. The most significant factor driving this improvement was the shift of business away from the lower margin entertainment category (which includes video game hardware and software), according to the company. SG&A expense for the quarter decreased by 4.2 percent, or $39 million, due to “broad expense controls over several categories,” but was negatively impacted by foreign currency translation of $16 million.
“Other” income was $18 million in the third quarter of fiscal 2009, compared to $12 million in the third quarter of the prior year, with the increase primarily due to a $5 million gain on the sale of an idle distribution center.
Adjusted EBITDA for the third quarter of fiscal 2009 remained unchanged at $65 million compared to the third quarter of fiscal 2008.
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