Toys R Us Posts Operating Loss Amid Poor Sales
{{#rendered}} {{/rendered}}Toys R Us Inc. (TOY), which is considering getting out of the toy business, on Monday posted a second-quarter operating loss on poor sales of video games and markdowns on older merchandise.
The No. 2 toy seller, hit hard by competition from discounters such as Wal-Mart (WMT), said sales fell 3.9 percent, and sales at U.S. toy stores open at least a year were especially weak.
But Harris Nesbitt analyst Sean McGowan said, "If you strip out everything, it's a little better than expected. Same-store sales performance was a little worse than expected, but the profit on those sales was a little better."
{{#rendered}} {{/rendered}}Toys R Us shares were up 2.7 percent at $16.03 on the New York Stock Exchange (search).
The company posted an operating loss of $192 million, compared with operating earnings of $14 million a year earlier.
The loss included pre-tax charges of $228 million.
{{#rendered}} {{/rendered}}On a net basis, the Wayne, N.J.-based retailer posted a profit of $61 million, or 28 cents a share, helped by a $200 million tax reversal. A year earlier, it had a net loss of $11 million, or 5 cents per share.
Earlier this month, Toys R Us said it is considering selling its toy business to focus on its faster-growing Babies R Us unit. It said it plans to separate the ownership of the two businesses.
"There are two issues here: How is current business doing and what's going to happen to this corporation?," said McGowan. "The answer to the first question is, 'Struggling but making progress.'
{{#rendered}} {{/rendered}}"In terms of what's going to happen to the corporation, (the earnings report) tells us nothing."
On its conference call, Toys R Us said it would not have a question-and-answer session.
Second-quarter sales fell 3.9 percent to $2.0 billion. Sales at U.S. stores open at least a year, a key measure of retail strength known as same-store sales, fell 7.7 percent.
{{#rendered}} {{/rendered}}Same-store sales at international toy stores were up 1.7 percent in local-currency terms.
Excluding the impact of currency translation and a $68 million decline in sales associated with the previously announced Kids R Us (search) store closings, total sales fell 2.2 percent.
Babies R Us (search) same-store sales rose 1.8 percent, while sales at Toysrus.com (search) were flat.
{{#rendered}} {{/rendered}}The reversal of $200 million of income tax reserves resulted from the conclusion of an Internal Revenue Service review of the company's tax filings for 1997 through 1999.
Toys R Us ended the second quarter with $1.1 billion in cash and cash equivalents. At July 31, total inventories were down 14 percent from a year earlier.