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Toys 'R' Us posts 2Q loss
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August 20, 2001: 9:29 a.m. ET
Company matches lowered estimates, cites remodeling costs for sharp loss
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NEW YORK (CNNfn) - Toys "R" Us Inc. posted a sharp loss for its fiscal second quarter Monday, in line with Wall Street's lowered expectations, as the No. 2 toy retailer continued to spend heavily on store remodeling amid an economic slowdown.
The company, which also operates Babies "R" Us, Kids "R" Us and Imaginarium stores, also said it remains comfortable with Wall Street's forecast for a fourth-quarter profit of $1.52 a share, according to earnings tracker First Call. The fourth quarter includes the important year-end holidays.
For the quarter ended Aug. 4, Paramus, N.J.-based Toys R Us (TOY: up $1.55 to $23.95, Research, Estimates) posted a loss of $29 million, or 15 cents a share, compared with a profit of $3 million, or a penny a share, a year earlier. Analysts on average anticipated a loss of 15 cents a share, according to First Call.
The results exclude Toys "R" Us Japan, where sales were adversely affected by negative currency transactions due to the strong dollar.
Second-quarter sales were flat at about $2 billion.
Toys "R" Us stock jumped $1.35 to $23.75 in early trading Monday following the earnings report.
"We continue to make very good progress on executing our strategic initiatives. During the quarter we continued our plan to invest heavily in remodeling and enhancing the customer experience in our U.S. toy stores," CEO John Eyler said. "We remain confident that the improvement being made will deliver substantial benefits to Toys 'R' Us beginning with this year's holiday season and will allow us to better grow and enhance our business well into the future."
On July 13, Toys R Us warned that second quarter and full-year results would fall short of expectations as a result of a slowing economy that has dampened consumer spending and a store remodeling program.
The company undertook a major remodeling program and restructuring program last year after struggling with a mature brand, stale store formats that had not been changed in years, and inefficient inventory management.
Fierce competition from discount chains also pressured the bottom line. Wal-Mart Stores Inc. (WMT: Research, Estimates) , the world's biggest retailer, has overtaken the company as the top toy seller.
Since Eyler took over about two years ago, the company has undertaken a major remodeling of its stores to widen aisles, more strategically place top-selling and higher-profit toys and improve customer service. The company's e-commerce arm, Toysrus.com, outperformed virtually all other online competitors during the last holiday season when it teamed up with Amazon.com.
During the second quarter, Toys "R" Us said the stores which it has so far remodeled, have logged 7 percent higher sales than other stores.
Sales at stores open a least a year, a key retailing gauge known as comparable or same-store sales, increased 4 percent at the company's international division before the effects of negative currency transactions.
The Babies "R" Us division posted a 1 percent same-store sales increase in the period, down from a 13 percent increase a year ago, due mainly to the sluggish economy. However, the company said the division achieved its goal of 15 percent growth in operating profit, the company said.
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Kids "R" Us, the company's children's apparel division, reported a low doubled-digit sales decline in the quarter, but the company said it saw promising results in newly remodeled prototype stores that combined the Toys "R" Us and Kids "R" Us formats.
Toysrus.com sales quadrupled to $35 million compared with 9 million a year ago, as the company launched babiesrus.com and imaginarium.com. 
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