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Coal for Toys ‘R’ Us
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January 6, 2000: 3:55 p.m. ET
Retailer’s holiday season sales lower; accepts lower estimates for year's net
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NEW YORK (CNNfn) - Toys "R" Us Inc., the largest specialty retailer of toys and children's goods, was smarting Thursday after reporting disappointing holiday sales figures.
The Paramus, N.J., based retailer reported lower holiday season sales at stores open a year or more, and said it was "comfortable” with revised analysts’ estimates for fiscal 1999 earnings that are significantly below earlier projections.
Shares of Toys "R" Us (TOY) took a pounding Thursday, down 1-1/2, or 11.1 percent to 12-1/16 in late afternoon trading.
The company’s comparable store sales declined 2 percent for the nine weeks ended Jan. 1. Total sales were little changed at $4.4 billion.
"Obviously we’re disappointed with sales,” said Louis Lipschitz, chief financial officer. "We think a lot of it is driven by soft sales in the industry itself. Our sales before the holiday were strong. From what we can gather from people in the business, the entire industry is soft.”
Company officials blamed the decrease in same-store sales on industry competition, lower prices for video hardware such as the Sony PlayStation and Nintendo 64, and shortages of certain video and electronic products and hot toys -- a problem that was supposed to be addressed by recent changes in inventory procedure.
Lipschitz said there are no plans to change that procedure. He said earthquakes in Taiwan, which disrupted production of computer chips, hurt the company.
"What we plan to do is make Toys 'R' Us more interesting place to shop in,” he said. "Toys 'R' Us is still a very big company. It’s not like we don’t have good earnings power.”
The retailer also said its Internet sales were particularly strong, despite some highly publicized delivery problems during the holiday shopping season.
"Nobody thought we would be an Internet player,” Lipschitz said, "and we’re hardly getting started.”
Toys "R” Us said in response to a question Thursday during its quarterly conference call that it was comfortable with a fiscal year earnings figure of $1.10 per share, after costs associated with its Internet subsidiary, which is expected to lose of 20 to 25 cents per share.
Analysts polled by First Call Corp. had originally expected Toys "R” Us to post earnings of at least $1.61 a share.
Sean McGowan, an analyst at Gerard Klauer Mattison in New York, said the sales figures are particularly disappointing in light of strong third quarter results.
"Such a strong quarter and so many products at retail should have fueled a better result,” he said.
Toys "R" Us is changing the look of its stores under a plan called C3. While the revamped stores have done better than average, McGowan said, they did not perform well enough to justify the expense.
"They’re going to slow down the pace and that’s a bit of a disappointment,” he said.
McGowan also said the toy sector has been slowing down as children’s tastes change.
"Kids are just not into toys as they once were,” he said. "With 3-D video games, chat rooms and Jerry Springer, it’s a little hard to go back to a pull toy.”
Toys "R" Us lost its No.1 toy-selling spot to Wal-Mart Stores Inc. (WMT) and McGowan said consumers who go into a Wal-Mart to buy other items are likely to do their toy-shopping there as well.
"They have to do something to draw consumers into their stores,” he said.
Sheldon Grodsky, research director at Grodsky Associates in South Orange, N.J., was more positive about the company’s future.
"I don’t think they’re in any kind of desperate shape,” he said. "They’re still very powerful in their own market. They have to improve volume and profitability. Getting people into stores is a retailers challenge every day.” 
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Toys "R" Us
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