Toys R Us Reports Grim Third Quarter Results

Dec 18, 2013 2:39 PM  By

Toys R Us’ sales continue to decline and the net loss is continuing to grow in the third quarter, according to its earnings release.   Comparable store net sales were down 5.2% in the domestic segment primarily resulting from decreases in the learning, juvenile (including baby) and core toy categories.

The net sales were down as a result of the impact of the shifted timing in the release of this year’s big book promotional catalog versus the prior year,  according to the release.

In May, Antonio Urcelay took over as interim CEO, replacing Gerald Storch who was transitioning from the CEO role, but would remain with Toys R Us as Chairman of the Board.  In October,  Urcelay  was named CEO.

Storch’s resignation came after a slow holiday season for Toys R Us in 2012.  For the month of December, the U.S. Domestic segment reported a comparable store sales decrease of 1.8%, and total sales decrease of 1.9%.

The financial difficulties continued after Storch’s February resignation announcement.  For the second quarter which ended Aug. 3, comparable store net sales were down 3.5% in the domestic segment  and 3.8% in the International segment.  Net sales were $2.4 billion, a decrease of $175 million or 6.9% versus the prior year.

In the international segment, comparable store net sales were down 3% which Toys R Us reports are an improvement over the first and second quarters of 2013.  The decline internationally was primarily due to decreases in the juvenile, entertainment which includes electronics, video game hardware and software and seasonal categories.

Net sales in the third quarter were $2.5 billion, a decrease of $118 million or 4.5% versus the prior year. This excludes the impact of foreign currency translation which decreased net sales by $78 million.  The company saw a decline of $40 million primarily as a result of a decrease in comparable store net sales, partially offset by an increase in net sales from new locations.

Gross margin dollars were $896 million, compared to $967 million from 2012, a decrease of $71 million. Foreign currency translation decreased gross margin dollars by $25 million.  The gross margin, as a percentage of net sales, was 36%, a decrease of 1.1 percentage points versus  the prior year.

The reduction was a result of the domestic segment performance and attributed to margin rate declines within the juvenile and core toy categories, due in part of competitive pricing strategy and inventory clearance efforts, as well as the reduction in vendor allowances compared to the same period in 2012.

The operating loss was $140 million compared to an operating loss of $75 million from 2012, an increase of $65 million.  Excluding corporate expenses, the domestic segment had a decrease in operating earnings of $70 million due to the decline in comparable store net sales, as well as a lower gross margin rate.  The International segment had an increase in operating earnings of $8 million primarily due to the improvement in gross margin as a percentage of net sales.

Net loss was $605 million compared to the net loss of $105 million in the prior year due to an increase in income tax of $379 million.