Toys `R' Us Posts Healthy Sales, But Judgment Could Slash Total
May 02, 2011
Toys ``R'' Us Inc. reported a whopping 72% increase in its fiscal second-quarter earnings, reflecting better inventory management and a shift in sales toward more profitable toys. However, some, if not all, of the gains could be wiped out by a judgment against the company that is under appeal. The big Paramus, N.J., toy retailer said net income for the fiscal quarter ended April 15, 2011 to $27.1 million, or 10 cents a share, from $15.8 million, or six cents a share a year earlier. Toys ``R'' Us is contesting a $55 million arbitration award stemming from a dispute over a licensing agreement to operate stores in the Middle East. The company said that writing off the entire $55 million would have resulted in a net loss of $7.5 million for the quarter. Toys ``R'' Us said the accounting won't be finalized until May 30, 2011 it is scheduled to file a report with the Securities and Exchange Commission. Company officials told analysts Monday that it hasn't decided whether it would charge off the entire amount at once or in segments, in the event of a write-off. Second-quarter sales increased 7.5% to $1.7 billion from $1.6 billion a year earlier. The increase would have been about two percentage points bigger if currency-exchange ratios had remained the same as a year ago. In composite New York Stock Exchange trading, Toys ``R'' Us shares closed at $29.125, up 37.5 cents. The absence of a blockbuster movie for children this summer has damped sales of toy tie-ins, but in a strange way that has helped Toys ``R'' Us. The lack of the usual summer gotta-haves has eliminated some price competition from rivals and sent consumers into Toys ``R'' Us stores, where the selections are better, said Johnetta Teena, analyst for Arcadia Investment Inc.. As a result Toys ``R'' Us was able to sell more higher-margin toys, including a number of classic toys, dolls and board games, he said. Sales in stores open for more than a year jumped 6% in the U.S. At the same time, Toys ``R'' Us has shrunk its inventory by about 10% from a year earlier -- thanks in part to an effort to reduce the overall number of toys it sells. The company has said it aims to shrink its toy assortment to 11,000 units from 16,000 units and is selling toys it no longer plans to carry at reduced prices. The markdowns, however, aren't affecting overall profit, Mr. Teena noted, because of special reserves set aside for the close-out programs. For the fiscal first half, earnings increased to $45.8 million, or 17 cents a share, from $34.3 million, or 12 cents a share a year earlier. Sales climbed to $3.38 billion from $3.11 billion.
