Toys ‘R’ Us may give up toys
WAYNE, N.J. – Toys “R” Us Inc., faced with fierce competition from discounters, particularly Wal-Mart Stores Inc., said Wednesday it is exploring the possible sale of its global toy business as it pursues separating its toy and baby product divisions.
The nation’s second-biggest toy retailer behind Wal-Mart said it will explore the possible sale of its worldwide toy business – both domestic and abroad, as well as its e-commerce division – and the possible spinoff of Babies “R” Us. It also plans to begin a substantial restructuring of its toy business as part of an effort to dramatically reduce operating and capital expenses.
John Eyler, chairman and chief executive officer, said the global toy and Babies “R” Us businesses are at “fundamentally different phases in their growth cycle,” and separation would give the baby business more opportunity to continue its healthy growth.
“Whatever form the separation takes, these steps should facilitate the execution of a restructured – and substantially leaner and more focused – global toy business that we believe can generate significant cash,” he said in a statement.
Toys “R” Us officials said they planned to “substantially restructure” the company’s Wayne headquarters, but did not comment on whether that would include any layoffs. The company has recorded severance and other related charges of approximately $14 million associated with this action in the second quarter of 2004, and additional charges will occur in subsequent quarters.
It plans to reduce its operating expenses in the corporate headquarters and U.S. toy business by more than $125 million by fiscal 2005 as compared to fiscal 2003.
Richard Markee, vice chairman of Toys “R” Us Inc. has been appointed president of Babies “R” Us and will become its CEO and president once the companies separate. Toys “R” Us Treasurer Jon Kimmins will become chief financial officer of Babies “R” Us, and John Barbour, currently president of Toys “R” Us International, will become president of U.S. toy stores.
Officials declined to answer questions about the news release, and said they would delay releasing their second quarter 2004 earnings until Aug. 23. The company had planned to release figures on Monday.
Toys “R” Us has struggled to compete with discounters’ low prices by making over its stores and offering a more exclusive selection of toys. But business has still been disappointing.
In November, the company announced it would be closing its 146 freestanding Kids “R” Us stores, and its 36 Imaginarium specialty toy stores, which features educational toys. The divisions had been struggling, and company officials at the time said they didn’t see a “future” for the business.
The company’s profit declined 48 percent in its fourth fiscal quarter, which ended Jan. 31 and covered a disappointing holiday sales season. Disappointing results continued into the first quarter, with the retailer posting a wider-than-expected loss and lower sales.
The company said it was focusing on preparing its toy stores for the upcoming holiday season and did not expect to make a decision before then on any store closings.
“Customers should know that we will operate our toy business with renewed energy,” Eyler said in the release.
Toys “R” Us has more than 1,200 stores worldwide with 683 toy stores in the United States, 579 international toy stores and 200 Babies “R” Us stores. It also sells through its Internet sites.
In noon trading, shares fell 33 cents, or 2 percent, to $16.09 on the New York Stock Exchange.