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Toys "R" Us May Leave the Toy Business
By JEFFREY GOLD, AP Business Writer

NEWARK, N.J. - Toys "R" Us Inc., battered by price wars from discounters, particularly Wal-Mart, is considering getting out of the toy business.

The nation's second-largest toy retailer behind Wal-Mart Stores Inc. announced plans Wednesday to restructure its toy business, but said it is considering selling the business outright as part of an effort to dramatically reduce operating and capital expenses.

The $11.6 billion company is also pursuing a possible spinoff of its fast-growing Babies "R" Us, whose 200 stores sell furniture, including cribs and bedding, as well as accessories. The company will begin operating the toy and baby business as separate entities in the meantime.

The Babies "R" Us division has been the company's growth vehicle, and has not been as vulnerable to discounters, Standard & Poor's credit analyst Diane Shand said in an S&P statement affirming its ratings on Toys "R" Us remained on CreditWatch with negative implications.

The company's U.S. toy division, however, has been inconsistent since the mid-1990s, when Wal-Mart ramped up its toy department as it also dramatically expanded the number of stores.

"Traditional toys have decreased in importance, as children are turning to video games, computer software, sporting goods, and music for entertainment at younger ages," Shand said.

Babies "R" Us, which represents 15 percent of the company's total revenues, posted sales of $1.76 billion, up nearly 11 percent, for the year ended Jan. 31. Meanwhile, the Toys "R" Us' U.S. revenues fell 4 percent to $6.48 billion. Toys "R" Us has 683 toy stores in the United States and 579 international toy stores. It also sells through its Internet sites.

The announcement "is extremely positive for investors, as one of the critical pieces to unlocking shareholder value in (Toys "R" Us) is separating its crown jewel, Babies "R" Us," said Mark Rowen, an analyst at Prudential Equity Group Inc.

Still, shares fell 27 cents to close at $16.15 on the New York Stock Exchange.

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.

Company officials declined to elaborate on their plans.

Richard Hastings, an analyst with Bernard Sands, was critical of the plan and said the Toys "R" Us announcement "is not as transparent as we would prefer."

The big question is who would buy the toy business, given that the industry has been reduced to cutthroat price wars?

Hastings said a buyer, should one emerge, would be more likely to be a private equity investment than a public company, as happened with rival FAO Schwarz. He could not estimate a price.

"They seem to be throwing this up in the air to see where it lands," Hastings said. "This sounds like the aftermath of some very, very weak results."

Toys "R" Us said Wednesday it would delay releasing its second quarter 2004 earnings until Aug. 23. The figures were to be released Monday. In the first quarter, 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.

Poor holiday 2003 results helped lead to the bankruptcies of FAO Schwarz and K-B Toys.

Toys "R" Us has been retrenching for much of the last year to improve its bottom line. In November, it said it would close 146 freestanding Kids "R" Us clothing chain and 36 Imaginarium specialty toy stores, which sold educational toys, cutting up to 3,800 U.S. jobs.

Regarding the latest plan, Eyler said, "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."

Toys "R" Us said it planned to "substantially restructure" the company's Wayne headquarters, reducing operating expenses in the headquarters and U.S. toy business by more than $125 million by fiscal 2005 as compared to fiscal 2003.

Spokeswoman Susan McLaughlin declined to say if layoffs are contemplated. The company said it has recorded severance and other related charges of approximately $14 million which will be reflected in the second quarter results, and additional charges will occur in subsequent quarters.

The company had 65,000 employees at the end of January.

Toys "R" Us has hired Credit Suisse First Boston to advise it on any sale. The possible retreat comes after Toys "R" Us has spent millions to renovate its stores and sought exclusive rights to certain toys to differentiate itself from the discounters, whom it couldn't beat on price.

"How do you make a profit in a business where margins are so squeezed?" said New York-based independent toy consultant Chris Byrne. "Wal-Mart really has functioned as a category killer in this."

"Ironically, this is what Toys "R" Us was doing in the '60s and '70s, as they were trumping all the regional toy chains," Byrne said, citing Lionel Leisure and Kiddie City.

Byrne said buyers for the global toy business would be scarce, considering the company's real estate liability and debt.

Toys "R" Us 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.

Jim Silver, publisher of the Toy Book, a New York-based industry magazine, said Toys "R" Us said the restructuring could help the company's finances.

"They're looking to make things more profitable. I think that's why you're seeing that there are management changes, they are going to get to leaner and meaner," Silver said, speaking from Orlando, Fla. With store closing expected, he said the company "can be successful as a 500- or 600-store chain."

Eyler will continue in his role as chairman and CEO. Richard Markee, vice chairman of Toys "R" Us Inc., was named 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, the company said.

From my cold dead hands.....

The referance is apt I say APT!

I don't feel so bad about Toys 'R' Us going out of business, if that happens. They were responsible for pushing a lot of the smaller toy companies out of business in the '80s. Damn big business and their conglomeratin' ways...

Man, there was a time when this would have been absolutely devestating to me.

Now, I could care less. I haven't even been inside a Toys R Us in years. Best Buy has claimed my heart.

Yeah. They got their own medicine. Mom and pop stores could not compete with Toys R' Us. Wal-Mart actually sells their toys much less than regular retail outlets to get kids to bring their parents into stores. So parents while theyre there, they do their shopping when they can in their hectic weekly schedules. It's actually quite genius. I got my 20th anniversary Prime for 20 bucks less at Wally World than I would at Toys R Us or any other retailer. T'RU got so used to being the monopoly they could price as they wished. No wonder it's lead to price wars. They make it look like thats a bad thing where contrarily harsh competition is good for the consumer: More options, Lower prices. If T'RU loses they lost fairly. Wal-Mart will still continue to sell their toys reasonably to get parents in the store shopping. And if they start jacking up the prices, a new toy store will emerge to offer competition. The system works.

All that being said, I agree that kids are growing up faster. When I was 14 and under I was playing with lil Woverines and and Spideys. I had at least 5 more years to worry about how to get stoned or knocking up my girlfriend. Times are a changin'. I've probly bought more action figures in the past 2 years than your average 12 year old. Theres always going to be a market for different types of toys. But with the advent of technology and the internet, shit's going to be a whole lot different in the generation after us. Our kids are going to look at GIJoes like we looked at wooden horses when some of us were kids.

For the crime of killing Child World, my favorite toy store when I was a wee lad, I say "HA! FUCK YOU! Take Kay-Bee with you, you evil fucks!!!" However, this still makes me sad - I got a bunch of series 1 Transformers a few weeks ago (they're re-releasing the good ones) as Toys-R-Us exclusives. Can't find them in Walmart. Nor can Walmart make me feel like an 8-year-old again...the excitement I felt as I bought Bluestreak and Thundercracker isn't easy to duplicate.

But then who will continue to reissue Transformers in the US...... who?

A lot of this is also simple demographics. There are less kids these days to buy toys.

The baby boom is in its forties, fifties and even sixties. Their kids are grown and don't need toys and there aren't enough grandchildren yet.

Isn't Wal Mart a much more evil corporation? No one should be celebrating this!

They need to venture into the adult industry as Sextoys R' Us

I get a lot of action figures on the Toys R Us website, which carries more stuff than they do in their stores. This is a bit sad really. I like choices and parity and now that's being limited even more. First FAO Schwartz, now this.

They were a bad influence on kids anyway. You just know the bad internet grammar is their fault.

Tonguekiss U Sexy Raspberry!

Purple little hairy sex god 4 U (Oh yeah)

In the ghetto, we had "We got toys 'N' shit".

We have Cousin BR

I do NOT wanna know what the mystery object is that's making that Monchichi smell his hand with that look on his face...

ewww...

yeah...

Toys R Us. What a rathole.

Good riddance to bad rubbish!

On second thought I'd rather give up Toys "R" Us.

Than what?

We may never know the answer to that, Pig.

I used to buy my 1:18 scale diecast cars and action figures from Toy's R Us from about 1999 to 2001 or so. They started carrying less and less cars till it got to the point where they went from having two sides of an entire isle of them, to just a short little display area of them. The ones they had left did not interest me.

I did get a couple of Lost In Space orginal TV series Robots for $5.00 and $10.00 there.. you can't find them on Ebay for less than $25.00 - $30.00 bucks now!

It became much more convienent for me to buy my action figures and cars on Ebay, as I cannot drive. Maybe Ebay helped kill Toys R Us, too. And Amazon.Com, too.