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Toys 'R' Us 3rd-Quarter Loss Widens as Interest Expense Rises

Date : 12/08/2012 @ 2:13AM
Source : Dow Jones News

Toys 'R' Us 3rd-Quarter Loss Widens as Interest Expense Rises

Vornado (NYSE:VNO)
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   By Nathalie Tadena 
 

Toys "R" Us Inc.'s fiscal third-quarter loss widened as the toy retailer recorded higher interest expense and weaker same-store sales.

Chairman and Chief Executive Jerry Storch said the company continues to focus on improving margins while managing inventory levels and reducing expenses, which has allowed the company to record stronger operating earnings in the U.S. for each quarter of this year. However, he noted that the challenging economic environment in Europe and Japan continues to have a negative impact on operating earnings internationally, partially offset by strength in China and Southeast Asia.

Toys "R" Us was acquired in 2005 by Vornado Realty Trust (VNO) and private-equity firms Bain Capital LLC and Kohlberg Kravis Roberts & Co. for $6.6 billion. The toy retailer has made a number of investments to position itself for future growth, including the expansion of its e-commerce business and store conversions to integrate products.

For the quarter ended Oct. 27, Toys "R" Us reported a loss of $105 million, compared with a year-earlier loss of $93 million. Sales slipped 3.4% to $2.6 billion.

The company said the latest period's sales decline was primarily due to lower same-store sales and a foreign currency translation impact of $30 million.

Same-store sales decreased 4.1% domestically, partially due to the impact of this year's earlier layaway program, and fell 4.6% internationally, reflecting weakness in Europe and Japan.

Gross margin widened to 37.1% from 36.5%.

Interest expense increased 27% to $135 million.

Sales in the company's learning category improved 1.3%. Sales in the entertainment category, which includes electronics and videogame merchandise, slid 7%, reflecting ongoing weakness in the global videogame business.

Write to Nathalie Tadena at nathalie.tadena@dowjones.com.

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