Toys"R"Us, Inc. Reports Financial Results for First Quarter 2013

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Toys"R"Us, Inc. Reports Financial Results for First Quarter 2013

WAYNE, N.J.--(BUSINESS WIRE)-- Toys"R"Us, Inc. today reported financial results for the first quarter ended May 4, 2013.

Antonio Urcelay, Interim Chief Executive Officer, Toys"R"Us, Inc., stated, "Similar to other retailers, our soft sales in the first quarter were partially impacted by the ongoing challenges of the global economic environment and the prolonged cool weather conditions around the world. Additionally, the continued weakness in the electronics and entertainment category negatively affected revenues."

"As we look forward to the remainder of the year, we are confident in our overall strategy and are committed to investing in initiatives that focus on providing exemplary service to our customers, enhancing our omnichannel capabilities to maximize sales through all channels, expanding our global reach, including throughout China and Southeast Asia, and deepening our assortment of differentiated products."

First Quarter Highlights

  • Net sales were $2.4 billion, a decrease of $204 million or 7.8% versus the prior year. The decline in net sales for the quarter was primarily attributable to a decrease in comparable store net sales, as well as a foreign currency translation impact of $67 million. Comparable store net sales were down 8.4% in the Domestic segment and 5.8% in the International segment. The overall decrease in comparable store net sales resulted primarily from decreases in our juvenile, seasonal and entertainment (which includes electronics, video game hardware and software) categories.
  • Gross margin dollars were $900 million, compared to $997 million for the prior year. Foreign currency translation decreased gross margin dollars by approximately $22 million. Gross margin, as a percentage of net sales, was 37.4%, a decrease of 0.8 percentage points versus the prior year. The decrease was primarily due to margin rate declines in certain categories, partially offset by improvements in sales mix away from lower margin products within our Domestic segment.
  • Selling, general and administrative expenses ("SG&A") were $886 million, compared to $898 million in the prior year. Foreign currency translation decreased SG&A by approximately $23 million. Excluding the impact of foreign currency translation, the increase in SG&A was primarily due to increases in rent expense, professional fees and payroll expense.
  • Adjusted EBITDA1 was $39 million, compared to $119 million in the prior year.
  • Operating loss was $73 million, compared to operating earnings of $10 million in the prior year. The Domestic segment had a decrease in operating earnings of $60 million, while the International segment had a decrease of $14 million. The decrease in Domestic and International operating earnings was principally due to declines in gross margin dollars.
  • Net loss was $111 million, compared to $60 million in the prior year primarily due to a decrease in gross margin dollars, partially offset by an increase in income tax benefit resulting from the increase in loss before income taxes, and a decline in SG&A.

Liquidity and Capital Spending

The company ended the first quarter with approximately $1.7 billion of liquidity, including cash and cash equivalents of $470 million and unused availability under committed lines of credit of $1.2 billion.

During the first quarter, the company invested $53 million primarily for store-related projects, opening of new stores and improvements to its information technology and logistics systems and capabilities, compared to $52 million in the prior year.

Further information regarding the company's financial performance in the first quarter of fiscal 2013 is presented in its quarterly report on Form 10-Q, which was filed with the Securities and Exchange Commission on June 14, 2013.

1 A detailed description and reconciliation of EBITDA and Adjusted EBITDA, and management's reasons for using these measures, are set forth at the end of this press release.

About Toys"R"Us, Inc.

Toys"R"Us, Inc. is the world's leading dedicated toy and juvenile products retailer, offering a differentiated shopping experience through its family of brands. Merchandise is sold in over 870 Toys"R"Us and Babies"R"Us stores in the United States and Puerto Rico, and in more than 665 international stores and over 160 licensed stores in 35 foreign countries and jurisdictions. In addition, it exclusively operates the legendary FAO Schwarz brand and sells extraordinary toys in the brand's flagship store on Fifth Avenue in New York City. With its strong portfolio of e-commerce sites including,, and, it provides shoppers with a broad online selection of distinctive toy and baby products. Headquartered in Wayne, NJ, Toys"R"Us, Inc. employs approximately 68,000 associates annually worldwide. The company is committed to serving its communities as a caring and reputable neighbor through programs dedicated to keeping kids safe and helping them in times of need. Additional information about Toys"R"Us, Inc. can be found on

Forward-Looking Statements

All statements that are not historical facts in this press release, including statements about our beliefs or expectations, are forward-looking statements. These statements are subject to risks, uncertainties and other factors, including, among others, the seasonality of our business, competition in the retail industry, changes in our product distribution mix and distribution channels, general economic factors in the United States and other countries in which we conduct our business, consumer spending patterns, our ability to implement our strategy, the availability of adequate financing, access to trade credit, changes in consumer preferences, changes in employment legislation, our dependence on key vendors for our merchandise, political and other developments associated with our international operations, costs of goods that we sell, labor costs, transportation costs, domestic and international events affecting the delivery of toys and other products to our stores, product safety issues including product recalls, the existence of adverse litigation, changes in laws that impact our business, our substantial level of indebtedness and related debt-service obligations, restrictions imposed by covenants in our debt agreements and other risks, uncertainties and factors set forth in our reports and documents filed with the Securities and Exchange Commission (which reports and documents should be read in conjunction with this press release). In addition, we typically earn a disproportionate part of our annual operating earnings in the fourth quarter as a result of seasonal buying patterns and these buying patterns are difficult to forecast with certainty. Forward-looking statements speak only as of the date when made, and we undertake no obligation to update these statements in light of subsequent events or developments unless required by the Securities and Exchange Commission's rules and regulations. Actual results and outcomes may differ materially from anticipated results or outcomes discussed in forward-looking statements.

# # #

13 Weeks Ended

(In millions)

      May 4,


April 28,


Net sales $ 2,408 $ 2,612
Cost of sales   1,508     1,615  

Gross margin

  900     997  
Selling, general and administrative expenses 886 898
Depreciation and amortization 100 100

Other income, net

  (13 )   (11 )
Total operating expenses   973     987  
Operating (loss) earnings (73 ) 10
Interest expense (114 ) (112 )
Interest income   3     4  
Loss before income taxes (184 ) (98 )
Income tax benefit   73     38  
Net loss $ (111 ) $ (60 )


(In millions)     May 4,


February 2,


  April 28,


Current Assets:
Cash and cash equivalents $ 470 $ 1,118 $ 609
Accounts and other receivables 275 255 276
Merchandise inventories 2,329 2,229 2,327
Current deferred tax assets 102 104 127
Prepaid expenses and other current assets   169   136   168
Total current assets 3,345 3,842 3,507
Property and equipment, net 3,791 3,891 4,006
Goodwill 443 445 447
Deferred tax assets 246 244 278
Restricted cash 44 16 30
Other assets   454   483   564
Total Assets $ 8,323 $ 8,921 $ 8,832
Current Liabilities:
Accounts payable $ 1,273 $ 1,379 $ 1,332
Accrued expenses and other current liabilities 761 900 790
Income taxes payable 8 53 32
Current portion of long-term debt   107   339   1,471
Total current liabilities 2,149 2,671


Long-term debt 5,086 4,990 4,013
Deferred tax liabilities 127 135 152
Deferred rent liabilities 357 356 349
Other non-current liabilities 229 235 236
Temporary equity 67 49 34
Total stockholders' equity   308   485   423

Total Liabilities, Temporary Equity and Stockholders' Equity

$ 8,323 $ 8,921 $ 8,832
13 Weeks Ended
(In millions)     May 4,


April 28,


Cash Flows from Operating Activities:
Net loss $ (111 ) $ (60 )
Adjustments to reconcile Net loss to Net cash used in operating activities:

Depreciation and amortization

100 100
Amortization and write-off of debt issuance costs 10 9
Deferred income taxes (18 ) 4
Other 1 4
Changes in operating assets and liabilities:
Accounts and other receivables 25 30
Merchandise inventories (125 ) (95 )
Prepaid expenses and other operating assets (37 ) (37 )
Accounts payable, Accrued expenses and other liabilities (213 ) (229 )
Income taxes payable and receivable   (93 )   (72 )
Net cash used in operating activities   (461 )   (346 )
Cash Flows from Investing Activities:
Capital expenditures (53 ) (52 )
Proceeds from redemption of debt securities 52 -
Purchases of debt securities (20 ) -
Increase in restricted cash (27 ) -
Proceeds from sales of fixed assets 8 6
Acquisitions   -     (5 )
Net cash used in investing activities   (40 )   (51 )
Cash Flows from Financing Activities:
Long-term debt borrowings 705 412
Long-term debt repayments (814 ) (107 )
Short-term debt borrowings, net (2 ) 3
Capitalized debt issuance costs (20 ) (2 )
Repurchase of common stock   (6 )   -  
Net cash (used in) provided by financing activities   (137 )   306  
Effect of exchange rate changes on Cash and cash equivalents   (10 )   (1 )
Cash and cash equivalents:
Net decrease during period (648 ) (92 )
Cash and cash equivalents at beginning of period   1,118     701  
Cash and cash equivalents at end of period $ 470   $ 609  

Non-GAAP Disclosure of EBITDA and Adjusted EBITDA

We believe Adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. Investors of the Company regularly request Adjusted EBITDA as a supplemental analytical measure to, and in conjunction with, the Company's GAAP financial data. We understand that investors use Adjusted EBITDA, among other things, to assess our period-to-period operating performance and to gain insight into the manner in which management analyzes operating performance.

In addition, we believe that Adjusted EBITDA is useful in evaluating our operating performance compared to that of other companies in our industry because the calculation of EBITDA and Adjusted EBITDA generally eliminates the effects of financing and income taxes and the accounting effects of capital spending and acquisitions, which items may vary for different companies for reasons unrelated to overall operating performance. We use the non-GAAP financial measures for planning and forecasting and measuring results against the forecast and in certain cases we use similar measures for bonus targets for certain of our employees. Using several measures to evaluate the business allows us and investors to assess our relative performance against our competitors.

Although we believe that Adjusted EBITDA can make an evaluation of our operating performance more consistent because it removes items that do not reflect our core operations, other companies, even in the same industry, may define Adjusted EBITDA differently than we do. As a result, it may be difficult to use Adjusted EBITDA or similarly named non-GAAP measures that other companies may use to compare the performance of those companies to our performance. The Company does not, and investors should not, place undue reliance on EBITDA or Adjusted EBITDA as measures of operating performance.

A reconciliation of Net loss to EBITDA and Adjusted EBITDA is as follows:

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