8.30am
NEW YORK - Retailer Toys R Us, slammed by intense competition from discounters such as Wal-Mart, may sell its toy business and focus on its fast-growing Babies R Us unit, the company said Wednesday.
Toys R Us, whose shares fell 6 per cent on the news but later recovered, said it
plans to separate the ownership of its two businesses and is looking at many ways to accomplish this, including a spin-off of Babies R Us.
By separating the businesses, Babies R Us would be able to thrive and build on its core market of supplying not just baby toys, but gear like bedding, furniture, strollers and clothes to expectant and new parents.
The toy business, which targets a much different customer, will face a dramatic cut in operating expenses and capital in an effort to boost its cash flow, the company said.
Prudential analyst Mark Rowan described the move as "extremely positive" and said one of the critical pieces to unlocking shareholder value in Toys R Us is separating its "crown jewel, Babies R Us."
Toys R Us has nearly 700 toy stores in the United States and about 600 abroad. Babies R Us, the largest baby product specialty store chain in the world, has 200 US stores. The company already shut its Kids R Us and Imaginarium stores.
Toys R Us plans to take about $150 million in markdowns in the second quarter, mostly to liquidate some US toy store inventory, and said will wait until the end of the holiday season to decide on store closures.
Analysts expect 100 to 200 toy stores will be closed.
"For them to say they're not making a decision on closing stores before holidays is surprising," said Seam McGowan, an analyst with Harris Nesbitt. "Sure, it's before the holiday season, but after 2003, what more do we need to find out?"
The 2003 holiday season was brutal for toy retailers, with aggressive price cuts on hot items eating into profits.
The company's toy operations have grappled with competition from big discounters like Wal-Mart Stores Inc. (WMT.N: Quote, Profile, Research) and Target Corp. (TGT.N: Quote, Profile, Research) . Price wars among toy retailers led to bankruptcy for FAO Inc., parent of the upscale FAO Schwarz toy stores and mall-based retailer KB Toys.
"They're proving that discounters won that battle" for toy customers, said Ken Harris, a consultant with Cannondale Associates. "It may have ramifications greater than just the toy industry," he added, noting that specialty retailers had managed to compete with Wal-Mart by offering greater selection or expertise in a particular category.
"All of the sudden a company like Wal-Mart that sells more than just toys beats them at their own game. That's a fairly resounding wake-up call for most retailers."
John Eyler will keep his job as chairman and chief executive of the whole company and Ray Arthur will continue in his role as chief financial officer. Richard Markee, who was president of US toy stores, will become CEO and president of Babies R Us upon separation of the business.
John Barbour, who is now president of Toys R Us International, will replace Markee as head of US toy stores.
Right after taking the helm of Toys R Us in 2000, Eyler cut costs, remodeled stores, improved customer service and freshened inventory, but none of these changes have been enough to turn the retailer around.
Toys R Us will also "substantially restructure" its corporate headquarters, a posh new campus in Wayne, New Jersey, and said it recorded about $14 million in severance and other related charges, with additional charges expected.
The company's shares slipped 27 cents to $16.15 on the New York Stock Exchange after falling to $15.43 earlier in the session.
8.30am
NEW YORK - Retailer Toys R Us, slammed by intense competition from discounters such as Wal-Mart, may sell its toy business and focus on its fast-growing Babies R Us unit, the company said Wednesday.
Toys R Us, whose shares fell 6 per cent on the news but later recovered, said it
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