TRENTON, N.J. Toys 'R' Us cuts losses in second quarter, aims to improve with holiday season

Toys 'R' Us says it is disappointed in the performance of its toy stores.
TRENTON, N.J. (AP) -- Giant toy retailer Toys "R" Us Inc. said Monday it cut its second-quarter loss by a third as higher sales for its Internet, international and baby products divisions helped offset rising overhead expenses and slumping sales at its U.S. toy and children's apparel stores. Its stock jumped 7 percent on the news.
Toys "R" Us, the nation's No. 2 toy retailer, said its net loss for the quarter ending Aug. 2 was $11 million, or 5 cents per share. That matched the consensus forecast of analysts surveyed by Thomson First Call.
In the year-ago quarter, Toys "R" Us, which is consolidating corporate and division headquarters from several Northern New Jersey locations to one in Wayne, posted a net loss of $17 million, or 8 cents per share.
The company said excluding an accounting change involving vendor credits and allowances for cooperative advertising, its second-quarter net loss would have been $5 million, or 2 cents per share.
"I'm cautiously optimistic that they'll have a better second half than they did last year, given the changes that are being made to stores and the improvement in the economy," said Margaret Whitfield, toy and retail analyst at Brean Murray & amp; Co.
Ups and downs
Total sales for the quarter hit $2.14 billion, up 3.3 percent from $2.07 billion a year earlier, despite the weak economy and tough competition. Excluding the effect of favorable currency exchange rates, revenues rose 0.6 percent.
Comparable toy store sales rose 4 percent for both the Babies "R" Us and international divisions, but fell 9 percent at the company's Kids "R" Us stores, 37 of which were closed under a restructuring announced in January 2002, said John Eyler, chairman and chief executive officer.
Toysrus.com recorded a 21 percent sales increase, to $51 million, but the company's largest division, which operates 679 U.S. toy stores, saw comparable store sales decline 2.4 percent to $1.4 billion.
Whitfield said the weak spot in U.S. toy stores was the 18 percent decline in revenues from video products, partly due to price markdowns for gaming systems. Whitfield said the company will benefit from fall launches of many new video games, including more for younger kids more likely to buy at Toys "R" Us than a mall.
Recovery
"We are not satisfied with the performance of our U.S. toy stores during the first half," said Rick Markee, who became president of U.S. toy stores in May.
Markee said his team has been working on marketing plans and picking the best toys and other products for the holiday season to help the division recover, but would not give details.
Toys "R" Us also continues to cut costs and inventory levels, improve its balance sheet and strengthen management; it has replaced about half its store and district managers in the last 18 months, Eyler said. By late October, it will have 1,100 "toy box" stores inside Albertsons' grocery and drug stores around the country.
On track
For the first six months, the company posted a net loss of $18 million, or 8 cents per share; those results were reduced by 4 cents per share due to a first-quarter charge for severance costs related to about 200 corporate jobs eliminated earlier this year. A year ago, Toys "R" Us reported a loss of $3 million, or 2 cents per share.
Sales for the first six months totaled $4.31 billion, up from $4.17 billion in the first six months of 2002.
"We remain on track for Toys "R" Us to achieve another profitable fourth quarter and full year," said Eyler, who took over what he termed a "badly broken" company three years ago.