TRU Reports Q2
Toys “R” Us, Inc., reported financial results for the second quarter ended August 1, 2015. In the second quarter, consolidated adjusted EBITDA grew 47 percent, benefited by SG&A savings from the Fit for Growth initiative. Domestic operating performance improved significantly and domestic gross margin rate remained strong. International continued its positive comparable store net sales trend with particular strength in Canada, Central Europe, China, and Southeast Asia.
“In the two months I’ve been here, I have been impressed with the work done by the team to right-size the cost structure and position the company for growth,” said Dave Brandon, chairman and CEO, Toys “R” Us, Inc. “Now, the focus turns to solidifying our roadmap for the future and ensuring we have the right talent and structure in place to move quickly. I am excited to be here and confident in our ultimate success.”
Second Quarter Highlights
• Consolidated net sales were $2.293 billion, a decrease of $147 million compared to the prior-year period. Excluding a $144 million negative impact of foreign currency translation, net sales declined $3 million. The relatively flat net sales resulted from an increase in International comparable store net sales, offset by a decrease in Domestic comparable store net sales.
• International comparable store net sales were up 3.3 percent primarily driven by increases in the learning, baby, and core toy categories, partially offset by a decrease in the entertainment category (including electronics, video game hardware, and software). Domestic comparable store net sales were down 2.5 percent primarily due to a planned decrease in promotional activity. While core toy category sales increased, TRU says it experienced declines in the baby, entertainment, and seasonal categories.
• Gross margin dollars were $875 million, compared to $916 million for the prior-year period, a decrease of $41 million. Excluding a $58 million negative impact from foreign currency translation, gross margin dollars increased by $17 million. Gross margin, as a percentage of net sales, was 38.2 percent an increase of 0.7 percentage points versus the prior-year period. The gross margin improvement was attributable to the Domestic segment, which increased by 1.5 percentage points to 36.2 percent as a result of a prior-year $19 million loss on previously identified clearance inventory. International segment gross margin, as a percentage of net sales, decreased by 0.6 percentage points.
• Selling, general, and administrative expenses (“SG&A”) decreased by $82 million to $796 million, compared to $878 million in the prior-year period. Excluding a $50 million favorable impact from foreign currency translation, SG&A decreased by $32 million, primarily due to a $15 million decline in store payroll expenses, a $9 million decrease in advertising and promotional expenses, and a $6 million reduction in sponsor fees as a result of an amendment to the advisory agreement.
• Operating earnings were $15 million, compared to an operating loss of $42 million in the prior-year period. Domestic segment operating earnings improved by $57 million, primarily as a result of SG&A savings compared to the prior-year period. International segment operating performance and corporate overhead remained consistent compared to the prior-year period.
• Adjusted EBITDA was $122 million, compared to $83 million in the prior-year period, an improvement of $39 million.
• Net loss was $99 million, compared to a net loss of $148 million in the prior-year period, an improvement of $49 million.
Liquidity and Capital Spending
TRU ended the second quarter with total liquidity of $1 billion, comprised of cash and cash equivalents of $417 million and availability under committed lines of credit of $596 million. Toys “R” Us-Delaware, Inc., ended the second quarter with $648 million of liquidity, which included cash and cash equivalents of $151 million.
Through the end of the second quarter of fiscal 2015, TRU invested $82 million primarily for enhancements to information technology, store maintenance, and improvements to distribution centers, compared to $86 million in the prior-year period.