aNb Media News, December 16, 2015

TRU Reports Q3 2015

Toys “R” Us, Inc., (TRU) reported financial results for the third quarter ended October 31, 2015. Consolidated Adjusted EBITDA improved by $31 million, which benefited from significant SG&A savings. Domestic segment operating performance improved from a loss of $16 million to earnings of $9 million. International continued its same store sales growth for the seventh consecutive quarter. Since the inception of the “Fit for Growth” initiative in 2014, TRU has realized $248 million in savings, or 76 percent of the $325 million target, with the balance expected to be achieved by the end of fiscal 2016.

“Our third quarter results demonstrate the continued progress we are making to position the company for growth,” said Dave Brandon, chairman and CEO, Toys “R” Us, Inc. “As we enter the final 10 days of the holiday-selling period, we are focused on the flawless execution of our plan to ensure customers have an enjoyable shopping experience and find the hottest toys in-stock, no matter how they choose to shop with us. I am extremely proud of our team members across the globe who are working tirelessly to help make this Christmas truly awesome for children of all ages.”

Third Quarter Highlights

  • Consolidated net sales were $2,331 million, a decrease of $128 million compared to the prior-year period. Excluding a $127 million negative impact of foreign currency translation, net sales were in line with the prior-year period. The flat net sales resulted from increases in same-store sales in the International segment, partially offset by a decline in same-store sales in the Domestic segment. Net sales also benefited from new stores Internationally, offset by Domestic store closures.
  • Consolidated same store sales increased by 0.6 percentage points led by International same store sales growth of 2.9 percent, which was driven by improvement in the learning and baby categories. Domestic same-store sales were down 0.9 percent due to a decline in the baby and entertainment (which includes electronics, video game hardware, and software) categories, partially offset by an increase in the learning category.
  • Gross margin dollars were $832 million, compared to $908 million for the prior-year period, a decrease of $76 million. Excluding a $47 million negative impact from foreign currency translation, gross margin dollars decreased by $29 million. Gross margin, as a percentage of net sales, was 35.7 percent, a decline of 1.2 percentage points versus the prior-year period. Domestic gross margin rate decreased by 1.3 percentage points primarily as a result of competitive pricing and a shift in sales mix towards lower margin licensed products. International segment gross margin rate declined by 1.1 percentage points, primarily due to increased cost of U.S. dollar denominated merchandise purchases.
  • Selling, general, and administrative expenses (SG&A) decreased by $104 million to $827 million, compared to $931 million in the prior-year period. Excluding a $40 million favorable impact from foreign currency translation, SG&A decreased by $64 million, primarily due to a $25 million reduction in advertising and promotional expenses, a $24 million decrease in payroll expenses and a $10 million decline in occupancy costs, predominantly as a result of Domestic store closures.
  • Operating loss was $54 million, compared to $93 million in the prior-year period. Domestic and International segments’ operating earnings improved by $25 million and $12 million, respectively, primarily as a result of SG&A savings compared to the prior-year period. Corporate overhead decreased by $2 million.
  • Adjusted EBITDA improved by $31 million to $34 million, compared to $3 million in the prior-year period.
  • Net loss was $167 million, compared to a net loss of $213 million in the prior-year period, an improvement of $46 million.

Liquidity and Capital Spending

TRU ended the third quarter with total liquidity of $1.4 billion, comprised of cash and cash equivalents of $396 million and availability under committed lines of credit of $1 billion. Toys “R” Us-Delaware, Inc., ended the third quarter with $923 million of liquidity, which included cash and cash equivalents of $143 million.

Through the end of the third quarter of fiscal 2015, TRU invested $139 million in capital improvements, primarily to information technology, existing stores, and distribution centers, which is consistent with the prior-year period.

Mattel, DHX Media in Content Deal

DHX Media, Ltd. and Mattel, Inc., announced a new, long-term partnership for the development, production, and distribution of a range of new, multi-platform content inspired by key Mattel properties Bob the Builder, Fireman Sam, Little People, and Polly Pocket.

“Today’s announcement is a major step forward in our ongoing strategy to dramatically accelerate content creation and distribution on a global scale,” said Catherine Balsam-Schwaber, chief content officer of Mattel. “As a recognized leader in kids and family entertainment, DHX is ideally suited to help us maximize content creation and distribution across multiple channels and geographies. Importantly, this relationship also creates the potential for future content, licensing, and franchise development collaborations between Mattel and DHX.”

Under the terms of the partnership, Mattel and DHX Media will jointly fund, co-develop, and co-produce new episodic, short-form, and long-form content for the Mattel properties, designed for a variety of traditional and digital platforms. With Mattel’s additional expertise in brand franchise management, strategy, and consumer product licensing, and with DHX’s strength in global content distribution and creation, the companies will drive new production and growth for select Mattel properties.

The partnership, which covers multiple revenue streams, takes effect January 1, 2016. DHX Distribution will manage global sales of existing and new content for Bob the Builder, Fireman Sam, Little People, and Polly Pocket under the partnership. DHX Studios will collaborate with Mattel to develop and produce multiple new seasons of content for the properties. Mattel will oversee global brand management and all other lines of business.

Hasbro, Paramount in Feature Film Deal

Paramount Pictures and Hasbro, Inc., announced a deal to collaborate on feature films for five of Hasbro’s iconic properties. Under the agreement, Paramount and Allspark Pictures, Hasbro’s film label, will establish a cross-property interconnected onscreen universe, featuring Hasbro brands G.I. JOE, Micronauts, Visionaries, M.A.S.K. (Mobile Armored Strike Kommand), and ROM.

“Paramount and Hasbro have had a longstanding relationship and we’re proud of the success we’ve enjoyed on the Transformers and G.I. JOE franchises,” said Brad Grey, chairman and CEO of Paramount Pictures. “We’re excited to grow our agreement and make even more movies based upon these popular and powerful Hasbro characters and their worlds.”

Allspark Pictures, Hasbro’s film label, will produce the films and Brian Goldner (chairman, president and CEO, Hasbro), Stephen Davis (executive vice-president and chief content officer, Hasbro), and Josh Feldman (head of film development, Hasbro) have worked closely with Paramount in shaping the vision.