TRU to Announce It Has No Plans to Close Significant Number of Stores
aNb Media’s Jim Silver recently met with Hank Mullany, the new president of the Toys “R” Us, U.S. business. Mullany shared some of his vision with Silver and made it abundantly clear that contrary to rumors you may have heard, at this time Toys “R” Us has no plans to close a significant number of stores. He did say that, like all retailers, they continue to regularly look at the performance of store locations to ensure they are meeting the needs of business, so some stores could close from time to time, primarily due to lease expirations.
TRU Reports Q4 and 2013 Results
Toys “R” Us, Inc., (TRU) reported its financial results for the fourth quarter and full year of fiscal 2013 ended February 1, 2014. For the fourth quarter, the company reported net sales of $5.3 billion and adjusted EBITDA of $505 million.
Antonio Urcelay, chairman of the board of directors and CEO, TRU, said in a statement, “It was a challenging year, with declines in both our Domestic and International segments. The U.S. business experienced the more significant downturn, primarily due to a decrease in net sales, margin pressure, and one-time items, including the write-down of excess and obsolete inventory as we take the necessary and prudent steps to improve the business.”
Urcelay continued, “Over the past several months, the team has been focused on developing our strategic plan, which we strongly believe will address foundational issues needed to stabilize the business over the short-term, while allowing us to implement new initiatives to put the company on track for profitable growth in the future. At the same time, we accelerated our expansion in China, where business has continued to be strong. The company ended the year with a strong liquidity position of approximately $1.8 billion and reduced our total long-term debt by $322 million to $5 billion. In addition, we are pleased that last week we successfully refinanced our $1.85 billion senior secured revolving credit facility, a key component of our capital structure. The execution of this transaction ensures our ability to appropriately fund the working capital needs of our operations at rates that are significantly lower than the prior revolving credit facility.”
Fourth Quarter 2013 Highlights
• Comparable store net sales were down 4.1 percent in the Domestic segment and 2.2 percent in the International segment. The overall decrease in comparable store net sales resulted primarily from decreases in the entertainment (which includes electronics, video game hardware and software), learning and juvenile (including baby) categories.
• Net sales were $5.3 billion, a decrease of $503 million or 8.7 percent compared to the prior year. TRU’s reporting period for the fourth quarter of fiscal 2013 included 13 weeks compared to 14 weeks in the prior year, with the extra week in the prior year accounting for net sales of $152 million. Excluding the impact of the extra week in the prior year and foreign currency translation, which decreased net sales by $117 million, net sales declined $234 million or 4.1 percent.
• Gross margin, as a percentage of net sales, was 31.8 percent versus 34.1 percent in the prior year, a decrease of 2.3 percentage points primarily due to margin rate declines across all Domestic categories. The declines are due in part to the competitive pricing strategy and inventory clearance efforts, as well as an inventory write-down of $51 million recorded within the Domestic segment.
• Adjusted EBITDA was $505 million, compared to $717 million in the prior year, a decline of $212 million.
• Net loss was $210 million, compared to net earnings of $239 million in the prior year, a decrease of $449 million. The decline was mainly attributable to $378 million of goodwill impairment and a $296 million decrease in gross margin dollars, which included an inventory write-down of $51 million recorded within the Domestic segment. Partially offsetting the decrease was a $200 million decline in income tax expense predominantly due to the decrease in earnings before income taxes.
Full Year 2013 Highlights
• Comparable store net sales were down 5 percent in the Domestic segment and 3.3 percent in the International segment. The overall decrease in comparable store net sales resulted primarily from decreases in the juvenile (including baby), entertainment (which includes electronics, video game hardware, and software) and learning categories.
• Net sales were $12.5 billion, a decrease of $1 billion or 7.4 percent compared to the prior year. Our reporting period for fiscal 2013 included 52 weeks compared to 53 weeks in fiscal 2012, with the extra week in the prior year accounting for net sales of $152 million. Excluding the impact of the extra week in the prior year and foreign currency translation, which decreased net sales by $329 million, net sales declined $519 million or 3.8 percent primarily as a result of a decrease in comparable store net sales, partially offset by an increase in net sales from new stores in the International segment.
• Gross margin, as a percentage of net sales, was 35 percent versus 36.6 percent in the prior year, a decrease of 1.6 percentage points primarily due to margin rate declines across all Domestic categories. The declines are due in part to the competitive pricing strategy and inventory clearance efforts, as well as an inventory write-down of $51 million recorded within the Domestic segment. Partially offsetting these decreases was an increase in vendor allowances recorded within the International segment and improvements in sales mix away from lower margin products within the Domestic and International segments, predominantly in the entertainment category. Gross margin dollars were $4.389 billion, compared to $4.951 billion in the prior year, a decrease of $562 million. Foreign currency translation decreased gross margin dollars by $110 million.
• Adjusted EBITDA for fiscal 2013 was $588 million, compared to $1.015 billion in the prior year, a decline of $427 million.
• Net loss was $1 billion, compared to net earnings of $38 million in the prior year. The decline was mainly attributable to two significant non-cash charges, goodwill impairment of $378 million and an increase of $349 million in non-cash charges associated with the valuation allowance on deferred tax assets as the company has determined it is more likely than not that these assets will not be realized in the foreseeable future. Excluding these items, the company would have a net loss of $312 million for fiscal 2013 primarily due to a decrease in gross margin dollars of $562 million, which included an inventory write-down of $51 million recorded within the Domestic segment.
Liquidity and Debt
The company ended the year with cash and cash equivalents of $644 million and unused availability under committed lines of credit of $1.2 billion, which aggregated to approximately $1.8 billion of total liquidity. Net cash provided by operating activities for fiscal 2013 was $144 million, a decrease of $393 million compared to the prior year amount of $537 million, primarily driven by the current year net loss.
Total long term debt, including the current portion, was $5 billion, a decrease of $322 million from the prior year balance of $5.3 billion, primarily due to the partial repayments of the United Kingdom and French credit facilities in conjunction with their respective refinancings, as well as current year loan amortization payments and prepayments associated with the company’s outstanding debt.