Videogame Sales Up For Toys “R” Us in First Quarter
After multiple quarters of lower videogame sales, Toys “R” Us reported late last week that sales in the category jumped 14.4% in its first quarter ended April 30. The company said overall sales increased 3.6% to $2.13 billion, but its loss widened to $41 million (19 cents per share) from $28 million (13 cents) a year ago.
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Despite the increased videogame sales, Toys “R” Us revealed in a 10-Q SEC filing that the gross margin at its U.S. toy store division fell 1.7% to 31.5% from a year ago, in part because of increased sales of lower-margin videogame hardware systems including Sony’s PS2 console and PSP handheld system, as well as the Nintendo DS dual- screen handheld system. Rivals Electronics Boutique and GameStop also recently said their overall margins were hurt in their most recent quarters by increased sales of lower-margin hardware. Toys “R” Us also said “sluggish sales” in seasonal and juvenile products hurt its U.S. Toy sales. Toys “R” Us said comparable store sales in the division dropped 0.7%.
The company said the gross margin at its International division dropped 0.4% to 37.6% because of “a higher video mix as a result of the product launch of the Nintendo [DS] in Europe and PlayStation Portable in Canada, coupled with increased price competitiveness and increased promotions to clear aged inventory.”
Sales at the company’s Toysrus.com online division jumped 20.8% to $64 million in the quarter thanks to sales “strong across all product categories,” it said. The division’s operating loss narrowed to $2 million from $5 million in Q1, it said. The company, however, remains locked in a legal battle with online partner Amazon.com.
The company plans a special shareholders meeting June 23 to approve its deal to go private. The retailer disclosed March 17 that it had signed a definitive agreement to sell all operations to an investment group led by affiliates of Kohlberg Kravis Roberts (KKR), Bain Capital Partners and Vornado Realty Trust - collectively known as Global Toys Acquisition - for $6.6 billion and the assumption of debt (CED March 18 p6).
Two lawsuits seeking class action status were filed against Toys “R” Us and some officers and board members in late March by the Iron Workers of Western Pa. Pension & Profit Plans and Jolly Roger Fund in Del., which challenged the Global deal. Toys “R” Us said in its 10-Q that the suits were consolidated April 20 and an amended complaint was filed May 18. The retailer also said the plaintiffs filed motions May 20 to expedite the proceedings and for a preliminary injunction against the merger. It said the motion to expedite discovery was granted and a preliminary injunction hearing is set June 17. Toys “R” Us moved to dismiss the suits June 2 and 3 but didn’t mention any follow-up. The company said it “believes that the complaint is without merit and intends to defend the lawsuit vigorously.”
Toys “R” Us CEO John Eyler said after our Thurs. deadline that “the company continues to expect to complete the merger by the end of July… subject to the adoption of the merger agreement by the company’s stockholders and the satisfaction of other closing conditions.”
Eyler also said the company ended Q1 with “a solid balance sheet and substantial liquidity.” He said Toys “R” Us ended the quarter with $1.9 billion in cash and equivalents, up $1 billion from a year ago. - Jeff Berman