Toys `R' Us to buy back up to $1 billion worth of stock, do Japanese IPO

Action intended to revive company's much depressed stock

Tonic for shares

March 21, 2000|By BLOOMBERG NEWS

PARAMUS, N.J. --Toys `R' Us Inc., whose shares have fallen two-thirds in three years, said it plans to buy back as much as $1 billion of its stock and take its Japanese unit public.

The buyback, which could amount to one-third of shares outstanding, and the initial sale in Japan are aimed at boosting a stock that has fallen from $37.125 in November 1996. Yesterday, the shares rose $1.0625 to $13.50.

The steps are the latest by John Eyler, who took over as president and chief executive officer in January, to reinvigorate the largest U.S. toy store chain.

Eyler has named new executives, brought in an investor for Toys `R' Us' Web site and announced plans to woo back shoppers lost to Wal-Mart Stores Inc. by offering toys before rivals and changing store designs.

"They're being pretty aggressive about trying to get their stock price back up," said Grodsky Associates' Sheldon Grodsky, who rates the shares a "strong buy." "It's extremely cheap, and they're trying to unlock some value."

The shares trade at 9.5 times estimated earnings, less than the Standard & Poor's 500 index's price-to-earnings ratio of 25.

Based on Friday's closing price of $12.4375, the repurchase would amount to about 33 percent of the retailer's 245.4 million diluted shares outstanding as of the fiscal year that ended Jan. 29.

Toys `R' Us has $6 million left under an earlier $1 billion buyback plan.

The company plans to sell shares of Toys `R' Us Japan Ltd. in Japan during the first half of this fiscal year. It operates 93 stores in that country, which accounted for about 10 percent of Toys `R' Us' $11.86 billion in sales last fiscal year. The stock offering by Japan's largest toy chain could raise at least $200 million for Toys `R' Us, analysts estimated.

Eyler, who was chairman of rival FAO Schwarz, has been quickly remaking Toys `R' Us. Two weeks ago, he named a new president of U.S. toy stores in a reorganization of senior executives.

He also detailed plans to revive sales, which rose 1.8 percent in the fiscal fourth quarter that included the Christmas holiday season. Those include changing the goods offered in toy stores -- such as adding clothing -- and making sure that stores do not run out of the top-selling 1,000 items during the holiday season.

Last month, the company struck an agreement with Japan's Softbank Corp., one of the biggest Internet investors, to invest about $57 million in the online unit.

The company's shares in January slumped to $9.875, the lowest level in 15 years. Toys `R' Us has 1,552 stores worldwide, including Babies `R' Us, Kids `R' Us and Imaginarium.

Toys `R' Us opened its first store in Japan in December 1991, becoming the first large-scale U.S. retailer there. That helped the company break through Japan's complex distribution system to sell toys at prices below its competitors.

Twenty percent of the unit is owned by a McDonald's Corp.'s Japanese venture. The business -- Toys `R' Us-Japan -- will offer the shares pending approval by the Japanese government and market conditions. Toys `R' Us will hold less than a 50 percent stake after the initial and subsequent stock sales.

Toys `R' Us said it will repurchase shares in the open market and through private transactions. Funding for the buyback will come from a variety of sources, including cash generated from operations, the company said.

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