KING OF PRUSSIA, Pa. - FAO Inc., owner of FAO Schwarz and Zany Brainy toy stores, said yesterday that sales and profit for the year will be less than its forecasts because of slower consumer spending. The company's shares fell 16 percent.
Sluggish demand in the third quarter continued into the early part of the current period, FAO said in a statement.
The King of Prussia-based retailer said it will give reduced forecasts for the 12 months ending Feb. 2 and an outlook for the next fiscal year when it releases third-quarter results in mid-December.
The fourth quarter is crucial for toy retailers because that is when they usually generate half of their annual revenue. FAO has added car seats and Right Start boutiques featuring items for infants and toddlers to its Zany Brainy stores to lift sales. It's also using promotions, such as 20 percent off some Legos, to lure shoppers, said Chief Financial Officer Raymond Springer.
"We have a very strong marketing effort that runs through the holidays," Springer said. "We are hopeful that it's very successful."
Springer declined to elaborate on FAO's reduced forecasts, saying the company will provide details on Dec. 16.
FAO cut its full-year sales estimate in September, to as little as $535 million from as much as $585 million.
It said then that earnings before interest, taxes, depreciation and amortization would be $13 million to $18 million, down from a previous forecast of as much as $25 million.
FAO shares dropped 45 cents to $2.30 on the Nasdaq stock market. The shares are down 44 percent this year.
Consumer spending has slowed in 2002 on concern about job cuts and stock market declines. That has prompted retailers to lower prices by as much as 80 percent to kick off the holiday-shopping season and lure budget-conscious shoppers.
Earlier this week, FAO said it will stop selling video games at its 170 Zany Brainy stores because most games are too violent for younger children. FAO Inc., with 253 stores nationwide, was created when Right Start Inc. bought FAO Schwarz earlier this year.