Kids `R' Us, Imaginarium chains to close

Parent Toys `R' Us battling growing losses

November 18, 2003|By BLOOMBERG NEWS

Toys "R" Us Inc., the second-largest U.S. toy retailer, said yesterday that it will close its money-losing Kids "R" Us and Imaginarium chains, eliminating about 3,800 jobs. The company's shares plunged after its third-quarter loss unexpectedly widened and it cut its annual profit forecast.

The 146 Kids "R" Us clothing stores - including five in Maryland - and 36 Imaginariums will be closed by the end of January. Three distribution centers also will be closed. Toys "R" Us will incur about $280 million in pretax costs, the Wayne, N.J.-based company said in a statement.

Chief Executive Officer John Eyler said he decided to close the businesses after results worsened faster than the company expected. Kids "R" Us has lost money for the past three years as same-store store sales have fallen.

Eyler, who finished remodeling more than 600 U.S. Toys "R" Us stores last year, has failed to attract shoppers amid competition from discounter Wal-Mart Stores Inc., analysts said.

"They can cut some costs and expenses," said Touk Praseuthsy, an analyst at Ariel Capital Management, which manages about $9.7 billion in assets and is Toys "R" Us' fifth-largest shareholder with 7.4 million shares as of September. "The driver is going to have to be top-line growth. They need to bring more people into the stores."

The retailer's third-quarter net loss of $38 million, or 18 cents a share, was twice as big as analysts surveyed by Thomson Financial had expected. Sales rose 2.2 percent $2.32 billion in the quarter that ended Nov. 1, helped by the declining dollar. Toys "R" Us had a net loss of $28 million, or 13 cents, a year earlier on $2.27 billion in sales.

Shares of Toys "R" Us, which has 1,629 stores and had 65,000 employees as of February, fell $1.56, or 12 percent, to $11.18, their largest daily percentage drop in more than a year.

Some of the Kids "R" Us locations being closed might be converted to Babies "R" Us stores. That chain is the best-performing unit at the company. Same-store sales at Babies "R" Us climbed 3 percent in the third quarter.

The company will try to relocate some Kids "R" Us and Imaginarium employees to other divisions, spokeswoman Susan McLaughlin said.

Kids "R" Us, which accounted for about 4 percent of Toys "R" Us's total sales of $11.3 billion last year, was started in 1983, and the retailer acquired Imaginarium, which sells educational toys, in 1999, McLaughlin said.

The Imaginarium sections inside Toys "R" Us chains will remain open. Imaginarium is about a $30 million business, Eyler said in an interview. The company will continue to sell clothing at its Toys "R" Us and Babies "R" Us stores.

The company trimmed its annual profit estimate to $1.05 to $1.15 a share, excluding costs for store closings and an accounting change, from an earlier forecast of $1.15. Toys "R" Us had net income of $229 million, or $1.09, last year.

Wal-Mart passed Toys "R" Us to become the largest U.S. toy seller in 1998.

Maryland Kids `R' Us stores scheduled to close:

20 Mountain Road, Glen Burnie

8641 Philadelphia Road, Rosedale

3500 East West Highway, Hyattsville

11818 Rockville Pike, Rockville

10901 Georgia Ave, Wheaton

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