Toys R Us holiday sales down slightly

TRENTON, N.J. - Toy sales dipped 1.4 percent during the crucial holiday sales period at struggling Toys R Us Inc., which saw tiny decreases in U.S., international and Internet revenues, but may have gained some market share because of price discounts and selection.

The nation's No. 2 toy retailer, which has been struggling against discounters such as No. 1 toy seller Wal-Mart Stores Inc., said Thursday it won't immediately discuss whether it will pursue splitting its global toy business from its Babies R Us chain, which sells baby furniture, clothes and accessories.

Wayne-based Toys R Us had said in August that it would separate the two businesses in the first half of 2005. On Thursday, Chief Executive Officer John Eyler said he expects a strategic review to be finished in the first half of the year, after which the company's board of directors will decide what steps to take.

"The strategic review is designed to ensure that, irrespective of ownership, our business model is one to ensure viability," Eyler told analysts during a conference call.

The company said U.S., international and Toysrus.com sales for the nine-week period ending Jan. 1 totaled $3.89 billion, down from $3.95 billion in the year-ago holiday period. Including a boost from favorable currency exchange rates, global toy sales for the 2004 holiday season totaled $3.99 billion.

Total net sales, including higher revenues from Babies R Us, slipped 0.9 percent to $4.29 billion for the nine weeks ending Jan. 1, 2005, compared to $4.33 billion for the nine weeks that ended January 3, 2004.

"We view this holiday season as a successful one, given the environment that we're operating in," Eyler said.

He said the industry estimates that sales of traditional toys declined by about 5 percent in 2004, while the video game business struggled because of a shortage of game systems.

Early information from the company's toy makers and other vendors, meanwhile, indicates Toys R Us may have slightly increased its market share.

For the nine weeks ending Jan. 1, Toys R Us said comparable U.S. toy store sales - sales at stores open at least one year - fell 2.2 percent, comparable international store sales were down 0.7 percent, and sales for the Toysrus.com division fell 3.3 percent.

Eyler said he hoped the just-completed holiday season was the end of a several-year downturn in toy sales, noting that retailers battled particularly hard on price this time.

"We were very price competitive, often being cited as having lower prices" than rivals, he said.

Eyler also said the company did a better job than its competitors of keeping hot toys in stock.

Those products included Hokey Pokey Elmo, various learning software, Dora the Explorer products such as a bilingual talking dollhouse and Hasbro's portable player for miniature DVDs of kids' TV shows.

Another bright spot was the Babies R Us division, which posted an increase of nearly 8 percent in net sales over the nine weeks, from $274 million to $295 million.

But the company's closure of all 146 Kids R Us clothing and accessories stores, nearly all of which have been sold, reduced holiday season sales by $102 million, or slightly more than 2 percent.

Eyler said the company had reduced U.S. toy store inventory by about 20 percent through clearance sales on discontinued and older products, and that it had a strong balance sheet and good liquidity.

Toys R Us shares rose 8 cents, or 0.4 percent, to close at $20.50 Thursday on the New York Stock Exchange.