TRENTON, N.J. — Toy and children's retailer Toys "R" Us Inc. said Monday that its third-quarter loss widened due to higher overhead and stagnant sales, and announced plans to close 182 Kids "R" Us and Imaginarium stores, cutting up to 3,800 U.S. jobs.
The loss reported Monday by the nation's No. 2 toy retailer behind Wal-Mart Stores Inc. was larger than expected, and Toys "R" Us lowered its earnings forecast. Shares fell $1.56, or 12 percent, to close at $11.18 on the New York Stock Exchange.
The company, based in Wayne, N.J., will close all 146 of its freestanding Kids "R" Us clothing stores by Jan. 31. It also will shutter all 36 freestanding Imaginarium stores, which feature educational toys, and three distribution centers that serve those divisions. That amounts to 11 percent of its 1,629 stores worldwide.
"We didn't see a future for those stores. They have ceased to contribute to the company," and efforts to reposition them over several years didn't work, said John Eyler, chairman and chief executive.
Company spokeswoman Pam Faatz told the Deseret Morning News that all three free-standing Kids "R" Us stores in Utah will close. Those stores are located in Murray, Riverdale and Orem.
Most closures should take place by Jan. 31, 2004, and all will be completed by the end of the first quarter in 2004, Faatz said. She did not say how many Utah employees would be affected.
The changes will bring restructuring and other charges totaling roughly $280 million, most of which will be recorded this quarter. The company said the closures should raise operating earnings about $8 million next year and $20 million annually after that.
For the quarter ended Nov. 1, the company said it had a net loss of $38 million, or 18 cents per share, versus a loss of $27 million, or 13 cents per share, a year earlier.
Excluding a charge for an accounting change, the net loss would have been $27 million, or 13 cents per share, 4 cents worse than the forecast of analysts polled by Thomson First Call.
Revenue totaled $2.32 billion, up 2.2 percent from $2.27 billion a year ago. However, sales were flat excluding a boost from currency exchange rates.
Standard & Poor's changed the company's credit rating to a negative outlook. With its long-term rating currently at the lowest investment grade level, BBB-, any move down would shift Toys "R" Us' credit rating to speculative grade.
"The outlook change is really due to the deterioration of the U.S. toy business and growing concern that the holiday business in 2003 will not meet Standard & Poor's expectations," said its retail credit analyst, Diane Shand.
She said the company's performance has been inconsistent since competition heated up in 1995, primarily from Wal-Mart, but Toys "R" Us has a lot of financial flexibility and "the closing of the stores is a positive for them because they'll get money from selling the real estate" and cut losses.
In the U.S. toy store division, sales at stores open at least a year — a key indicator of a retailer's health — were down 3 percent. That reflected an 18 percent drop in video game sales, due to lower prices on game systems and fewer new family oriented games, said Rick Markee, president of U.S. toy stores.
Eyler said his company has lowered toy prices after being surprised at how early Wal-Mart began discounting toys.
"We are better positioned from a pricing point of view than we were last year," Eyler said.
Toys "R" Us also should have plenty of toys shortly before Christmas, when competitors run out of popular items, he said, and about 20 percent of its toys are exclusive items.
"This season is going to be very telling . . . as to whether they can gain ground" over competitors, said Joseph Beaulieu, senior stock analyst at Morningstar. "This is really the first Christmas season they've had where all the parts of their turnaround have been in place," including store remodelings, tighter inventory management and a better-trained staff.
In the 569-store international division, same-store sales in local currencies increased 1.7 percent in the third quarter. The Babies "R" Us business posted a 3 percent increase in same-store sales.
But the Kids "R" Us business reported an 11.4 percent decline in same-store sales and a 13 percent drop in total revenue. One reason may be that Toys "R" Us has been expanding its clothing business and Imaginarium areas within Toys "R" Us and Babies "R" Us stores for a few years.
Company spokeswoman Susan McLaughlin said layoffs of the 3,800 workers will be timed with the store closings.