Toys"R"Us, Inc. Reports Results for the Full Year and Fourth Quarter of Fiscal 2016

WAYNE, N.J., April 12, 2017 /PRNewswire/ -- Toys"R"Us, Inc. today reported financial results for the full year and fourth quarter of fiscal 2016, which ended on January 28, 2017.  Consolidated Adjusted EBITDA¹ was $792 million for the full year, a decrease of $8 million compared to the prior year.

"Despite a strong start to the holidays, in the weeks following Black Friday we faced a combination of sluggish sales and intense promotional activity," said Dave Brandon, Chairman and Chief Executive Officer, Toys"R"Us, Inc.  "The widely recognized tough retail environment this holiday and continued weakness in the entertainment and baby categories contributed to the erosion of our top-line and an overall disappointing year.  However, with 2017 already well underway, we remain focused on improving in every area of our business.  We have a number of important initiatives planned this year, including the launch of our new webstore and the expansion of our joint venture with Fung Retailing in Asia, and some exciting plans with several of our vendor partners to bring innovation and excitement to our customers."

Full Year Fiscal 2016

• Consolidated net sales were $11,540 million, a decrease of $262 million compared to the prior year. The decline was primarily due to Domestic store closures, including our Times Square and FAO Schwarz flagship stores, and a decline in Consolidated same store sales.
• During the year we opened 29 Domestic stores, which included 27 outlet and express stores, and closed 16 stores. Internationally, we opened 73 stores and closed 17.
• Consolidated same store sales decreased by 1.4%. Domestic declined by 1.3% mainly attributable to the entertainment (which includes electronics, video game hardware and software) and baby categories, partially offset by an improvement of 2.5% in the toy categories, which includes seasonal, core toy and learning. International decreased by 1.6%, driven by declines in the Europe and Asia Pacific markets, partially offset by growth in Canada. The International decline was attributable to the entertainment, seasonal and core toy categories, partially offset by an improvement in the baby category.
• Gross margin dollars were $4,108 million, a decline of $118 million compared to the prior year. Gross margin rate was 35.6%, a decrease of 20 basis points. Domestic gross margin rate declined by 70 basis points, primarily due to higher shipping costs associated with an increase in e-commerce sales and an increase in inventory reserves. International gross margin rate increased by 60 basis points led by margin rate improvements in the core toy category and sales mix away from lower margin entertainment products, which also experienced a rate improvement on remaining product sales.
• SG&A decreased by $113 million to $3,480 million, compared to $3,593 million in the prior year. The decline was primarily due to a reduction in annual bonus expense and elimination of store operating costs from the closure of our Times Square and FAO Schwarz flagship stores.
• Operating earnings were $460 million, compared to $378 million in the prior year, an increase of $82 million. International segment operating earnings improved by $52 million, mainly due to a reduction in operating expenses and an increase in gross margin dollars. Corporate overhead was $100 million lower, driven by a $45 million gain on the sale of the FAO Schwarz brand, along with a reduction in annual bonus expense. Domestic segment operating earnings declined by $70 million, primarily as a result of reduced gross margin dollars, partially offset by SG&A savings.
• Adjusted EBITDA¹ was $792 million, compared to $800 million in prior year.
• The above results produced a Net loss of $36 million, which was $94 million lower than the prior year Net loss of $130 million.

Fourth Quarter Fiscal 2016

• Consolidated net sales were $4,661 million, a decrease of $192 million compared to the prior year period. The decrease was mainly attributable to a decline in Consolidated same stores sales and Domestic store closures, which included our Times Square flagship store.
• Consolidated same store sales were down 3.0%. Domestic decreased by 2.3% primarily due to declines in the entertainment and baby categories, partially offset by improvements in the learning, seasonal and core toy categories. International was down 4.2%, with notable weakness in Europe for the quarter. International experienced declines in the entertainment, learning and core toy categories.
• Gross margin dollars were $1,579 million compared to $1,657 million for the prior year period, a decrease of $78 million. Gross margin rate was 33.9%, a decline of 20 basis points versus the prior year period. Domestic gross margin rate decreased by 110 basis points, primarily due to an increase in inventory reserves. International gross margin rate improved by 130 basis points benefiting from margin rate improvements, mainly in the core toy category.
• SG&A decreased by $86 million to $1,057 million, compared to $1,143 million in the prior year period. The decline was primarily due to the reduction in annual bonus expense and a decrease in advertising expenses related to the early release of our "Big Book" holiday catalog in the third quarter.
• Operating earnings were $480 million, compared to $447 million in the prior year period. International segment operating earnings improved by $26 million, mainly due to a reduction in operating expenses. Corporate overhead was $46 million lower, primarily due to a reduction in annual bonus expenses. The improvement in operating earnings was partially offset by a decline in Domestic segment operating earnings of $39 million, due to decreased gross margin dollars.
• Adjusted EBITDA¹ declined by $3 million to $571 million, compared to $574 million in the prior year period.
• The above results contributed to Net earnings of $341 million, compared to $276 million in the prior year period.

Liquidity and Capital Spending

The Company, including Toys"R"Us-Delaware, Inc., ended the year with total liquidity of $1.5 billion, which was comprised of cash and cash equivalents of $566 million and availability under committed lines of credit of $905 million.  Toys"R"Us-Delaware, Inc. ended the year with $704 million of liquidity, which was comprised of cash and cash equivalents of $40 million and availability under its revolving line of credit of $664 million.

For the full year, capital spending was $252 million, compared to $219 million in the prior year period, an increase of $33 million.

¹ A detailed description and reconciliation of EBITDA and Adjusted EBITDA for Toys"R"Us, Inc. and Toys"R"Us-Delaware, Inc., and management's reasons for using these measures, are set forth at the end of this press release.

About Toys"R"Us, Inc.

Toys"R"Us, Inc. is the world's leading dedicated toy and baby products retailer, offering a differentiated shopping experience through its family of brands.  Merchandise is sold in 879 Toys"R"Us and Babies"R"Us stores in the United States, Puerto Rico and Guam, and in more than 810 international stores and over 255 licensed stores in 37 countries and jurisdictions.  With its strong portfolio of e-commerce sites including Toysrus.com and Babiesrus.com, the company provides shoppers with a broad online selection of distinctive toy and baby products.  Toys"R"Us, Inc. is headquartered in Wayne, NJ, and has nearly 65,000 employees worldwide.  The company is committed to serving its communities as a caring and reputable neighbor through programs dedicated to keeping kids safe and helping them in times of need.  Over the past three decades, the Company has given more than $100 million in product donations to children's charities.  Since 1992, the Toys"R"Us Children's Fund, a public charity affiliated with Toys"R"Us, Inc., has also donated more than $130 million in grants.  For more information, visit Toysrusinc.com or follow @ToysRUsNews on Twitter.

Forward-Looking Statements

All statements that are not historical facts in this press release, including statements about our beliefs or expectations, are forward-looking statements.  These statements are subject to risks, uncertainties and other factors, including, among others, the seasonality of our business, competition in the retail industry, changes in our product distribution mix and distribution channels, general economic factors in the United States and other countries in which we conduct our business, consumer spending patterns, birth rates, our ability to implement our strategy including implementing initiatives for season, our ability to recognize cost savings, implementation and operation of our new e-commerce platform, marketing strategies, the availability of adequate financing, ability to repatriate cash from our foreign operations, ability to distribute cash from our operating subsidiaries to their parent entities, access to trade credit, changes in consumer preferences, changes in employment legislation, our dependence on key vendors for our merchandise, political and other developments associated with our international operations, costs of goods that we sell, labor costs, transportation costs, domestic and international events affecting the delivery of toys and other products to our stores, product safety issues including product recalls, the existence of adverse litigation, changes in laws including tax that impact our business, our substantial level of indebtedness and related debt-service obligations, restrictions imposed by covenants in our debt agreements and other risks, uncertainties and factors set forth in our reports and documents filed with the Securities and Exchange Commission (which reports and documents should be read in conjunction with this press release).  In addition, we earn a disproportionate part of our annual operating earnings in the fourth quarter as a result of seasonal buying patterns and these buying patterns are difficult to forecast with certainty.  We believe that all forward-looking statements are based on reasonable assumptions when made; however, we caution that it is impossible to predict actual results or outcomes or the effects of risks, uncertainties or other factors on anticipated results or outcomes and that, accordingly, one should not place undue reliance on these statements.  Forward-looking statements speak only as of the date they were made, and we undertake no obligation to update these statements in light of subsequent events or developments unless required by the Securities and Exchange Commission's rules and regulations.  Actual results and outcomes may differ materially from anticipated results or outcomes discussed in any forward-looking statement.

SOURCE Toys"R"Us, Inc.