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Toys'R'Us Reports 2nd Quarter 2011 Results

Toys"R"Us, Inc. Reports Financial Results for Second Quarter 2011

Operating Earnings Increase from $23 million to $48 million

WAYNE, N.J., Sep 08, 2011 -- Adjusted EBITDA Increases from $140 million to $162 million - A Record Result for the Second Quarter

Toys"R"Us, Inc. today reported financial results for the second quarter ended July 30, 2011.

Jerry Storch, Chairman and CEO, Toys"R"Us, Inc., stated, "We are pleased with our operating business performance in delivering solid results this quarter. In significantly improving our operating earnings and reporting our best-ever second quarter adjusted EBITDA, we continue to demonstrate that we are focused on maximizing the benefits of our investments, and executing on our key strategic initiatives to improve the customer experience."

Mr. Storch added, "I'm proud of the team for achieving these results and for their strong commitment to growing margin rate and managing expenses in this tough business climate. In the context of this uncertain economic environment, we believe our team has taken the right steps to position the company well for the remainder of the year, which includes our peak selling season. We are excited by the differentiated merchandise assortment we will offer shoppers in the months ahead and the plans we have in place to provide value, knowledgeable service and added convenience to consumers."

Second Quarter Highlights

-- Adjusted EBITDA was $162 million, an increase of 16%, and a record for the Company's second quarter.

-- Net sales were $2.6 billion, an increase of 3%. This includes the benefit of foreign currency translation of $116 million along with net sales from new locations. Comparable store net sales were down 2.2% for both the Domestic and International segments.

-- The Core Toy and Learning Toy categories continued to be strong, generating net sales growth of 15% and 11%, respectively. The Entertainment category (which includes video game hardware and software) was down 13%, reflecting overall softness in the video game industry. Excluding the Entertainment category, net sales increased 5%. Internet sales continued to be strong.

-- Gross margin dollars were $1,025 million, an increase of 7% or $66 million, including foreign currency benefit of $48 million. Gross margin, as a percentage of net sales, was 38.7%, an increase of 1.3 percentage points.

-- Selling, general and administrative expenses ("SG&A") were $885 million, compared to $855 million in the prior year. Excluding the impact from foreign currency translation which increased SG&A expense by $41 million, SG&A expenses declined $11 million. The prior year period was impacted by a one-time lease accounting charge of $16 million in the Domestic segment which contributed to the year-over-year change.

-- Operating earnings were $48 million, an increase of 109%.

-- Interest expense declined $8 million.

-- Net loss before income taxes improved by $34 million to a loss of $62 million, compared to $96 million in the prior year due to improved operating performance and lower interest expense. Net loss after income taxes declined by $20 million to $34 million, reflecting the effect of less favorable taxes due to significant one-time tax benefits in the prior year.

Trends in sales, margin and expenses were similar in the Domestic and International segments. In the Domestic segment operating earnings grew by $15 million, from $57 million to $72 million. Operating earnings in the International segment grew by $12 million, from $39 million to $51 million.

Note: All comparisons are versus the same period one year ago.

Liquidity and Capital Spending

The company ended the quarter with total liquidity of $1.6 billion including cash and cash equivalents of $356 million and unused available lines of credit of $1,276 million. Stockholders' equity was $321 million, up from $39 million in the prior year.

The company's capital expenditure program is a key component of its long-term juvenile integration strategy, which integrates the toy and juvenile businesses into one store. Year-to-date, the company invested $141 million primarily to convert, expand and remodel existing stores, open new stores and upgrade its information technology systems and capabilities, compared to $117 million in the prior year. For the entire 2011 fiscal year, the company intends to spend approximately $400 million on capital expenditures.

Further information regarding the company's financial performance in the second quarter of fiscal 2011 is presented in its quarterly report on Form 10-Q, which was filed with the Securities and Exchange Commission on September 8, 2011.

About Toys"R"Us, Inc.

Toys"R"Us, Inc. is the world's leading dedicated toy and juvenile products retailer, offering a differentiated shopping experience through its family of brands. Merchandise is sold in 874 Toys"R"Us and Babies"R"Us stores in the United States and Puerto Rico, and in more than 520 international stores and over 200 licensed stores in 34 countries and jurisdictions. In addition, it exclusively operates the legendary FAO Schwarz brand and sells extraordinary toys in the brand's flagship store on Fifth Avenue in New York City. With its strong portfolio of e-commerce sites including Toysrus.com, Babiesrus.com, eToys.com and FAO.com, it provides shoppers with a broad online selection of distinctive toy and baby products. Headquartered in Wayne, NJ, Toys"R"Us, Inc. employs approximately 70,000 associates annually 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.

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