(Updated with information on the KB Toys deal and additional
information, in the first through fifth paragraphs.)
DOW JONES NEWSWIRES
Toys 'R' Us said it closed on its acquisition of the
intellectual-property rights of bankrupt KB Toys, as it reported
its fiscal second-quarter profit more than doubled on lower
expenses and higher margins.
The toy retailer closed on its acquisition of the KB Toys brand,
which includes its Web site and its trademarks late Thursday but
didn't disclose the deal until Friday. Founded in 1922, KB Toys
closed its stores in February following a bankruptcy filing late
last year.
A company spokeswoman said Toys 'R' Us was in the process of
building its portfolio over the long term with the acquisition. She
declined to disclose the amount Toys 'R' Us paid for the
rights.
The company has been struggling as it faces headwinds such as a
push from discount retailers Wal-Mart Stores Inc. (WMT) and Target
Corp. (TGT), which have expanded their toy offerings. The industry
has been hard hit from a drop in consumer spending, leading to KB
Toys' bankruptcy.
Toys 'R' Us in May acquired high-end toy retailer FAO Schwarz,
which had been battered by the cutthroat pricing of discount
stores, a shrinking toy market and fewer tourists visiting its
flagship New York store. Toys 'R' Us has been on a buying spree
this year - it acquired online toy retailer EToys Inc., along with
two other small Internet retailers, for $2.15 million at a
bankruptcy auction in February. It also acquired Toys.com in
March.
"We continue to make prudent capital investments to expand our
business, domestically and around the world," said Chairman and
Chief Executive Jerry Storch.
For the quarter ended Aug. 1, the company reported earnings of
$27 million, up from $13 million a year earlier. Adjusted earnings
before interest, taxes, depreciation and amortization fell 1.4% to
$145 million.
Net sales declined 7.4% to $2.57 billion, mostly due to softness
in the entertainment products category, specifically videogame
hardware and software.
Gross margins grew to 37% from 36.6% as higher-margin products
sold better than lower-margin videogames.
U.S. sales dropped 6.5% on a 7.2% drop in same-store sales.
Internationally, sales fell 8.7% as same-store sales dropped
3.9%.
Toys 'R' Us was purchased in 2005 by Vornado Realty Trust (VNO)
and private-equity firms Bain Capital LLC and Kohlberg Kravis
Roberts & Co. Toys 'R' Us remains heavily indebted from the
buyout. Long-term debt was lowered by 6.9% from a year earlier to
$5.5 billion.
The company ended the quarter with cash and unused credit lines
of about $1.54 billion, including about $98 million that was
available to its Japan subsidiary.
-By John Kell, Dow Jones Newswires; 212-416-2480;
john.kell@dowjones.com