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Toys 'R' Us a penny above
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March 7, 2001: 2:03 p.m. ET
Toy retailer tops 4Q estimates despite a slight drop in sales
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NEW YORK (CNNfn) - Toys "R" Us posted higher fourth-quarter profits Wednesday that edged past Wall Street forecasts.
The No. 2 U.S. toy retailer, based in Paramus, N.J., also cautioned it expects higher costs in the first three quarters of fiscal 2001 associated with the continued rollout of new store formats, personnel training and fixed costs from its Amazon.com partnership. The company said it remains comfortable with current earnings estimates for the full year.
The company, which also operates the Babies "R" Us and Kids "R" Us chains, reported earnings of $251 million, or $1.23 a diluted share, for the quarter ended Feb. 3, up from $235 million, or 98 cents a diluted share, a year earlier. Wall Street forecasts averaged $1.22 a share, according to First Call, which tracks analysts' estimates.
 Sales fell to about $4.8 billion from $5.0 billion a year earlier.
The results include the impact of Toysrus.com as well as a $315 million pre-tax gain from the initial public offering of Toys "R" Us – Japan.
Toys "R" Us (TOY: Research, Estimates) stock rose $1.17 to $25.32 in Wednesday afternoon trading.
Toys "R" Us stock jumped last month after the retailer bucked the trend of other retailers that struggled during the holiday period.
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The company's partnership with online retailer Amazon.com helped make Toys "R" Us one of the few retailers that fared well during the holiday season despite an economic slowdown that eroded consumer confidence.
A recent revamp of store layouts and improved customer service also gave Toys "R" Us a boost.
Its stock, which had sagged to a 52-week low of about $11, shot back up to about $25 immediately following the holiday season.
The company reported a 3.5 percent increase in holiday sales from the year-earlier period, with sales at its Web site, Toysrus.com, more than tripling to $124 million. Full-year sales totaled $180 million.
Despite the improvements, the Toysrus.com site reported a "significant loss" in 2000 related to costs associated with building infrastructure and arranging the Amazon.com alliance. The company said the operating loss narrowed by 16 percent in the fourth-quarter from a year earlier.
Last summer, the company announced a strategic partnership in which Amazon would feature inventory from Toysrus.com on its Web site and Toysrus.com would in turn rely on Amazon for its order fulfillment and logistics operations.
Toys "R" Us received a lot of attention during the 1999 holiday season when its Web site was overwhelmed by a crush of last-minute orders and couldn't make deliveries on time. Most online retailers suffered similar problems, but the situation prompted the eventual deal with Amazon.
David Leibowitz, a toy sector analyst with Burnham Securities, told CNNfn's "Before Hours" Wednesday that many questions remain about the company's long-term success, including the performance of the new store formats once they are fully rolled out, inventory management, and the success of licensed toys associated with some upcoming big-name movies such as Harry Potter and Monsters Inc.
Full-year earnings totaled $339 million, or $1.58 a share, compared with net earnings of $334 million, or $1.36 a share, a year earlier. Sales slipped to $11.3 billion from $11.9 billion the year before.
The company repurchased 42 million shares of common stock for $632 million during fiscal 2000, and said it plans to continue repurchasing shares when appropriate.
Operating earnings for its U.S. toy store division increased 14 percent in the fourth-quarter and 4 percent for the year. An additional 250 stores are expected to be converted to the new format in 2001 with 415 stores, or 60 percent, converted by the holiday season.
Operating earnings at the International division, excluding Toys "R" Us – Japan, increased 2 percent in the fourth-quarter and 27 percent for the year. Results were hurt by negative currency exchanges. Excluding the currency impact, International earnings increased 16 percent for the quarter and 41 percent for the year. 
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