TOYS ‘‘R’’ US REPORTS 2005 FIRST QUARTER RESULTS

WAYNE, N.J.--(BUSINESS WIRE)--June 9, 2005--Toys "R" Us, Inc. today announced results for its first quarter ended April 30, 2005. Total net sales were $2.132 billion for the first quarter, up 3.6% from $2.058 billion for the first quarter of 2004. Total net sales for the first quarter 2005 include $25 million due to the impact of currency translation, while net sales in the 2004 first quarter included $27 million from the now closed Kids "R" Us business. Excluding these amounts, net sales increased 3.7% in the first quarter of 2005.

The Company reported a net loss of ($41) million, or ($0.19) per share for the first quarter of 2005, compared with a net loss of ($28) million, or ($0.13) per share, for the same period last year. The 2004 operating results have been restated to reflect a correction in the Company's accounting practices for leases and leasehold improvements.

In the U.S. Toy Store division, comparable store sales decreased 0.7% for the first quarter of 2005. Sales of video merchandise increased 14%; however, sluggish sales in the seasonal and juvenile products contributed to the overall sales decline. Operating loss for the first quarter was ($32) million versus a loss of ($15) million in 2004. A decline in net margins, due primarily to the increase in sales of lower margin video products, more than offset the overall expense savings that were achieved.

In the International division, comparable toy store sales in local currencies increased 4.2% during the first quarter. Total net sales were $463 million this year, up from $416 million last year, an 11.3% increase. Excluding the impact of currency translation, total net sales in the International division increased 5.3% to $438 million. Operating losses for the quarter were ($20) million versus a loss of ($14) million last year. Although foreign currency translation had an impact on sales, it had no impact on the overall operating results of the international division.

At Babies "R" Us, comparable store sales increased 4.3% during the first quarter. Total net sales increased by 10.4% to $542 million versus $491 million for the same period last year. Operating earnings increased to $65 million for the first quarter, a 3.2% increase versus the same period last year. Babies "R" Us opened 2 new stores during the first quarter.

At Toysrus.com, first quarter 2005 net sales increased 20.8% to $64 million compared to $53 million for the first quarter of 2004. Sales were strong across all product categories at Toysrus.com, with the juvenile and toy businesses each posting more than 20% gains. The operating loss for first quarter of 2005 was reduced to ($2) million from ($5) million for the first quarter 2004.

On March 17, 2005, Toys "R" Us entered into a definitive agreement to sell its entire worldwide operations, including both its global Toys "R" Us and Babies "R" Us businesses, to an investment group consisting of affiliates of Bain Capital Partners LLC, Kohlberg Kravis Roberts & Co., L.P. (KKR), and Vornado Realty Trust (NYSE: VNO), for $26.75 per share. The Company has scheduled a meeting of its stockholders on Thursday, June 23, 2005 for the purpose of adopting the merger agreement. Further details on the special stockholders' meeting are available in the Company's proxy statement, which has been filed with the Securities and Exchange Commission.

John Eyler, Chairman and Chief Executive Officer, commented, "We continue to maintain a solid balance sheet and substantial liquidity. We ended the first quarter with $1.9 billion of cash and cash equivalents, a $1 billion increase from our first quarter last year."

Mr. Eyler added, "The Company continues to expect to complete the merger by the end of July 2005, subject to the adoption of the merger agreement by the Company's stockholders and the satisfaction of other closing conditions."

Toys "R" Us, Inc. is one of the leading specialty toy retailers in the world. It currently sells merchandise through more than 1,500 stores, including 680 toy stores in the U.S. and 614 international toy stores, including licensed and franchise stores as well as through its Internet sites at www.toysrus.com, www.imaginarium.com and www.sportsrus.com. Babies "R" Us, a division of Toys "R" Us, Inc., is the largest baby product specialty store chain in the world and a leader in the juvenile industry, and sells merchandise through 220 stores in the U.S. as well as on the Internet at www.babiesrus.com.

First quarter ended:                           4/30/05         5/1/04

---------------------------------------- -------------- --------------

Net sales                               $2,132,000,000 $2,058,000,000

Operating loss (1)                      $  (38,000,000)$  (15,000,000)

Loss before income taxes                $  (67,000,000)$  (44,000,000)

Net loss                                $  (41,000,000)$  (28,000,000)

Basic and diluted loss per share        $        (0.19)$        (0.13)

Average and basic and diluted shares

 outstanding                               218,100,000    213,800,000

 

 

(1) - Results for the first quarter of 2005 include restructuring

charges of $3 million while results for the first quarter of 2004

included restructuring charges of $14 million. Operating results for

the first quarter of 2004 have also been restated to reflect a

correction in accounting practices for leases and leasehold

improvements.

This press release contains "forward looking" statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created thereby. All statements herein that are not historical facts, including statements about our beliefs or expectations, are forward-looking statements. We generally identify these statements by words or phrases, such as "anticipate," "estimate," "plan," "expect," "believe," "intend," "foresee," "will," "may," and similar words or phrases. These statements discuss, among other things, implementation of the proposed merger, our strategy, store openings and renovations, future financial or operational performance, anticipated cost savings, results of store closings and restructurings, anticipated domestic or international developments, future financings, targets and future occurrences and trends. These statements are subject to risks, uncertainties, and other factors, including, among others, competition in the retail industry, seasonality of our business, changes in consumer preferences and consumer spending patterns, general economic conditions in the United States and other countries in which we conduct our business, the timing and receipt of approvals for the proposed merger, our ability to implement our strategy, availability of adequate financing, our dependence on key vendors of our merchandise, international events affecting the delivery of toys and other products to our stores, economic, political and other developments associated with our international operations, and risks, uncertainties and factors set forth in our reports and documents filed with the United States Securities and Exchange Commission (which reports and documents should be read in conjunction with this press release). 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. Actual results and outcomes may differ materially from anticipated results or outcomes discussed in any forward-looking statement.

                  TOYS "R" US, INC. AND SUBSIDIARIES

                  ----------------------------------

              CONSOLIDATED STATEMENTS OF OPERATIONS and

              -----------------------------------------

                         SEGMENT INFORMATION

                         -------------------

             (in millions, except per share information)

             -------------------------------------------

                             (unaudited)

                             -----------

 

----------------------------------------------------------------------

                                           FIRST QUARTER ENDED

                                    ----------------------------------

 

                                    ----------------------------------

                                                         May 1, 2004

                                      April 30, 2005    (as restated)

                                    ----------------------------------

Net sales                           $          2,132   $        2,058

Cost of sales                                  1,400            1,330

                                     ----------------   --------------

   Gross margin                                  732              728

                                     ----------------   --------------

 

Selling, general and

 administrative expenses                         675              643

Depreciation and amortization                     92               86

Restructuring and other charges                    3               14

                                     ----------------   --------------

   Total operating expenses                      770              743

                                     ----------------   --------------

 

Operating loss                                   (38)             (15)

 

Interest expense - net                           (29)             (29)

 

                                    -----------------  ---------------

Loss before income taxes                         (67)             (44)

 

Income tax benefit                                26               16

                                     ----------------   --------------

 

Net loss                            $            (41)  $          (28)

                                     ================   ==============

 

 

Basic and diluted loss per share    $          (0.19)  $        (0.13)

                                     ================   ==============

 

 

Average basic and diluted shares

 outstanding                                   218.1            213.8

                                     ================   ==============

 

----------------------------------------------------------------------

                                           FIRST QUARTER ENDED

----------------------------------------------------------------------

 

                                    ----------------------------------

                                                         May 1, 2004

                                      April 30, 2005    (as restated)

                                    ----------------------------------

Net sales

  Toys "R" Us - U.S.                $          1,063   $        1,071

  Toys "R" Us - International                    463              416

  Babies "R" Us                                  542              491

  Toysrus.com                                     64               53

  Kids "R" Us (1)                                  -               27

                                     ----------------   --------------

Total                               $          2,132   $        2,058

                                     ----------------   --------------

Operating (loss) / earnings

  Toys "R" Us - U.S.                $            (32)  $          (15)

  Toys "R" Us - International                    (20)             (14)

  Babies "R" Us                                   65               63

  Toysrus.com (2)                                 (2)              (5)

  Kids "R" Us                                     (1)               2

  Other (3), (4)                                 (45)             (32)

  Restructuring and other charges                 (3)             (14)

                                     ----------------   --------------

Operating loss                                   (38)             (15)

 

Interest expense - net                           (29)             (29)

                                     ----------------   --------------

Loss before income taxes            $            (67)  $          (44)

------------------------------------ ---------------------------------

 

(1) Reflects the effect of our decision to close all of our free-

standing Kids "R" Us stores, as previously announced on November 17,

2003.

 

(2) Results for 2004 reflect a 20% minority interest. Beginning in the

fourth quarter of 2004, Toys "R" Us Inc. recognized 100% of the

results of Toysrus.com.

 

(3) Includes corporate expenses, the operating results of Toy Box, and

the equity earnings of Toys "R" Us - Japan.

 

(4) The increase of $13 million in "other" for the first quarter of

2005 compared to the first quarter of 2004 reflects increased

corporate expenses primarily related to our strategic review

initiative, as well as increased bonus and stock compensation

expenses.

 

 

                  TOYS "R" US, INC. AND SUBSIDIARIES

                  ----------------------------------

                 SUMMARY CONSOLIDATED BALANCE SHEETS

                 -----------------------------------

                            (in millions)

                            -------------

                             (unaudited)

                             -----------

 

----------------------------------------------------------------------

                                                         May 1, 2004

                                        April 30, 2005  (as restated)

                                       ---------------- --------------

ASSETS

-------

 

Cash and cash equivalents              $         1,855  $         874

 

Short-term investments                               -            176

 

Merchandise inventories                          2,108          2,254

 

Other current assets                               361            507

 

                                       ---------------- --------------

Total current assets                             4,324          3,811

 

Property and equipment, net                      4,260          4,345

 

Goodwill, net                                      353            348

 

Other assets                                       653            710

                                        ---------------  -------------

 

             Total Assets              $         9,590  $       9,214

                                        ===============  =============

 

LIABILITIES AND STOCKHOLDERS' EQUITY

------------------------------------

 

Short-term borrowings                  $           146  $           -

 

Accounts payable                                   991            959

 

Income taxes payable                               138            300

 

Accrued expenses and other current

 liabilities                                       689            643

 

Current portion of long-term debt                  650             33

 

                                       ---------------- --------------

Total current liabilities                        2,614          1,935

 

Long-term debt                                   1,633          2,253

 

Other non-current liabilities                      981          1,094

 

Minority interest in Toysrus.com                     -              8

 

Total stockholders' equity                       4,362          3,924

                                        ---------------  -------------

 

              Total Liabilities and

               Stockholders' Equity    $         9,590  $       9,214

                                        ===============  =============

 

 

                  TOYS "R" US, INC. AND SUBSIDIARIES

                  ----------------------------------

            SUMMARY STATEMENTS OF CONSOLIDATED CASH FLOWS

            ---------------------------------------------

                            (in millions)

                            -------------

                             (unaudited)

                             -----------

 

----------------------------------------------------------------------

                                            FIRST QUARTER ENDED

----------------------------------------------------------------------

                                                        May 1, 2004

                                     April 30, 2005    (as restated)

                                     --------------- -----------------

 

Cash Flows from Operating Activities

Net loss                             $          (41) $            (28)

Depreciation and amortization                    92                86

Other non-cash items                             21                 2

Change in merchandise inventories              (226)             (171)

Change in accounts payable, accrued

 expenses and other liabilities                (223)             (262)

Changes in other operating assets and

 liabilities                                   (133)              (35)

                                      --------------  ----------------

      Net cash used in operating

       activities                              (510)             (408)

                                      --------------  ----------------

 

 

Cash Flows from Investing Activities

Capital expenditures, net                       (19)              (27)

Proceeds from sale of short-term

 investments                                    953               395

Proceeds from sale of fixed assets                3                 -

                                      --------------  ----------------

       Net cash provided by

        investing activities                    937               368

                                      --------------  ----------------

 

 

Cash Flows from Financing Activities

Short-term debt borrowings                      145                 -

Proceeds from exercise of stock

 options                                         72                 -

Long-term debt repayment                        (15)             (491)

                                      --------------  ----------------

        Net cash provided by / (used

         in) financing activities               202              (491)

                                      --------------  ----------------

 

 

                                      --------------  ----------------

Effect of exchange rate changes on

 cash and cash equivalents                       (6)               (7)

                                      --------------  ----------------

 

 

Cash and Cash Equivalents

Net increase / (decrease)

 during period                                  623              (538)

Beginning of period                           1,232             1,412

                                      --------------  ----------------

End of period                        $        1,855  $            874

                                      ==============  ================

CONTACT: For Toys "R" Us, Inc.:
Investor Relations:
Ursula H. Moran, 973-617-5756
or
Ray Arthur, 973-617-5755
or
Media Relations:
Susan McLaughlin, 973-617-5900

SOURCE: Toys "R" Us, Inc.