Toys"R"Us, Inc. Provides "Tru Transformation" Strategic Update

Toys R Us
Published: March 25th, 2015

Leadership Team Outlines Next Phase of Company’s Strategic Plan, Focusing on Further Transforming the Customer Experience, Optimizing e-Commerce, Growing Internationally and Leveraging Its Global Scale to Drive Category Leadership and Differentiation; Company Plans to Take an Aggressive Approach to Right-Sizing the Cost Structure of the Business and Designing a More Streamlined, Efficient Organization

March 25, 2015 // Franchising.com // WAYNE, NJ – At presentations today for investors, industry analysts and the media, Toys"R"Us, Inc. provided an update on its strategy to improve the company’s operational performance, as it continues its work to position the business for long-term profitable growth. Antonio Urcelay, Chairman of the Board and Chief Executive Officer, Toys"R"Us, Inc.; Hank Mullany, President, Toys"R"Us, U.S.; and Mike Short, Executive Vice President and Chief Financial Officer, Toys"R"Us, Inc., delivered a comprehensive review of the company’s fiscal 2014 performance and discussed the next phase of its "TRU Transformation" strategy.

"A year ago, we introduced a new strategic plan, with initial efforts concentrated on strengthening the foundation of the company so revenue and profits can grow in the future," Mr. Urcelay said. "During 2014, we made steady progress in implementing this plan, successfully delivering on our commitment to slow sales decline, stabilize cash flow and improve EBITDA. We also made significant process and organizational improvements, addressing a number of important executional issues. As a result, during the year, global Internet sales continued to grow, benefitting from our strengthened omnichannel fulfillment model, U.S. margin improved due to disciplined promotional activity and inventory management, and customer satisfaction metrics confirmed that changes we have been making provided a better shopping experience in-store and online. During the year, we also grew our international presence, strengthened our leadership team and formalized a global approach to doing business. Still, we know there is far more work to be done."

Mr. Urcelay continued, "Our strategy remains the same, but will evolve in 2015 as we continue to strengthen the foundation of the company in order to achieve sustainable growth in the future. We anticipate this will be another year of significant change and we will take aggressive steps in the months ahead to further right-size the cost structure of the business. This includes designing a more streamlined organization that will allow us to create greater operational efficiencies across our global organization."

During 2015, the objective of the company’s "TRU Transformation" strategy will be to continue to slow the company’s sales decline, strengthen margin and improve EBITDA to effectively position the business to become fit for growth. Company-wide efforts will focus on four key priorities:

• Continue to transform the customer experience in-store and online. Initiatives underway to improve the shopping experience for customers will expand over the course of the year. Additional stores have been identified for investments in interior and exterior physical improvements, and the elevated maintenance and lighting standards introduced last year will continue in all stores. The company is also placing a renewed focus on its Babies“R”Us business, in order to strengthen its specialist position in differentiated service, products and offerings. In advancing its goal to become a more customer-centric business, consumer insights will help guide the company in making service and selling improvements, and a deeper integration with its loyalty program will be concentrated on driving more special occasion visits year-round.
   
• Optimize the e-commerce business. Now, with an over $1.2 billion global e-commerce business, the company’s focus is to continue to grow profitably online. An end-to-end assessment of the online business is underway to identify key areas for functionality and process improvements. In the coming year, the company plans to further strengthen its omnichannel capabilities, including in-store pickup and ship from store execution, especially during the peak holiday season. Mobile growth has rapidly become the most important driver of its e-commerce traffic, with 57% of Toys“R”Us, U.S. digital visits coming from a mobile or tablet device. The company plans to work quickly to advance its mobile capabilities to better serve the needs of its customers.
   
• Grow internationally and leverage global scale to drive category leadership and differentiation. Toys“R”Us has a strong international presence across 36 countries outside of the U.S. Over the coming year, the company expects to continue to grow internationally, particularly in China and Southeast Asia. It will also fully leverage its scale and worldwide presence to deliver a coordinated and strategic approach to key merchandising decisions.
   
• Right-size the cost structure and design a more efficient, streamlined organization. As part of its Fit for Growth initiative, the company continues to seek substantial cost and working capital savings opportunities through process and operating model improvements. Last year, the company identified potential cost savings of $150-200 million primarily in U.S. SG&A and cost of goods. Over $100 million of this was achieved in fiscal 2014 and the additional $50-100 million is expected to be fully realized by fiscal 2016. In addition, the company recently identified $50-75 million of potential savings in its international operations, which it expects to achieve by the end of fiscal 2016.
  
  Associated with these saving opportunities, the leadership team shared that organizational changes and cost-cutting measures are currently underway across its global business. As the company continues to develop high-performing, highly engaged, diverse talent, a more streamlined structure will be fully aligned with strategic priorities and clearly articulated performance expectations.
  • Consistent with how many retailers operate, the company recently made the decision to outsource certain elements of its Operations Accounting and Fixed Assets functions in the U.S. and Canada to a third-party provider, allowing the company to realize cost savings and process improvements.
     
  • In order to drive stronger harmonization and create greater efficiencies across its business in Europe, Toys“R”Us is moving from a decentralized country-by-country leadership structure to a more centralized pan-European approach. In doing so, a new European Management Board will provide leadership and assume overall responsibility for the company’s business operations across the continent. New management boards in each country will handle all local issues and will represent the interests of customers, employees and other stakeholders in their respective markets. The members of the Country Board, which include operations, finance, buying and marketing roles, will report directly into the functional leadership members of the European Management Board.
     
  • Like all retailers, the company regularly analyzes the performance of its physical locations to ensure they are meeting the needs of the business. Since the beginning of 2015, it has closed approximately a dozen stores in the U.S., primarily due to lease expirations, and has no plans at this time to close a significant number of stores during the balance of the year. The company continues to open stores in opportunistic markets, including China and Southeast Asia, where rapid growth continues.
     
  • No near-term debt. The company recently completed the successful refinancing of $1.4 billion of its near-term debt maturities and now, has no significant outstanding debt repayments due until 2017.

To learn more about the "TRU Transformation" strategic update, please visit the company’s corporate website, Toysrusinc.com, where it has posted presentation materials.

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 872 Toys"R"Us and Babies"R"Us stores in the United States, Puerto Rico and Guam, and in more than 725 international stores and over 235 licensed stores in 36 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. Additional information about Toys"R"Us, Inc. can be found on Toysrusinc.com. Follow Toys"R"Us, Babies"R"Us and FAO Schwarz on Facebook at Facebook.com/Toysrus, Facebook.com/Babiesrus and Facebook.com/FAO and on Twitter at Twitter.com/Toysrus and Twitter.com/Babiesrus.

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, marketing strategies, the availability of adequate financing, 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 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 under Item1A entitled "RISK FACTORS" of Toys"R"Us, Inc.’s Annual Report on Form 10 K for the fiscal year ended February 1, 2014 and its other reports and documents filed with the Securities and Exchange Commission. In addition, we typically 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. These factors should not be construed as exhaustive, and should be read in conjunction with the other cautionary statements that are included in those reports and documents. 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.

Contacts:

Kathleen Waugh
Vice President
Corporate Communications
973-617-5888
646-366-8823
waughk@toysrus.com

Linda Connors
Manager
Corporate Communications
973-617-4398
Linda.Connors@toysrus.com