Toys"R"Us, Inc. Reports Results For The Fourth Quarter And Full Year Of Fiscal 2015

Toys R Us
Published: March 10th, 2016

Consolidated same store sales grew by 2.3% for the quarter and 0.9% for the full year; Fiscal 2015 SG&A expense reduction of $322 million resulted in the lowest full year SG&A since 2006; Full year consolidated Adjusted EBITDA¹ of $800 million, a 25% improvement over the prior year; Consolidated Net Leverage² for fiscal 2015 of 5.0x, a reduction of 1.3x

March 10, 2016 // Franchising.com // WAYNE, NJ - Toys"R"Us, Inc. today reported financial results for the fourth quarter and full year of fiscal 2015 ended January 30, 2016.  Consolidated Adjusted EBITDA was $800 million for the full year, a $158 million improvement.  The Domestic segment showed continued improvement in operating performance for the fourth quarter and full year and International segment same store sales grew for the eighth consecutive quarter.  Since the inception of the “Fit for Growth” initiative in 2014, the Company has realized $307 million in savings, with the balance of the $325 million target expected to be achieved by the end of fiscal 2016.

“I am very encouraged by our positive consolidated same store sales in what was a very competitive marketplace,” said Dave Brandon, Chairman and Chief Executive Officer, Toys"R"Us, Inc.  “Throughout the year, and especially during the holiday season, we focused on improving our execution to deliver a positive and memorable shopping experience to our customers.  We significantly improved our performance, but we can and will make further progress on our quest to achieve flawless execution in every aspect of our operations.  We grew Adjusted EBITDA by 25% by successfully executing a number of key initiatives while continuing to take advantage of the progress we’ve made to right-size our cost structure.”

Fourth Quarter Fiscal 2015 Highlights

• Consolidated same store sales were up 2.3%.  International had growth of 3.9% mainly attributable to an increase in the learning category, partially offset by a decline in the entertainment category (which includes electronics, video game hardware and software).  Domestic had growth of 1.2% over the prior year period primarily due to an increase in the core toy and learning categories, partially offset by a decline in the entertainment and baby categories.
• Consolidated net sales were $4,853 million, a decrease of $130 million compared to the prior year period.  Excluding a $169 million negative impact from foreign currency translation, net sales increased $39 million, mainly attributable to same store sales growth in both the International and Domestic segments, partially offset by Domestic store closures.
• Gross margin dollars were $1,657 million, compared to $1,688 million for the prior year period, a decrease of $31 million.  Excluding a $60 million negative impact from foreign currency translation, gross margin dollars increased by $29 million.  Gross margin rate was 34.1%, an increase of 0.2 percentage points versus the prior year period.  Domestic gross margin rate increased by 0.3 percentage points primarily due to a shift in sales mix away from lower margin entertainment products, partially offset by an increase in shipping costs due to higher e-commerce sales volume.  International gross margin rate increased by 0.3 percentage points as a result of margin improvements associated with the learning and entertainment categories, partially offset by increased cost of U.S. dollar denominated merchandise purchases.
• SG&A decreased by $46 million to $1,143 million, compared to $1,189 million in the prior year.  Excluding a $35 million favorable impact from foreign currency translation, SG&A decreased by $11 million, primarily due to a $21 million decrease in payroll expenses, partially offset by a favorable legal settlement of $12 million in the prior year.
• Operating earnings were $447 million, compared to $417 million in the prior year period.  Domestic segment operating earnings improved by $31 million, primarily as a result of SG&A savings compared to the prior year period.  Excluding a $21 million negative impact from foreign currency translation, International segment operating earnings improved by $35 million mainly as a result of an increase in gross margin dollars due to higher net sales compared to the prior year period.  Corporate overhead increased by $15 million.
• Adjusted EBITDA1 improved by $45 million to $574 million, compared to $529 million in the prior year period.
• Net earnings were $276 million, compared to $265 million in the prior year period, an improvement of $11 million.

Full Year Fiscal 2015 Highlights

• Consolidated same store sales increased by 0.9% due to International same store sales growth of 3.2%, which was driven by improvement in the learning and baby categories, partially offset by a decline in entertainment.  Domestic same store sales decreased by 0.6% due to a decline in the entertainment and baby categories, partially offset by increases in core toy and learning categories.
• Consolidated net sales were $11,802 million, a decrease of $559 million compared to the prior year.  Excluding a $571 million negative impact of foreign currency translation, net sales were up predominantly due to increases in same store sales in the International segment, partially offset by a decline in same store sales in the Domestic segment.  Net sales also benefited from new stores Internationally, offset by Domestic store closures.
• Gross margin dollars were $4,226 million, compared to $4,430 million for the prior year, a decrease of $204 million.  Excluding a $215 million negative impact from foreign currency translation, gross margin dollars increased by $11 million.  Gross margin rate remained consistent at 35.8%.
• SG&A decreased by $322 million to $3,593 million, compared to $3,915 million in the prior year.  Excluding a $174 million favorable impact from foreign currency translation, SG&A decreased by $148 million, primarily due to an $81 million decrease in payroll expenses, a $40 million decline in advertising and promotional expenses and a $16 million decrease in occupancy costs, predominantly as a result of Domestic store closures.
• Operating earnings were $378 million, compared to $191 million in the prior year.  Domestic segment operating earnings improved by $152 million, primarily as a result of SG&A savings compared to the prior year period.  Excluding a $22 million negative impact from foreign currency translation, International segment operating earnings improved by $64 million primarily as a result of an increase in gross margin dollars due to higher net sales compared to the prior year.  Corporate overhead increased by $7 million.
• Adjusted EBITDA¹ was $800 million, compared to $642 million in prior year, an improvement of $158 million.
• Net loss was $130 million, compared to a net loss of $292 million in the prior year period, an improvement of $162 million.

In closing Mr. Brandon stated, “We have an exciting and challenging year ahead of us.  We believe we can continue the positive momentum we have built by executing our four strategic pillars: grow and build our brands throughout the world, create a world class experience for our customers, create a strong financial foundation and make talent and culture a competitive advantage.  I am proud of the hard work that all of our team members have put in to get us to this point and I look forward to continuing on our path forward.”

Capital Spending and Depreciation

• For the full year, capital spending was $219 million, compared to $207 million in the prior year, an increase of $12 million.
• Depreciation expense was $343 million, a decrease of $34 million, which included a $14 million benefit from foreign currency translation.
  Liquidity and Debt

The Company, including Toys"R"Us-Delaware, Inc., ended the year with total liquidity of $1.8 billion, which was relatively consistent with last year.  This was comprised of cash and cash equivalents of $680 million and availability under committed lines of credit of $1.1 billion.  Toys"R"Us-Delaware, Inc. ended the year with $1,023 million of liquidity, a $54 million improvement from last year.  This was comprised of cash and cash equivalents of $139 million and availability under its revolving line of credit of $884 million.

Total debt was $4.7 billion, a decrease of $45 million from the prior year.

A summary of the “Fit for Growth” initiative is set forth at the end of this press release.

¹A detailed description and reconciliation of EBITDA and Adjusted EBITDA for Toys"R"Us, Inc. and Toys"R"Us-Delaware, Inc., and management’s reasons for using these measures, are set forth at the end of this press release.

²Net Leverage represents total debt outstanding less cash and cash equivalents and restricted cash attributed to debt as of the end of the year, divided by full year Adjusted EBITDA.

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 866 Toys"R"Us and Babies"R"Us stores in the United States, Puerto Rico and Guam, and in more than 750 international stores and over 245 licensed stores in 37 foreign countries and jurisdictions.  In addition, it exclusively operates the legendary FAO Schwarz brand and sells extraordinary toys at FAO.com.  With its strong portfolio of e-commerce sites including Toysrus.com and Babiesrus.com, it provides shoppers with a broad online selection of distinctive toy and baby products.  Headquartered in Wayne, NJ, Toys"R"Us, Inc. has an annual workforce of approximately 62,000 employees 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.

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, implementation and operation of our new e-commerce platform, 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 in our reports and documents filed with the Securities and Exchange Commission (which reports and documents should be read in conjunction with this press release).  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.  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.

For Full Spreadsheet Report, please go to: [http://www.toysrusinc.com/press-room/releases/financial/2016/toysrus-inc.-reports-results-for-the-fourth-quarter-and-full-year-of/].

SOURCE Toys"R"Us

Contacts:

Chetan Bhandari
Lenders and Note Investor Relations
Senior Vice President
Corporate Finance & Treasurer
973-617-5841
Chetan.Bhandari@toysrus.com

Media Relations
Corporate Communications
973-617-5900
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