Toys "R" Us Inc. announced plans Monday to shutter 64 stores and eliminate 1,900 jobs. The nation's No. 1 toy retail chain said the restructuring will cause the company to incur after-tax charges of about $126 million.
The Paramus, N.J.-based retailer, which has posted poor earnings in recent months, announced plans to close 27 Toys "R" Us stores and 37 Kids "R" Us stores. It will consolidate five store support centers, slashing a total of 1,900 jobs at stores and headquarters.
Toys "R" Us said it expects the restructuring to increase cash flow in 2002 and beyond and to yield improvements to pre-tax earnings of approximately $25 million in 2002 and $45 million annually beginning in 2003. Of that $45 million, payroll savings will account for $30 million, the retailer said.
The 27 Toys "R" Us stores to be closed have not been converted to the company's renovated "Mission Possible" format, which features a different store lay-out and various themed areas. "These renovated stores maintained their positive sales gap over our unrenovated stores during the holiday selling season," Toys "R" Us Chairman and CEO John Eyler said in a statement.
The unrenovated stores made money but not enough to justify the expense of converting them to the new format, Eyler said. He noted that about 10 of the stores are candidates for relocation.
The move shouldn't be interpreted as a sign Toys "R" Us is in major financial distress, noted Todd Kuhrt, senior retail analyst with Cleveland-based Midwest Research.
"I think the company is fairly healthy," Kuhrt said. "Any good retailer has to review its portfolio from time-to-time and determine which stores aren't working. A lot of corporations, especially in retail, are announcing restructurings. You get a lot of these in a recessionary period. It's a time to sort of clean house."
Under the restructuring plan, the company will move some Kids "R" Us locations into existing Toys "R" Us stores, creating "combo" stores. Toys "R" Us already operates 273 such locations and plans to operate 375 more by the end of 2002.
"The company is shifting away from the stand-alone Kids 'R' Us stores to focus on these combo stores," Kuhrt said. "It makes a lot of sense for them to shut down those 37 Kids 'R' Us stores. Let's be honest, Kids 'R' Us has been under-performing for the past several years."
Regarding the Toys "R" Us locations, shutting down 27 out of 705 stores amounts to only 4% of the total, Kuhrt added. "This move seems reasonable," he said. "I would anticipate that you would have some under-performing stores there."