TRU gets boost for new fiscal year

Discount Store News, April 1, 1997 by Dawn Wilensky

PARAMUS, N.J. -- Only seven weeks into its fiscal year, things are looking brighter for Toys "R" Us. Its merger with Baby Superstore is progressing smoothly, Concept 2000 is rolling along, and comp store sales in the United States and Europe are the strongest in the '90s.

"We are very pleased with our results so far. Our toy and video businesses in the U.S. are very strong," vice chairman and ceo Michael Goldstein told analysts during a conference call 12 days ago sponsored by Solomon Bros.

Goldstein wouldn't specify first quarter results but said that he "hopes" the chain exceeds the 1 cent increase forecasted by analysts.

Star Wars, Nintendo 64 and Sony PlayStation have proven strong traffic-builders, he added. The challenge is keeping the products in stock, particularly since Nintendo and Sony have dropped prices on their systems to $149.99 much sooner than anticipated by the trade.

Goldstein believes that the reductions will only intensify demand for both systems, boosting hardware, software and accessories through the rest of the year and into 1998.

TRU is counting on delivery assurances from Nintendo and Sony to improve its thinning in-stock position in May. This is particularly important as Nintendo 64 is featured on the back cover of TRW's latest catalog, which hit stores March 16. "We were holding goods for the release of the catalog and have already sold many cartridges," Goldstein said.

Star Wars was a powerful force in international markets, particularly in Canada, which had "the strongest business in the world, much stronger than the United States," Goldstein said. Canadian stores also benefited from last year's demise of Consumer Distributors, which controlled 8% of the toy market.

Strong video and toy sales helped Japan achieve slightly higher comps, despite the absence of Star Wars, at least in the short term. Australia, a weak market in '96, had positive comp sales fueled by Nintendo 64. Star Wars will provide a boost when the movie re-releases, Goldstein said.

Its European markets experienced positive comp store sales through March. This was without the benefit of Star Wars, which will be in theatres in the next few months, with toys soon to follow.

Cautioning that it's too early to become overly optimistic Goldstein said that if the trend continues, Toys "R" Us should have a significant earnings increase from flat results last year, particularly in France and Germany, which were break-even markets. No new stores will be opened in those two markets, or in Belgium and Austria, unless a prior commitment was made.

Turning to the integration of Babies "R" Us with Baby Superstore, the chain has most of the people in place (some pulled from the ranks at Baby Superstore), with systems and procedures moving "very smoothly and due for completion between May 1 and June 1. Merchandising is being melded together so that everything can be purchased out of one location in Paramus, N.J.

The chain currently has 84 stores, with 20 more to follow by yearend. New stores will be located in California (primarily Southern California), the Midwest and the Northeast In 1998. about 40 stores will be added to fill in virtually every market in the country.

The BRU concept will not be rolled out yet in international markets, but set-ups are already in place in Spain, the United Kingdom, Canada and Germany, with Australia and France on the horizon. The chain will also begin testing Concept 2000 stores in undisclosed international markets.

In the United States, the Concept 2000 conversion is well underway, with 30 to 35 remodels set for completion in late June or early July. TRU plans to have 100 new Concept 2000 stores by yearend.

"Sales continue strong in Concept 2000 stores, much higher than non-Concept 2000 stores. We would expect that the return on investment after taxes on Concept 2000--assuming we get in the middle on investment costs--should be in the mid-teen range," Goldstein said.

Looking ahead to Christmas '97, Goldstein said he is confident that this year will overshadow last year. He expects an increase in traffic for girls (the weaker side of the business) to be energized by the holiday '97 release of the Fox Studios animated feature film "Anastasia." The boys business is likely to turn on the summer '97 release of Batman & Robin, a re-ignited interest in Star Wars during the 4Q and video games.

TRU also intends to work with suppliers to get the season geared up earlier, he said, especially since Hanukkah and Christmas fall within two days of each other.