Despite lackluster and disappointing Christmas sales, Toys 'R' Us, the nation's largest toy seller, said Thursday that it expects record earnings for the year. Wall Street, however, reacted negatively to the news, driving the price of the company's stock down $1.75 a share.
In its traditional letter to shareholders, Rochelle Park, N.J.-based Toys 'R' Us reported that total sales between Nov. 4 and Dec. 29 rose 13.8% to $826 million from $726 million a year ago. Sales for the 11 months ended Dec. 29 rose 18.2% to $1.88 billion from $1.59 billion. However, the retailer's sales increase was attributable to the addition of stores in the company plus sales of its other units. The company operates 233 toy stores in the United States, 13 toy outlets overseas, four U.S. department stores and 23 Kids 'R' Us children's clothing stores.
Toy Sales Rise
Toy sales, considering only those outlets opened 12 months or longer, rose 2.8% between Nov. 4 and Dec. 24 from last year. Toy store sales for the 11-month period were up 3.3%.
Analysts have expected most retailers to post healthy increases in earnings for both the fourth quarter and the year, despite less robust sales growth.
The Toy 'R' Us letter characterized this year's holiday selling period as "difficult" but said, "Based on a more favorable merchandise mix, margins for the fourth quarter are expected to be satisfactory, resulting in 1985 being another year of record earnings."
Michael Goldstein, chief financial officer and executive vice president at Toys 'R' Us, said in a telephone interview: "We were disappointed with the Christmas season. We would have hoped business would have been better. The disappointment was in the electronics--video games and computers." Basic toys, however, did well, but retailers at large did not have the boost of last year's hot sellers: Trivial Pursuit board games and Cabbage Patch dolls.
Most analysts who followed the company were not surprised by the results. Walter Loeb, an analyst at Morgan Stanley in New York, said: "I look for a strong increase in earnings." More important, Loeb said, were the company's statistics showing that it gained a greater share of the toy market.
The company's stock closed on the New York Stock Exchange at $33.375, on volume of 1.15 million shares, making it the ninth most active stock. Last year, the stock plummeted more than $7 a share after the company disclosed in a similar letter that 1984 holiday sales were lower than expected.
In its latest letter, Toy 'R' Us also announced plans to open about 20 new Kids 'R' Us children's clothing stores in the New Jersey, Philadelphia and Washington-Baltimore areas next year. In addition, 50 new toy stores are planned--40 in the United States and 10 abroad. About three to five of the new U.S. stores will be located in California where there are currently 36 Toys 'R' Us stores.