New CEO and U.S. President Discuss Plans to Make Company Fit for Growth by Fixing Foundational Issues, Putting Disciplines into Operational Processes and Right-Sizing Cost Structure; Strategic Plan Places Focus on Improving Customer Experience In-Store and Online, Simplifying Promotions and Developing a Clear Pricing Strategy
WAYNE, NJ (March 26, 2014) – At presentations today for investors, industry analysts and the media, Toys“R”Us, Inc. outlined its strategy for improving the company’s operational performance and positioning the business to drive profitable growth in the future. Antonio Urcelay, Chairman of the Board and Chief Executive Officer, Toys“R”Us, Inc., and Hank Mullany, President, Toys“R”Us, U.S., provided a comprehensive assessment of the company’s fiscal 2013 performance and discussed the go-forward priorities and actions that will drive its “TRU Transformation” strategy.
“As we look to the future, our strategy will establish a path to sustainable business growth, building upon the company’s unique strengths. Toys“R”Us is one of the most recognized brands in the world with a strong international presence and a large and loyal customer base,” Mr. Urcelay said. “Our global network of stores generates strong profitability, and together with our $1.2 billion global e-commerce business, is integral to our growing omnichannel capabilities. And, as the world’s leading dedicated toy and juvenile products retailer, we have well-established relationships with our manufacturing partners, and can provide them with a year-round distribution outlet that showcases the broadest selection of their products in 36 countries around the world.”
Mr. Urcelay added, “Our 2013 performance was, no doubt, disappointing. While this was partly driven by macro conditions, such as the decline in birth rates since 2007 which has contributed to stagnating overall toy and baby industry sales, and the rapid growth of online shopping, we cannot blame these factors. We believe that several execution issues also impacted these results. Over the past several months, we have undertaken a comprehensive analysis and diagnosis of the business, and believe we have four main issues to resolve – improve the customer experience in-store and online, make progress on changing price perception, put disciplines back into inventory management, and right-size our cost structure on a global basis. We are encouraged that all of these foundational issues are firmly within our own control to fix, and our strategy will address these to improve the business over the short-term and put the company on track for the future.”
Mr. Mullany noted, “Our ‘TRU Transformation’ strategy is grounded in consumer research and customer insights, and is anchored by three guiding principles – Easy, Expert, Fair. Among our highest priorities will be to deepen our focus on the customer, build meaningful relationships through loyalty and targeted marketing programs, and improve the shopping experience both in-store and online. This will include putting more emphasis on the distinct needs of our customer base of new and expectant parents and gift-givers. We are committed to delivering on our mission to bring joy into the lives of our customers by being the toy and juvenile products authority and definitive destination for kid fun, gift-giving solutions and parenting services.”
For 2014, the objective of “TRU Transformation” will be to slow the company’s sales decline, stabilize cash flow and improve EBITDA to effectively position the business to grow revenue and profits in 2015 and beyond. “TRU Transformation” will focus on four key priorities:
Transform the shopping experience in-store and online. To improve the customer experience in-store and online and become a customer-centric business, the company has already begun to implement initiatives, such as cleaning up existing stores and improving in-store execution; improving out-of-stocks and the speed of checkout; solidifying customer relationships through strengthened loyalty and targeted marketing programs;improving price perception by developing a clear pricing strategy and simplifying promotional offers; and optimizing the e-commerce experience by capitalizing on the online shopping growth and omnichannel integration with stores.
During the meeting, Mr. Mullany unveiled a new customer promise to provide the broadest selection of products to help kids and babies develop, learn, have fun and be safe; be the easiest place to research and find solutions throughout the journey of parenthood; and be the best resource for children’s gift-giving occasions – all at fair prices in an environment that offers expert service and unique services with the ability to shop whenever, wherever and however they want.
Collaborate with business partners to drive differentiation, innovation and value. As part of “TRU Transformation,” Toys“R”Us will leverage business partner relationships in the U.S. and abroad to drive category leadership and effective differentiation in products, events and services, and create exciting shops and product statements in-store.
Develop high-performing, highly engaged, diverse talent. Internally, priorities will include reviewing the organizational structure, creating an infrastructure that promotes talent development, maintaining a culture of productivity and accountability, driving training in the areas that matter most for customers, cultivating a culture of engagement, and enhancing the ability to hire and retain great talent.
Become fit for growth. The company will focus on improving operational and financial performance, while positioning the business to capitalize on future growth opportunities through the implementation of a right-sized cost structure, a strong focus on disciplined inventory management, and the deployment of capital to key growth initiatives.
Right-size the cost structure. Overall, the company is in the midst of a renewed assessment of its operations and business structure to determine where greater efficiencies can be created and where additional resources can be allocated to help best serve customers. As part of this evaluation, in a comprehensive review of functional areas throughout the organization, a number of opportunities were identified to streamline functions and reduce headcount. In total, throughout its U.S. and International operations, Toys“R”Us, Inc. has now eliminated more than 500 positions across all functions. The company has been actively helping with the transition of those impacted by offering all eligible employees severance benefits and outplacement services. In addition, there are some areas of the business where the optimal go-forward structure is still being evaluated based on strategic reviews currently underway.
Like all retailers, the company regularly looks at the performance of its physical locations to ensure they are meeting the needs of the business. While it may close some stores during the year primarily due to lease expirations, at this time the company has no plans to close a significant number of stores. After a thorough evaluation of its current fulfillment capabilities in the U.S., the company has made the decision to close the McCarran Distribution Center in Storey County, Nevada effective June 1, 2014. Over the past few years, the company has expanded its omnichannel capabilities and the ability to ship online orders from stores and distribution centers that serve stores, resulting in the ability to flex inventory more efficiently, leverage underutilized space and ship from points closer to customers. The company will continue to open stores and expand fulfillment capabilities in markets where it makes the most sense, including in China where growth has accelerated.
No near-term debt, strong balance sheet, ample liquidity. The company ended the year with a strong liquidity position of approximately $1.8 billion and reduced its total long-term debt by $322 million to $5 billion. In addition, it successfully refinanced its $1.85 billion senior secured revolving credit facility in last week, a key component of the company’s capital structure. The execution of this transaction ensures the company’s ability to appropriately fund the working capital needs of its operations at rates that are significantly lower than the prior revolving credit facility. The company has no material outstanding debt repayments due until 2016, providing a large window to grow and develop new strategic initiatives.
To learn more about “TRU Transformation,” 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 juvenile products retailer, offering a differentiated shopping experience through its family of brands. Merchandise is sold in 873 Toys“R”Us and Babies“R”Us stores in the United States and Puerto Rico, and in more than 715 international stores and over 180 licensed stores in 35 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.
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, our ability to implement our strategy including implementing the strategy described above and initiatives for season, 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 when 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 forward-looking statements.