While US mass-market retailer Toys ‘R’ Us’s domestic sales declined by 2.5% in its second quarter of 2015, international sales rose by 3.3% and the global toy retailer’s persistent focus on cost-cutting measures seem to be starting to pay off.
International gains were driven by the learning, baby and core toy categories, and were partially offset by losses in entertainment (electronics, video game hardware and software). Of note, Canada, Central Europe and China and Southeast Asia were particularly strong this past quarter.
Declines domestically were largely attributed to planned decreases in promotions. And while core toy sales increased in the US, they were partially offset by drops in baby, entertainment and seasonal categories.
Overall net sales totaled US$2.293 billion - a decrease of US$147 million, of which, US$144 million is attributed to negative foreign currency exchange rates. And net losses for the quarter were US$99 million compared to US$148 million last year, a significant positive change.
While net sales were relatively flat, TRU’s in-house belt-tightening - part of its Fit For Growth initiative, which includes cutting sales and admin costs - resulted in a second-quarter adjusted earnings before tax and interest increase of 47% (US$83 million to US$122 million).
Total sales and admin costs dropped by US$82 million to US$796 million, thanks primarily to a US$50-million favorable impact from foreign currency, a US$15-million decline in store payroll expenses, a US$9-million decrease in advertising and promotional expenses and a US$6- million reduction in sponsor fees. These cost-cutting measures also contributed to operating earnings increasing by US$15 million, compared to declines of US$42 million last year.
This quarter was split between outgoing chairman and CEO Antonio Urcelay, who retired in June, and his successor Dave Brandon. Brandon was impressed by the cost-cutting measures taken in Q2 and says the focus now turns to solidifying the company’s roadmap for the future and making sure the right talent and structure is in place to move quickly.