“Despite a strong start to the holidays, in the weeks following Black Friday we faced a combination of sluggish sales and intense promotional activity,” said
Full Year Fiscal 2016
- Consolidated net sales were
$11,540 million , a decrease of$262 million compared to the prior year. The decline was primarily due to Domestic store closures, including ourTimes Square andFAO Schwarz flagship stores, and a decline in Consolidated same store sales. - During the year we opened 29 Domestic stores, which included 27 outlet and express stores, and closed 16 stores. Internationally, we opened 73 stores and closed 17.
- Consolidated same store sales decreased by 1.4%. Domestic declined by 1.3% mainly attributable to the entertainment (which includes electronics, video game hardware and software) and baby categories, partially offset by an improvement of 2.5% in the toy categories, which includes seasonal, core toy and learning. International decreased by 1.6%, driven by declines in the
Europe andAsia Pacific markets, partially offset by growth inCanada . The International decline was attributable to the entertainment, seasonal and core toy categories, partially offset by an improvement in the baby category. - Gross margin dollars were
$4,108 million , a decline of$118 million compared to the prior year. Gross margin rate was 35.6%, a decrease of 20 basis points. Domestic gross margin rate declined by 70 basis points, primarily due to higher shipping costs associated with an increase in e-commerce sales and an increase in inventory reserves. International gross margin rate increased by 60 basis points led by margin rate improvements in the core toy category and sales mix away from lower margin entertainment products, which also experienced a rate improvement on remaining product sales. - SG&A decreased by
$113 million to$3,480 million , compared to$3,593 million in the prior year. The decline was primarily due to a reduction in annual bonus expense and elimination of store operating costs from the closure of ourTimes Square andFAO Schwarz flagship stores. - Operating earnings were
$460 million , compared to$378 million in the prior year, an increase of$82 million . International segment operating earnings improved by$52 million , mainly due to a reduction in operating expenses and an increase in gross margin dollars. Corporate overhead was$100 million lower, driven by a$45 million gain on the sale of the FAO Schwarz brand, along with a reduction in annual bonus expense. Domestic segment operating earnings declined by$70 million , primarily as a result of reduced gross margin dollars, partially offset by SG&A savings. - Adjusted EBITDA1 was
$792 million , compared to$800 million in prior year. - The above results produced a Net loss of
$36 million , which was$94 million lower than the prior year Net loss of$130 million .
Fourth Quarter Fiscal 2016
- Consolidated net sales were
$4,661 million , a decrease of$192 million compared to the prior year period. The decrease was mainly attributable to a decline in Consolidated same stores sales and Domestic store closures, which included ourTimes Square flagship store. - Consolidated same store sales were down 3.0%. Domestic decreased by 2.3% primarily due to declines in the entertainment and baby categories, partially offset by improvements in the learning, seasonal and core toy categories. International was down 4.2%, with notable weakness in
Europe for the quarter. International experienced declines in the entertainment, learning and core toy categories. - Gross margin dollars were
$1,579 million compared to$1,657 million for the prior year period, a decrease of$78 million . Gross margin rate was 33.9%, a decline of 20 basis points versus the prior year period. Domestic gross margin rate decreased by 110 basis points, primarily due to an increase in inventory reserves. International gross margin rate improved by 130 basis points benefiting from margin rate improvements, mainly in the core toy category. - SG&A decreased by
$86 million to$1,057 million , compared to$1,143 million in the prior year period. The decline was primarily due to the reduction in annual bonus expense and a decrease in advertising expenses related to the early release of our “Big Book” holiday catalog in the third quarter. - Operating earnings were
$480 million , compared to$447 million in the prior year period. International segment operating earnings improved by$26 million , mainly due to a reduction in operating expenses. Corporate overhead was$46 million lower, primarily due to a reduction in annual bonus expenses. The improvement in operating earnings was partially offset by a decline in Domestic segment operating earnings of$39 million , due to decreased gross margin dollars. - Adjusted EBITDA1 declined by
$3 million to$571 million , compared to$574 million in the prior year period. - The above results contributed to Net earnings of
$341 million , compared to$276 million in the prior year period.
Liquidity and Capital Spending
The Company, including
For the full year, capital spending was
1 A detailed description and reconciliation of EBITDA and Adjusted EBITDA for
About
Forward-Looking Statements
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
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
||||||||||||||||
13 Weeks Ended |
Fiscal Years Ended |
|||||||||||||||
(In millions) |
|
|
|
|
||||||||||||
Net sales |
$ |
4,661 |
$ |
4,853 |
$ |
11,540 |
$ |
11,802 |
||||||||
Cost of sales |
3,082 |
3,196 |
7,432 |
7,576 |
||||||||||||
Gross margin |
1,579 |
1,657 |
4,108 |
4,226 |
||||||||||||
Selling, general and administrative expenses |
1,057 |
1,143 |
3,480 |
3,593 |
||||||||||||
Depreciation and amortization |
77 |
90 |
317 |
343 |
||||||||||||
Other income, net |
(35) |
(23) |
(149) |
(88) |
||||||||||||
Total operating expenses |
1,099 |
1,210 |
3,648 |
3,848 |
||||||||||||
Operating earnings |
480 |
447 |
460 |
378 |
||||||||||||
Interest expense |
(110) |
(96) |
(457) |
(429) |
||||||||||||
Interest income |
— |
1 |
2 |
3 |
||||||||||||
Earnings (loss) before income taxes |
370 |
352 |
5 |
(48) |
||||||||||||
Income tax expense |
26 |
74 |
34 |
76 |
||||||||||||
Net earnings (loss) |
344 |
278 |
(29) |
(124) |
||||||||||||
Less: Net earnings attributable to noncontrolling interest |
3 |
2 |
7 |
6 |
||||||||||||
Net earnings (loss) attributable to |
$ |
341 |
$ |
276 |
$ |
(36) |
$ |
(130) |
CONDENSED CONSOLIDATED BALANCE SHEETS |
||||||||
(In millions) |
|
|
||||||
ASSETS |
||||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ |
566 |
$ |
680 |
||||
Accounts and other receivables |
255 |
225 |
||||||
Merchandise inventories |
2,476 |
2,270 |
||||||
Prepaid expenses and other current assets |
92 |
113 |
||||||
Total current assets |
3,389 |
3,288 |
||||||
Property and equipment, net |
3,067 |
3,163 |
||||||
|
64 |
64 |
||||||
Deferred tax assets |
129 |
96 |
||||||
Restricted cash |
54 |
52 |
||||||
Other assets |
205 |
247 |
||||||
Total Assets |
$ |
6,908 |
$ |
6,910 |
||||
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ DEFICIT |
||||||||
Current Liabilities: |
||||||||
Accounts payable |
$ |
1,695 |
$ |
1,699 |
||||
Accrued expenses and other current liabilities |
897 |
994 |
||||||
Income taxes payable |
27 |
32 |
||||||
Current portion of long-term debt |
119 |
73 |
||||||
Total current liabilities |
2,738 |
2,798 |
||||||
Long-term debt |
4,642 |
4,612 |
||||||
Deferred tax liabilities |
75 |
64 |
||||||
Deferred rent liabilities |
342 |
345 |
||||||
Other non-current liabilities |
271 |
245 |
||||||
Temporary Equity |
132 |
111 |
||||||
Total Stockholders’ Deficit |
(1,292) |
(1,265) |
||||||
Total Liabilities, Temporary Equity and Stockholders’ Deficit |
$ |
6,908 |
$ |
6,910 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
||||||||
Fiscal Years Ended |
||||||||
(In millions) |
|
|
||||||
Cash Flows from Operating Activities: |
||||||||
Net loss |
$ |
(29) |
$ |
(124) |
||||
Adjustments to reconcile Net loss to Net cash (used in) provided by operating activities: |
||||||||
Depreciation and amortization |
317 |
343 |
||||||
Amortization and write-off of debt issuance costs and debt discount |
40 |
28 |
||||||
Gains on sales of assets |
(46) |
(20) |
||||||
Deferred income taxes |
(24) |
17 |
||||||
Non-cash portion of asset impairments and other charges |
5 |
20 |
||||||
Unrealized (gains) losses on foreign exchange |
(8) |
10 |
||||||
Other |
9 |
(1) |
||||||
Changes in operating assets and liabilities: |
||||||||
Accounts and other receivables |
(27) |
(2) |
||||||
Merchandise inventories |
(221) |
(256) |
||||||
Prepaid expenses and other operating assets |
41 |
18 |
||||||
Accounts payable, Accrued expenses and other liabilities |
(66) |
190 |
||||||
Income taxes payable, net |
8 |
15 |
||||||
Net cash (used in) provided by operating activities |
(1) |
238 |
||||||
Cash Flows from Investing Activities: |
||||||||
Capital expenditures |
(252) |
(219) |
||||||
Increase in restricted cash |
(6) |
(2) |
||||||
Proceeds from sales of assets |
48 |
13 |
||||||
Acquisitions |
— |
(2) |
||||||
Net cash used in investing activities |
(210) |
(210) |
||||||
Cash Flows from Financing Activities: |
||||||||
Long-term debt borrowings |
2,540 |
1,451 |
||||||
Long-term debt repayments |
(2,409) |
(1,472) |
||||||
Capitalized debt issuance costs |
(37) |
(6) |
||||||
Distribution to noncontrolling interest |
(12) |
— |
||||||
Other |
(1) |
— |
||||||
Net cash provided by (used in) financing activities |
81 |
(27) |
||||||
Effect of exchange rate changes on Cash and cash equivalents |
16 |
(19) |
||||||
Cash and cash equivalents: |
||||||||
Net decrease during period |
(114) |
(18) |
||||||
Cash and cash equivalents at beginning of period |
680 |
698 |
||||||
Cash and cash equivalents at end of period |
$ |
566 |
$ |
680 |
OPERATING METRICS |
|||||||||||||
13 Weeks Ended |
Fiscal Years Ended |
||||||||||||
|
|
|
|
||||||||||
Domestic Segment: |
|||||||||||||
Operating Data |
|||||||||||||
Gross margin as a percentage of net sales |
31.6 |
% |
32.7 |
% |
33.6 |
% |
34.3 |
% |
|||||
Same store sales |
(2.3) |
% |
1.2 |
% |
(1.3) |
% |
(0.6) |
% |
|||||
Change in number of transactions |
(2.9) |
% |
(0.9) |
% |
(1.9) |
% |
(2.5) |
% |
|||||
Change in average basket size |
0.6 |
% |
2.1 |
% |
0.6 |
% |
1.9 |
% |
|||||
|
|||||||||||||
Baby |
20.5 |
% |
20.8 |
% |
35.9 |
% |
36.0 |
% |
|||||
Core Toy |
25.2 |
% |
24.4 |
% |
19.1 |
% |
18.3 |
% |
|||||
Entertainment |
10.2 |
% |
12.5 |
% |
7.2 |
% |
9.0 |
% |
|||||
Learning |
31.4 |
% |
30.1 |
% |
24.1 |
% |
23.4 |
% |
|||||
Seasonal |
11.9 |
% |
11.3 |
% |
13.1 |
% |
12.4 |
% |
|||||
Other (1) |
0.8 |
% |
0.9 |
% |
0.6 |
% |
0.9 |
% |
|||||
Total |
100 |
% |
100 |
% |
100 |
% |
100 |
% |
|||||
International Segment: |
|||||||||||||
Operating Data |
|||||||||||||
Gross margin as a percentage of net sales |
37.9 |
% |
36.6 |
% |
38.9 |
% |
38.3 |
% |
|||||
Same store sales (2) |
(4.2) |
% |
3.9 |
% |
(1.6) |
% |
3.2 |
% |
|||||
Change in number of transactions |
(3.2) |
% |
(2.0) |
% |
(2.5) |
% |
(1.8) |
% |
|||||
Change in average basket size (2) |
(1.0) |
% |
5.9 |
% |
0.9 |
% |
5.0 |
% |
|||||
|
|||||||||||||
Baby |
13.1 |
% |
12.9 |
% |
21.3 |
% |
20.5 |
% |
|||||
Core Toy |
27.4 |
% |
26.5 |
% |
23.5 |
% |
23.2 |
% |
|||||
Entertainment |
7.7 |
% |
8.4 |
% |
6.0 |
% |
7.1 |
% |
|||||
Learning |
39.1 |
% |
39.0 |
% |
33.0 |
% |
32.8 |
% |
|||||
Seasonal |
12.1 |
% |
12.6 |
% |
15.4 |
% |
15.7 |
% |
|||||
Other (3) |
0.6 |
% |
0.6 |
% |
0.8 |
% |
0.7 |
% |
|||||
Total |
100 |
% |
100 |
% |
100 |
% |
100 |
% |
|||||
Consolidated: |
|||||||||||||
Operating Data |
|||||||||||||
Gross margin as a percentage of net sales |
33.9 |
% |
34.1 |
% |
35.6 |
% |
35.8 |
% |
|||||
Same store sales (2) |
(3.0) |
% |
2.3 |
% |
(1.4) |
% |
0.9 |
% |
|||||
Change in number of transactions |
(3.1) |
% |
(1.4) |
% |
(2.2) |
% |
(2.2) |
% |
|||||
Change in average basket size (2) |
0.1 |
% |
3.7 |
% |
0.8 |
% |
3.1 |
% |
|||||
(1) |
Consists primarily of non-product related revenues. |
||||||||||||
(2) |
Excludes the impact of foreign currency translation. |
||||||||||||
(3) |
Consists primarily of non-product related revenues, including licensing revenue from unaffiliated third parties. |
Non-GAAP Disclosure of EBITDA and Adjusted EBITDA |
||||||||||||||||
We believe Adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. Investors in the Company regularly request Adjusted EBITDA as a supplemental analytical measure to, and in conjunction with, the Company’s financial data prepared in accordance with accounting principles generally accepted in |
||||||||||||||||
In addition, we believe that Adjusted EBITDA is useful in evaluating our operating performance compared to that of other companies in our industry because the calculation of EBITDA and Adjusted EBITDA generally eliminates the effects of financing and income taxes and the accounting effects of capital spending and acquisitions, which items may vary for different companies for reasons unrelated to overall operating performance. We use the non-GAAP financial measures for planning and forecasting and measuring results against the forecast and in certain cases we use similar measures for bonus targets for certain of our employees. Using several measures to evaluate the business allows us and investors to assess our relative performance against our competitors. |
||||||||||||||||
Although we believe that Adjusted EBITDA can make an evaluation of our operating performance more consistent because it removes items that do not reflect our core operations, other companies, even in the same industry, may define Adjusted EBITDA differently than we do. As a result, it may be difficult to use Adjusted EBITDA or similarly named non-GAAP measures that other companies may use to compare the performance of those companies to our performance. The Company does not, and investors should not, place undue reliance on EBITDA or Adjusted EBITDA as measures of operating performance. |
||||||||||||||||
A reconciliation of Net earnings (loss) attributable to |
||||||||||||||||
13 Weeks Ended |
Fiscal Years Ended |
|||||||||||||||
(In millions) |
|
|
|
|
||||||||||||
Net earnings (loss) attributable to |
$ |
341 |
$ |
276 |
$ |
(36) |
$ |
(130) |
||||||||
Add: |
||||||||||||||||
Income tax expense |
26 |
74 |
34 |
76 |
||||||||||||
Interest expense, net |
110 |
95 |
455 |
426 |
||||||||||||
Depreciation and amortization |
77 |
90 |
317 |
343 |
||||||||||||
EBITDA |
554 |
535 |
770 |
715 |
||||||||||||
Adjustments: |
||||||||||||||||
Certain transaction costs (a) |
9 |
11 |
24 |
13 |
||||||||||||
Severance |
4 |
5 |
9 |
24 |
||||||||||||
Net earnings attributable to noncontrolling interest |
3 |
2 |
7 |
6 |
||||||||||||
Compensation expense (b) |
1 |
11 |
21 |
24 |
||||||||||||
Sponsors’ management and advisory fees (c) |
1 |
— |
6 |
6 |
||||||||||||
Litigation (d) |
1 |
— |
5 |
(1) |
||||||||||||
Impairment of long-lived assets |
1 |
12 |
4 |
16 |
||||||||||||
Property losses, net of insurance recoveries (e) |
1 |
— |
— |
(1) |
||||||||||||
Foreign currency re-measurement (f) |
(2) |
8 |
(7) |
11 |
||||||||||||
Gains on sales of assets (g) |
(1) |
(12) |
(46) |
(20) |
||||||||||||
Store closure costs (h) |
(1) |
2 |
(1) |
7 |
||||||||||||
Adjusted EBITDA (i) |
$ |
571 |
$ |
574 |
$ |
792 |
$ |
800 |
A reconciliation of Net earnings (loss) to EBITDA and Adjusted EBITDA for |
||||||||||||||||
13 Weeks Ended |
Fiscal Years Ended |
|||||||||||||||
(In millions) |
|
|
|
|
||||||||||||
Net earnings (loss) |
$ |
227 |
$ |
230 |
$ |
29 |
$ |
(15) |
||||||||
Add: |
||||||||||||||||
Income tax expense |
14 |
20 |
27 |
27 |
||||||||||||
Interest expense, net |
40 |
30 |
157 |
156 |
||||||||||||
Depreciation and amortization |
47 |
58 |
198 |
225 |
||||||||||||
EBITDA |
328 |
338 |
411 |
393 |
||||||||||||
Adjustments: |
||||||||||||||||
Certain transaction costs (a) |
4 |
7 |
17 |
7 |
||||||||||||
Severance |
2 |
3 |
5 |
14 |
||||||||||||
Compensation expense (b) |
— |
1 |
2 |
— |
||||||||||||
Sponsors’ management and advisory fees (c) |
1 |
1 |
6 |
6 |
||||||||||||
Litigation (d) |
1 |
— |
1 |
— |
||||||||||||
Impairment of long-lived assets |
— |
— |
1 |
2 |
||||||||||||
Property losses, net of insurance recoveries (e) |
— |
— |
— |
(1) |
||||||||||||
Foreign currency re-measurement (f) |
(2) |
8 |
(7) |
11 |
||||||||||||
Gains on sales of assets (g) |
— |
— |
(45) |
(1) |
||||||||||||
Store closure costs (h) |
(1) |
2 |
6 |
10 |
||||||||||||
Adjusted EBITDA (i) |
$ |
333 |
$ |
360 |
$ |
397 |
$ |
441 |
(a) |
Represents expenses associated with the transition of our |
(b) |
Represents the incremental compensation expense related to certain one-time awards and modifications, net of forfeitures of certain officers’ awards. |
(c) |
Represents the fees expensed to our Sponsors in accordance with the advisory agreement. |
(d) |
Represents certain litigation expenses and settlements recorded for legal matters. |
(e) |
Represents property losses and insurance claims recognized. |
(f) |
Represents the unrealized (gain) loss on foreign exchange related to the re-measurement of the portion of the Tranche A-1 loan facility due fiscal 2019 attributed to |
(g) |
Represents sales of properties and intellectual property. |
(h) |
Represents store closure costs, net of lease surrender income. |
(i) |
Adjusted EBITDA is defined as EBITDA (earnings (loss) before net interest expense (income), income tax expense (benefit), depreciation and amortization), as further adjusted to exclude the effects of certain income and expense items that management believes make it more difficult to assess the Company’s actual operating performance including certain items which are generally non-recurring. We have excluded the impact of such items from internal performance assessments. We believe that excluding items such as Sponsors’ management and advisory fees, asset impairment charges, severance, impact of litigation, store closure costs, noncontrolling interest, gains on sales of assets and other charges, helps investors compare our operating performance with our results in prior periods. We believe it is appropriate to exclude these items as they are not related to ongoing operating performance and, therefore, limit comparability between periods and between us and similar companies. |
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/toysrus-inc-reports-results-for-the-full-year-and-fourth-quarter-of-fiscal-2016-300438484.html
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