Pounded by Amazon.com Inc. (NASDAQ: AMZN) and big-box retailers like Wal-Mart Stores Inc. (NYSE: WMT) and Target Corp. (NYSE: TGT), troubled Toys R Us continues to bleed. Revenue was flat in its 2015 fiscal year at $12.4 billion. The retailer lost $298 million. The company’s management claims it has a brighter future, a position hard to defend, given the competition.
According to research firm PrivCo:
Slowly but surely, under new leadership Toys “R” Us revived its business, filing for an IPO in 2010. However, disagreements between shareholders concerning the timing of the IPO culminated in the company missing its opportunity as sales began to decline again falling 2.6% in FY 2013 and 7.4% in FY 2014. Along with decreasing demand, the company suffered a whopping 163% drop in operating income from $556 million in FY 2013 to -$350 million in FY 2014 which led to a net income of -$1.036 billion. Antonio Urcelay, CEO at the time, explained the drop in performance as a function of market conditions, a lack of internal focus on the customer, and high costs. He announced a new strategy to shift focus to the customer and restructure the company to cut costs and streamline the business; a battle plan that looks to be working so far with a 226% increase in year over year (YOY) Q4 net income. Toys “R” Us’s most recent filing, its Q2 quarterly report filed in August, also showed improvement with YOY net income increasing from a loss of -$148 million to -$99 million in FY 2016.
Looking toward the future:
Toys “R” Us expects to make $100 million to $175 million in further spending cuts as the company continues its restructuring efforts, but has this once dominant toy retailer stabilized itself enough to take on the new wave of innovative competitors?
Can the company afford to cut when its competition has so much balance sheet, store distribution and marketing leverage? Probably not.
The 2015 holiday shopping period, which already has begun, will be the watershed for Toys R Us. If it cannot pick up business from competitors, it likely never will.