Toy retail giant Toys "R" Us said Monday it was closing 64 stores, cutting 1,900 jobs as part of a plan to cut costs and boost profits.
Toys R Us, the second biggest U.S. toy retailer after Wal-Mart Stores, said it will take a $213 million pretax restructuring charge in its fiscal fourth quarter, which ends Feb. 2.
The moves announced Monday come as the Paramus-based company's earnings have slumped due to the economic slowdown and extensive remodeling costs.
Toys "R" Us, as with most other retailers, has suffered lackluster earnings performance since the third quarter of fiscal 2000 as costs to revamp stores and a weakening economy dent consumer confidence.
The company will close 37 Kids ``R'' Us stores, which sell mainly children's apparel, and 27 Toys ``R'' Us stores, which sell items ranging from toys and sporting goods to video games.
The stores slated for closure were among those that Toys ''R'' Us had planned to renovate, from a supermarket or warehouse layout, into a racetrack format with themed sections for Barbie Dolls, dinosaurs and other toys. The so-called ``Mission Possible'' format, which began rolling out three years ago, was aimed at providing customers easier access in a fun environment.
"Today's adjustments... are to consolidate our offices and save out payroll more than $30 million a year," Chairman and Chief Executive John Eyler told Neil Cavuto on Fox News Channel Monday.
About 1,550 jobs will be cut in stores, while the rest will come from management and other non-store positions, Eyler said.
According to corporate resources Web site Hoover's.com, Toys ``R'' Us now has 69,000 employees, meaning that the job cuts affect about 3 percent of the staff.
The retailer operates 1,609 stores worldwide, with 703 outlets in the United States.
However, the economic downturn and stunning growth of discount stores like Wal-Mart -- whose toy sales now exceed those of Toys ``R'' Us -- forced the Paramus, New Jersey-based retailer to speed up the store reconfigurations and close unprofitable stores.
``In our judgement, the investment of significant capital to renovate these stores to the Mission Possible format would not be prudent,'' Eyler said in a statement. ``Rather, we will concentrate our investments on those stores judged most likely to produce superior returns,'' he added.
Five store support facilities will be consolidated. Toys ''R'' Us units will begin sharing most administrative and financial functions. However, merchandising, store operations and marketing activities will continue to be performed by separate divisions.
Eyler said the changes are expected to boost the company's free cash flow in 2002 and beyond, as well as improve pretax earnings by about $25 million in 2002, and about $45 million annually beginning in 2003.
Payroll savings associated with changes in support functions will account for $30 million of the $45 million projected in pretax annual earnings, starting in 2003, the company said.
Toys ``R'' Us has been dogged by weak earnings over the last two years as the costs of its store revamp weighed on profit growth.
``We believe this restructuring and the organizational changes we are making will better position Toys ``R'' Us to compete effectively and deliver improving returns to our shareholders,'' Eyler said in a conference call with analysts.
Earlier this month Toys ``R'' Us said it expected 2001 earnings to meet Wall Street estimates despite a challenging retail environment.
Donald Trott, analyst at Jefferies & Co., Inc., welcomed the restructuring. ``It's modestly constructive. We think it adds 8 cents to earnings for the new year starting Feb. 1, and then will add an incremental 6 cents a share to the earnings the year after that,'' he said.
Underscoring the success of theme-park store format, Eyler said about 433 renovated stores showed greater sales growth than unrenovated stores during the holiday shopping season.
But William Julian, an analyst at Salomon Smith Barney, said in a research note the restructuring measures ``show that the business is still struggling and the improved performance of renovated stores isn't strong enough to carry the company through the recession.''
The company said some Kids ``R'' stores will be moved into some existing Toys ``R'' Us stores, to create hybrid outlets. The retailer already has 273 combo stores, a number it expects to reach 375 by the end of 2002.
Reuters and the Associated Press contributed to this report.