This is a partial transcript from Your World with Neil Cavuto, August 19, 2002, that was edited for clarity. Click here for complete access to all of Neil Cavuto's CEO interviews.
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TERRY KEENAN, GUEST HOST: Shares of Toys "R" Us jumping 8 percent. The nation's second-largest toy retailer, behind Wal-Mart, posting a smaller-than-expected loss. Toys "R" Us credits low inventories and strong international sales. The stock, though, down 44 percent from its year- high, but getting a nice pop on the day.
And joining us now with all the details on his numbers, John Eyler, the chairman and CEO of Toys "R" Us. Nice market reaction to your numbers. You're still losing money. When do you expect to start to break even and turn a profit?
JOHN EYLER, TOYS "R" US CEO (TOY): Well, we are a profitable company. We just have not over the last few years made money in the first three quarters. But we are hugely profitable in the fourth quarter. We made the commitment to the Street last year that we would cut our losses in half this year for the first three quarters and be profitable in 2003 for the first three quarters, and we are more than ahead of that track.
KEENAN: Somewhat surprising to see that Wal-Mart is actually your biggest competitor, and you know, anyone who has to compete with Wal-Mart and their pricing power, knows it's a tough game. How are you competing in that arena?
EYLER: Well, Terry, Wal-Mart is everybody's biggest competitor.
KEENAN: Exactly.
EYLER: And you know, we do about 3.5 times as much toy business per store as they do, but they have a lot of stores and they keep building a lot of stores. Our objective is not to take market share away from Wal-Mart, because nobody's going to take market share away from Wal-Mart. But if you look at the toy business, there is Wal-Mart, there's Toys "R" Us and Target. The three of us represent about 45 percent of the business. When people like Ames, who represent 2 percent of the business go out of business, when mom-and-pops and small independents go out at a rate of about 3 percent a year, there's 15 percent of market share up for grabs over the next three years, and we are going to get a big piece of that.
KEENAN: You have the brand name, kids want to go there, want to see the giraffe. How are you going to continue to capitalize on that?
EYLER: Well, we are just in the process of completing remodeling all of our stores so they are fresh and clean and fun. We are enhancing our service level so there are really knowledgeable people to help guests find what they are looking for, and finally, we have a much higher in-stock rate on most wanted products. Today, we're 97 percent in stock on the top 1,500 items.
KEENAN: And how are you able to do that and still pair your inventories as you have in the last quarter?
EYLER: Well, we used to carry about 14,000 different toys. Now, we carry about 9,000, but it's still about three times the assortment of our biggest competitors.
KEENAN: You know, you have this fabulous store in Times Square with the ferris wheel inside, I mean, you do not have to be a kid to like the store. Are you going to try to roll out other kind of destination stores that will bring in the kids?
EYLER: No, that store was really the center of our toy universe and everybody's toy universe. It was designed to really show that things are changing at Toys "R" Us. It is extremely successful. It is the largest volume toy store in the world by far, and physically the largest store, but it was designed to really signal more fun in the stores and certainly better service levels. We pridefully will note that we've got the highest rating per customer service in all toy stores in New York City only two weeks into the life of that store, and that's the model for working on service in all of our stores.
KEENAN: How does the Christmas season look to you, because the jury is still out?
EYLER: You know, we managed the spring season really with a very hard line at the bottom line, hard eye at the bottom line. We are in the spring; volume is not the issue. It's operating officially. In the fall, volume is much more important, because that's where the business is done, and we are very encouraged by the early tests on fall season products. We have never seen as many that are trending better than we thought this early in the season, so we are going to do what we've been doing, and that is to make sure we're in stock and flowing the most wanted products and serving the guests correctly.
KEENAN: What are going to be the hot toys that parents might want to buy early before the big lines form?
EYLER: Well, I'll tell you, we are not going to talk about that on this show, we will do that the next quarter, because I do not want to tip off our competition, but we have done a lot of testing, and we think we know.
KEENAN: You know, last holiday season, a lost of the pundits said in the wake of 9/11, the recession, it was going to be a bad Christmas, and while it trended down from 2000, it was still a pretty good year overall for holiday sales. Do you expect to see the same trend this year?
EYLER: Actually, the third quarter was difficult last year, but the fourth quarter -- we had a very successful holiday season. In fact, that was the first of three consecutive quarters that we have beaten the analysts` expectations for our company, and I believe this will be a better fourth quarter. There are people out there that don't believe it, but if you watch the market rebound today, I think consumer confidence is more resilient than people give them credit for. And we think it's going to be a good, solid holiday season.
KEENAN: Are toys a cyclical business, like extremely correlated to the economy, or do people still buy toys no matter what?
EYLER: No, they are less -- they are certainly affected by the economy, but they are less cyclical than some businesses. I think the last place you are going to scrimp is when your child deserves a toy, whether it's a birthday, whether it's the holidays.
KEENAN: Or they think they deserve toys.
EYLER: Or they think they deserve, that's right. Spoken like a parent.
KEENAN: Thanks for joining us.
EYLER: Thank you.
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