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Toys R Us May Sell Core Retail Business NEW YORK (Reuters) - Toys R Us Inc. (TOY.N: Quote, Profile, Research) , slammed by intense competition from discounters such as Wal-Mart, may sell its toy retail business and focus on its fast-growing Babies R Us unit, the company said Wednesday. Toys R Us, whose shares fell 6 percent on the news but later recovered, said it intends to separate ownership of its two businesses and is looking at various steps to accomplish this, including a spin-off of Babies R Us. By separating the businesses, Babies R Us would be able to thrive and build on its core market of supplying not just baby toys, but gear like bedding, furniture, strollers and clothes to expectant and new parents. "We believe today's announcement is extremely positive for investors, as one of the critical pieces to unlocking shareholder value in Toys R Us is separating its crown jewel, Babies R Us," Prudential analyst Mark Rowan said in a research note. The toy business, which targets a much different customer, will face a dramatic cut in operating expenses and capital in an effort to boost its cash flow, the company said. Toys R Us has nearly 700 toy stores in the United States and about 600 abroad. Babies R Us, the largest baby product specialty store chain in the world, has 200 U.S. stores. The company already shut its Kids R Us and Imaginarium stores. Toys R Us plans to take about $150 million in markdowns in the second quarter, primarily to liquidate selected U.S. toy store inventory. It said it would decide to close any stores between now and the end of the 2004 holiday season. "For them to say they're not making a decision on closing stores before holidays is surprising," said Seam McGowan, an analyst with Harris Nesbitt. "Sure, it's before the holiday season, but after 2003, what more do we need to find out?" The 2003 holiday season was difficult for toy retailers, with aggressive price competition on hot items eating into profits for many toy sellers. NEW MANAGEMENT John Eyler will keep his job as chairman and chief executive of the whole company and Ray Arthur will continue in his role as chief financial officer. Richard Markee, who was president of U.S. toy stores, will become CEO and president of Babies R Us upon separation of the business. John Barbour, who is currently president of Toys R Us International, will replace Rick Markee as head of U.S. toy stores. Right after taking the helm of Toys R Us in 2000, Eyler cut costs, remodeled stores, improved customer service and freshened inventory, but none of these changes have been enough to turn the retailer around. The company's toy operations have grappled with competition from big discounters like Wal-Mart Stores Inc. (WMT.N: Quote, Profile, Research) and Target Corp. (TGT.N: Quote, Profile, Research) . Price wars among toy retailers led to bankruptcy for FAO Inc., parent of the upscale FAO Schwarz toy stores and mall-based retailer KB Toys. Toys R Us will also "substantially restructure" its corporate headquarters, a posh new campus in Wayne, New Jersey, and said it recorded about $14 million in severance and other related charges, with additional charges expected. It postponed the release of its second-quarter earnings by one week, to Aug. 23. The company's shares slipped 35 cents at $16.07 on the New York Stock Exchange after falling to $15.43 earlier in the session. (Additional reporting by Jessica Hall in Philadelphia and Emily Kaiser in Chicago)
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