Toys R Us Names CEO; Investors Remain Skittish
Toys R Us Inc. named a new chief executive Tuesday to help restore the giant chain’s sluggish growth and quell its recent management turmoil, but Wall Street gave the announcement a decidedly cool reception.
The 1,544-store chain said it hired John Eyler to be president and CEO. Eyler, 52, had been chairman and chief executive of FAO Schwarz, the upscale toy chain based in New York and a unit of Vendex KBB, a Dutch specialty retailer.
Eyler will succeed Toys R Us Chairman Michael Goldstein, who had been acting CEO since last summer when Robert Nakasone, who held the job for only 18 months, abruptly resigned amid widespread reports of a falling out with Goldstein and Toys R Us’ other directors over the chain’s direction.
But Eyler’s arrival did little to cheer investors, who have spent the last year punishing Toys R Us and many other toy-retailing and manufacturing stocks because of lackluster results in the industry.
“It’s like going from a yacht to a battleship,” said Dorothy Lakner, an analyst with CIBC World Markets in New York. “He’s clearly someone who has industry experience, but he’s come from a very small, much more upscale toy retailer.”
Toys R Us’ stock, which had plunged 50% since late May, lost $1.06 a share, to $11.56, in New York Stock Exchange composite trading Tuesday. The months-long slide has wiped out about $2.8 billion of Toys R Us’ total market value.
John Eyler
Analysts said Wall Street has reason to be skittish about Paramus, N.J.-based Toys R Us, partly because of the chain’s ongoing struggles and because of doubts about whether Eyler has the ability to turn things around.
They noted that Eyler has experience in dealing with toy trends and manufacturers, but that he’ll face a huge change from running a small outfit such as FAO Schwarz, which has 42 outlets nationwide, to guiding a global chain such as Toys R Us.
In addition, FAO Schwarz is effectively a niche player in toy retailing. Now, Eyler will be vying against giant merchandisers such as Wal-Mart Stores Inc. and the Target chain of Dayton Hudson Corp.
And finally, analysts are wondering whether Eyler will be able to work smoothly with Goldstein, 58, and avoid the clashes that ultimately ousted Nakasone.
Eyler, who has an MBA from Harvard University and has been FAO Schwarz’ CEO since 1992, said in a statement that he’s “confident that many of the lessons I learned [at FAO Schwarz] can apply to building market share and shareholder value at Toys R Us.”
But investors also remain wary because Toys R Us has been inconsistent for so long. It has misjudged demand for certain toy lines that swelled its inventories with unsold goods, had false starts in creating its own Internet site, and suffered from unexciting store displays that have only started to be revamped in the last year. It has grappled with those woes while Wal-Mart and its other rivals have stepped up the pressure, and the executive shuffling inside Toys R Us only made matters worse.
After several straight quarters of declining profit or losses, Toys R Us in November surprised many by posting a $15-million profit for its fiscal third quarter ended Oct. 30 on sales of $2.5 billion.
Moreover, the chain said sales of U.S. stores open at least a year--a key gauge of retailing success--jumped 13% from a year earlier, its biggest rise in that category in more than a decade. That gave investors hope that Toys R Us’ 1999 holiday-shopping season might also be strong.
But Toys R Us came up short again. Last week, it warned that product shortages and fierce competition not only from bricks-and-mortar stores but also from the burgeoning number of Internet toy retailers such as EToys Inc. would drop its fiscal fourth-quarter results below analysts’ expectations.
“To its credit, a lot has been going on at Toys R Us to improve things,” said analyst Lakner, “but the disappointment during Christmas suggested that the work is far from done.”
FAO Schwarz has had its own problems under Eyler’s leadership. Last April, Vendex said the chain’s profit for its fiscal year ended Jan. 31 had dropped sharply despite higher sales, and that it was mulling a sale of FAO. In September, though, Vendex said FAO’s losses had narrowed “considerably.”
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Down Again
Shares of Toys R Us tumbled further on news that FAO Schwarz CEO John Eyler has agreed to take the helm at Toys R Us. Weekly closes and latest on the New York Stock Exchange:
Tuesday: $11.56, down $1.06
Source: Bloomberg News
