Toys R Us Inc., the second-largest U.S. toy retailer, said Monday that it would close its money-losing Kids R Us and Imaginarium chains, eliminating about 3,800 jobs. The company's shares plunged after its third-quarter loss unexpectedly widened and it cut its annual profit forecast.
The chains will be shut by the end of January. They include 146 Kids R Us clothing stores and 36 Imaginariums, which sell educational toys. Three distribution centers also will be closed. Toys R Us will incur about $280 million in pretax costs, the Wayne, N.J.-based company said.
Chief Executive John Eyler said he decided to close the businesses after results worsened faster than the company expected. Kids R Us has lost money the last three years as same-store sales fell. Eyler, who finished remodeling more than 600 U.S. Toys R Us stores last year, has failed to attract shoppers amid competition from discounter Wal-Mart Stores Inc., analysts said.
The retailer's third-quarter net loss of $38 million, or 18 cents a share, was twice as wide as analysts surveyed by Thomson First Call had expected. Sales rose 2.2% to $2.32 billion in the quarter ended Nov. 1, helped by the declining dollar. Toys R Us had a net loss of $28 million, or 13 cents, a year earlier on $2.27 billion in sales.
Toys R Us, which has 1,629 stores and had 65,000 employees as of February, fell $1.56, or 12%, to $11.18 on the New York Stock Exchange. The stock has risen 12% this year.
Some of the Kids R Us locations being closed may be converted to Babies R Us stores, the best-performing unit at the company. Same-store sales at Babies R Us climbed 3% in the third quarter.
The company will try to relocate some Kids R Us and Imaginarium employees to other divisions, spokeswoman Susan McLaughlin said. The job cuts come on top of about 900 announced earlier this year after Toys R Us posted disappointing holiday sales.
Kids R Us, which accounted for about 4% of Toys R Us' total sales of $11.3 billion last year, was started in 1983, and the retailer acquired Imaginarium in 1999, McLaughlin said.
The Imaginarium sections inside Toys R Us chains will remain open. The company will continue to sell clothing at its Toys R Us and Babies R Us stores.
The company trimmed its annual profit estimate to $1.05 to $1.15 a share, excluding costs for store closings and an accounting change, from an earlier forecast of $1.15. Toys R Us had net income of $229 million, or $1.09, last year.
Wal-Mart passed Toys R Us to become the largest U.S. toy seller in 1998. Discounters traditionally have lowered prices on toys, sometimes even selling them without a profit, to lure shoppers to stores, analysts said. Eyler said he would match discounters' prices on popular toys and would keep them in stock during the holidays.
Eyler came to Toys R Us in January 2000 from FAO Schwarz, where he was president and chief executive. He said he wasn't interested in buying the assets of FAO Inc., owner of the FAO Schwarz, Zany Brainy and Right Start toy chains.