Toys R Us Reports 2nd-Quarter Profit

Toys R Us Inc. swung to a profit in the fiscal second quarter, boosted by a reversal of $200 million in income tax reserves, but sales fell 3.9% and its U.S. toy business posted a big operating loss.

For the quarter ended July 31, Toys R Us earned $61 million, or 28 cents a share, contrasted with a year-earlier loss of $11 million, or 5 cents. The reversal in income tax reserves this year helped offset pretax charges of $228 million related to restructuring, markdowns and store closings.

Total sales fell to $2.02 billion from $2.10 billion a year earlier.

Chairman and Chief Executive John Eyler said Monday that the company, which announced this month that it was considering selling its worldwide toy business, did not expect to have a decision on its next step for “a number of months.”

“The past few months have been a time of rigorous reevaluation for Toys R Us,” he said during a conference call with analysts. “We move forward now with renewed focus on our two distinct businesses, Babies R Us and the global toy business. And all of us realize the next 120 days are key for the global toy business.”

Toys R Us, the nation’s second-largest toy seller, has struggled with fierce competition from discounters, particularly industry leader Wal-Mart Stores Inc. It said Aug. 11 that its plans also could include a spinoff of its fast-growing Babies R Us division, which sells furniture, apparel and accessories.

The possible retreat from its core toy business comes after Toys R Us has spent millions to renovate its stores and sought exclusive rights to certain toys to differentiate itself from the discounters, which it couldn’t beat on price.

Toys R Us most likely will wait until after the holiday season to set its future course -- including any store closings, analysts said.

“They want to see how the fourth quarter goes,” said Chris Byrne, an independent toy consultant. “For the toy business, the fourth quarter is really make or break.”

Shares in Toys R Us rose 43 cents to $16.04 on the New York Stock Exchange.

The company had delayed its second-quarter earnings release by a week, and executives did not take questions during a conference call.

In the U.S. toy business, same-store sales, or sales at stores open at least a year, fell 7.7%. Same-store sales are considered the best indicator of a retailer’s health. The U.S. toy division posted a loss of $138 million, contrasted with a profit of $9 million a year earlier. At Babies R Us, same-store sales rose 1.8%.