Toys R Us issued a stunning statement Wednesday that it plans to split off the babies-related division and sell the main toys business.
In an "update" on the company's strategic review, the struggling group said it had decided to separate the global toys and the Babies R Us businesses but it had not yet decided how to do so.
"As part of this comprehensive review, the company is taking steps, among other actions, to explore the possible sale of the global toy business as well as to prepare for a possible spin-off of Babies R Us," the statement said.
In the meantime, the board had decided to operate the baby-related and global toys businesses as separate entities within the current corporate structure.
Toys R Us, hurt by competition with major discounters such as Wal-Mart, said it also would restructure the toy business to "dramatically reduce operating and capital expenses" and boost cash flow.
"The series of steps we are announcing today reflect the fact that our global toy business and our Babies R Us business operate in distinct markets, and are at fundamentally different phases in their growth cycle," said chairman and chief executive John Eyler.
"Consequently, by ultimately operating them as separate entities, we will provide a better opportunity for Babies R Us to continue its healthy growth," he said.
"In addition, whatever form the separation takes, these steps should facilitate the execution of a restructured -- and substantially leaner and more focused -- global toy business that we believe can generate significant cash."
The group said it planned to:Separate the toys and babies divisions by the first half of fiscal 2005; restructure the headquarters in Wayne, New Jersey and cut headquarters and toy business operating costs by US$125 million by fiscal 2005 from last year.
It also planned to lower investment in global toys to less than US$150 million next year and take about US$150 million in markdowns in the second quarter primarily to liquidate selected US toy store inventory and generate extra cash.
"Overall, the strategic plan we are pursuing is intended to enable Babies R Us to continue to prosper as a separate entity while also putting our global toy business on a solid foundation," Eyler said.
Meanwhile, Toys R Us Japan Ltd, the Japanese unit of the world's largest toy-store chain, expects no immediate impact from its US parent's plan to separate its toy retailing and baby products businesses.
Toys R Us Japan doesn't plan to separate its toy and baby businesses, said Toshiaki Haruna, a spokesman for the Japanese retailer.
"We will proceed with our own business plans," he said.
Adopting the US company's strategy would counter the Japanese unit's expansion plan. Toys R Us Japan, based in Kanagawa Prefecture, near Tokyo, has said it intends to increase its outlets to 250 by 2010. It had 143 toy stores and three baby product outlets as of Jan. 31, according to its Web site.
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