At presentations today for investors, industry analysts, and the media, Toys “R” Us Inc. provided an update on its strategy to improve the company’s operational performance, as it continues its work to position the business for long-term profitable growth.
“A year ago, we introduced a new strategic plan, with initial efforts concentrated on strengthening the foundation of the company so revenue and profits can grow in the future,” says Antonio Urcelay, chairman of the board and CEO, Toys “R” Us Inc. “During 2014, we made steady progress in implementing this plan, successfully delivering on our commitment to slow sales decline, stabilize cash flow, and improve EBITDA. We also made significant process and organizational improvements, addressing a number of important executional issues.
“As a result, during the year, global Internet sales continued to grow, benefiting from our strengthened omnichannel fulfillment model; U.S. margin improved due to disciplined promotional activity and inventory management; and customer satisfaction metrics confirmed that changes we have been making provided a better shopping experience in-store and online.”
During 2015, the objective of the company’s TRU Transformation strategy will be to continue to slow the company’s sales decline, strengthen margin, and improve EBITDA to effectively position the business to become fit for growth. Company-wide efforts will focus on four key priorities:
• Continuing to transform the customer experience in-store and online. Initiatives underway to improve the shopping experience for customers will expand over the course of this year. Additional stores have been identified for investments in interior and exterior physical improvements, and the elevated maintenance and lighting standards introduced last year will continue in all stores. Consumer insights will also help guide the company in making service and selling improvements, and a deeper integration with its loyalty program will be concentrated on driving more special occasion visits year-round.
• Optimize the e-commerce business. With an over $1.2 billion global e-commerce business, the company’s focus is to continue to grow profitably online. An end-to-end assessment of the online business is underway to identify key areas for functionality and process improvements. In the coming year, the company plans to further strengthen its omnichannel capabilities, including in-store pickup and ship from store execution, especially during the peak holiday season.
• Grow internationally and leverage global scale to drive category leadership and differentiation. Toys “R” Us has a strong international presence across 36 countries outside of the U.S. Over the coming year, the company expects to continue to grow internationally, particularly in China and Southeast Asia.
• Right-size the cost structure and design a more efficient, streamlined organization. As part of its Fit for Growth initiative, the company continues to seek substantial cost and working capital savings opportunities through process and operating model improvements. Last year, the company identified potential cost savings of $150 to $200 million, primarily in U.S. SG&A and cost of goods. Over $100 million of this was achieved in fiscal 2014, and the additional $50 to $100 million is expected to be fully realized by fiscal 2016. In addition, the company recently identified $50 to $75 million of potential savings in its international operations, which it expects to achieve by the end of fiscal 2016.
Regarding near-term debt, the company recently completed the successful refinancing of $1.4 billion of its near-term debt maturities, and now has no significant outstanding debt repayments due until 2017.
Full details on Toys “R” Us Inc.’s TRU Transformation strategic update can be found at the company’s investor relations page.
