Toys “R” Us Inc. today reported financial results for the first quarter ended May 2. Net sales were $2,325 million, a decrease of $154 million compared to the prior year period. Excluding the $131 million negative impact of foreign currency translation, net sales declined $23 million, or .9 percent.
The decline was predominantly due to a decrease in domestic comparable store net sales, partially offset by international segment increases in net sales from new locations and comparable store net sales. International comparable store net sales were up 1.2 percent, primarily driven by increases in the learning and core toy categories, partially offset by a decrease in the company’s entertainment category (which includes electronics, video game hardware, and software).
Domestic comparable store net sales were down 2.3 percent, primarily due to a planned decrease in promotional activity. While core toy category sales increased, there were declines in the baby, entertainment, and seasonal categories. Gross margin dollars were $862 million, compared to $918 million for the prior year period, a decrease of $56 million. Foreign currency translation accounted for $50 million of the decline.
Gross margin, as a percentage of net sales, was 37.1 percent versus 37 percent in the prior year period, an increase of 0.1 percentage points. The margin improvement was primarily attributable to the domestic segment, which increased by 0.2 percentage points to 35.9 percent, as a result of continued promotional discipline, with the most significant improvements in the baby and core toy categories. International segment gross margin, as a percentage of net sales, remained relatively consistent compared to the prior year period.
Adjusted EBITDA1 was $70 million, compared to $27 million in the prior year period, an improvement of $43 million. Selling, general, and administrative expenses (SG&A) decreased by $90 million to $827 million, compared to $917 million in the prior year period. Excluding the $49 million favorable impact from foreign currency translation, SG&A decreased by $41 million, primarily due to a $21 million decrease in payroll expenses, of which $14 million was store payroll, a $13 million reduction in advertising and promotional expenses and a $3 million decrease in occupancy costs.