Toys R Us


sold lower Tuesday after the company looked within for a new chief financial officer.

About three months into a restructuring plan, Toys R Us said the president of its Web site, Raymond L. Arthur, was appointed its new CFO. Investors were apparently looking for a higher-profile executive to take the post and shares slipped 36 cents, or 2.1%, to $16.58.

Arthur first joined Toys R Us in 1999 and has headed since January 2002. He was the CFO of the same division for the two years prior to that.

Toys R Us had announced in November that its CFO Louis Lipschitz planned to retire in early 2004. Lipschitz had held the post since 1993.

The company said part of Arthur's tasks will be to help with the operational review it first announced on Jan. 8 to assess its assets and operations. Since the review began, however, news from the company has been less than positive. Its debt rating has been reduced to junk and it announced that fourth-quarter profit dropped to nearly half that of a year earlier.

Goldman Sachs analyst Matthew Fassler said that while Arthur has the experience to head Toys R Us' financial group, investors were looking for an executive from outside the company who has experience with both restructuring and corporate finance. "Given Toys R Us' checkered past, new blood in the organization to complement existing management is desirable," he wrote in a Tuesday research note.

Fassler added: "Given the centrality of the restructuring to the Toys R Us story and share price, particularly given the stock's recent run, we believe expectations for a higher-profile candidate with a prominent restructuring and corporate finance background had risen." (Goldman Sachs has an investment banking relationship with Toys R Us.)

Even though the shares dropped Tuesday, the stock is up 75% year over year and hit a 52-week high of $17.44 last week. The stock traded at an all-time high in the low $40s in late 1993.

Prior to announcing its strategic review, the company had said in November it would close its 146 freestanding Kids R Us stores and 36 Imaginarium stores. The company said Tuesday that it currently has 31 more Kids R Us stores to close. Most of the stores were sold to

Office Depot

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in a deal announced March 3.

At least one analyst was somewhat positive on the company. In an April 12 credit critique of the company, Phelps Hoyt of KDP Investment Advisors said he is "impressed with the speed at which management accomplished its divestiture goals," referring to Toys R Us' successful exits from its Kids R Us and Imaginarium businesses.

Said Hoyt: "Cash from the liquidation of these concepts and the sale of the related stores, together with positive free cash generation from ongoing operations, has provided Toys R Us with strong near-term liquidity."

Hoyt added that though his outlook for long-term growth in toy sales at the company is not good, he thinks "prudent management" should allow the company to generate modest positive free cash flow from its U.S. and international toy businesses via store closings and more effective purchasing decisions.

In the quarter ended Jan. 31, Toys R Us earned $144 million, or 67 cents a share, compared to $278 million, or $1.30 a share, in the year-earlier quarter. The company said net earnings for the quarter, which excluded Kids R Us closings, restructuring and other charges, were $234 million, or $1.08 a share. Analysts had been expecting $1.05 a share.

On March 24, Moody's reduced its debt rating on Toys R Us to below investment grade, citing its inability to compete with big-box discounters


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. Standard & Poor's also reduced its rating on the company in March.

In total, Toys R Us has 1,491 stores worldwide, consisting of 681 toy stores in the U.S.; 578 international toy stores; 200 Babies R Us stores; and four Geoffrey stores.