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Toysrus.com reports growth, profits

The e-commerce division of Toys "R" Us turns its first ever quarter of operating profit and records a 23 percent rise in sales last year.

Toy retailer Toys "R" Us reported Wednesday that its e-commerce division turned its first ever quarter of operating profit and recorded a 23 percent rise in sales last year.

Toysrus.com's fourth-quarter operating profit of $3 million compares with an operating loss of $17 million in the same quarter of 2001. Operating profit excludes certain charges, including interest and intercompany royalties, said Ray Arthur, president of Toysrus.com. Parent company Toys "R" Us reported fourth-quarter net earnings of $278 million.

Sales at Toysrus.com and the company's other e-commerce sites, which include Babiesrus.com, Giftsrus.com and Imaginarium.com, totaled $340 million for the whole of 2002, compared with $277 million in 2001, the company said. Toys "R" Us, which reported total 2002 sales of $11.3 billion, launched its online unit in 1999.

The company attributed its online growth and operating profit to the strength of its brands, the growing popularity of online shopping, a reduction in price slashing and a drive to cut costs. Among the cost-cutting measures at Toysrus.com, Arthur said, was a move to combine much of its distribution and other business infrastructure with its parent company, leading to lower inventory costs.

"We've seen tremendous growth," Arthur said. "We just see that continuing with the expansion of broadband in the United States and with people getting more comfortable with online shopping."

The company's alliance with Amazon.com, which provides co-branding, e-commerce infrastructure, distribution and shipping for all of Toysrus.com's sites, also appears to be paying off.

Although Toys "R" Us joined the world of online commerce later than pioneers like eToys, now part of KB Toys, its deep corporate pockets have kept it running after upstart eToys filed for bankruptcy. Toysrus.com's Arthur claims it has surpassed KB Toys and its eToys unit in terms of market share, traffic and brand awareness. A representative of KB Toys, a privately held company, declined to comment for this story.

But can Toysrus.com sustain profitability outside the busy holiday rush? The unit lost $37 million last year, an improvement over the $76 million it lost in 2001, Arthur said. He expects the unit to lose money again this year and to finally turn a full year's operating profit in 2004.

To drive further growth, Toysrus.com is planning to follow in the footsteps of some other retailers by allowing customers to purchase merchandise online and pick it up in local stores, Arthur said. Toysrus.com also plans to pilot the in-store pickup feature this year with Babiesrus.com, he said. The company also recently began allowing customers to return merchandise purchased online to stores in their area. In addition, this year Toysrus.com began tacking on sales tax for online orders.