FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (MF Debit)

Toys R Us, Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TOY)") else Response.Write("(NYSE: TOY)") end if %>
461 From Road
Paramus, NJ 07652-3524
(201) 262-7800
http://www.tru.com

UNION CITY, Ca., November 19, 1996/FOOLWIRE/ --- Toys R Us reported their third quarter fiscal 1996 results yesterday morning. Their total sales for the quarter were up 10% to $1.9 billion, compared to $1.7 billion a year ago. For the first 9 months of 1996 sales were up 9% to $5.3 billion versus $4.8 billion a year ago. The strong dollar has had a negative impact on their overall sales increase. Excluding the impact of foreign currencies their sales were up over 11% for both the quarter and the first 9 months. Third quarter net earnings increased to $33 million or $0.12 per share versus $20 million or $0.08 per share a year ago. The results for the 9 months were impacted by the $55 million second quarter charge relating to an arbitration award which is currently being contested. Net earnings for the nine months were $45 million or $0.16 per share compared to $55 million or $0.20 per share last year. Excluding the charge, net earnings for the first 9 months of 1996 would be $79 million or $0.29 per share.

COMP STORE SALES. On a comparable store basis, all of their divisions reported comp store sales increases for the third consecutive quarter. They are pleased that their third quarter sales results continued the positive momentum they established earlier in the year. Their US comp store sales were over 4% for the quarter and 6% for the nine months. These increases were driven by the resurgeance of the video game business with the release of Nintendo 64 on September 29th and strong sales of basic toy products such as dolls and action figures. They also noted that they achieved the comparable store sales increase even though they eliminated their October catalog they had the last 2 years. This year they decided to replace the catalog with some TV commercials which they think give them better return on their advertising expenditures.

INTERNATIONAL DIVISION. Their international division, on a local currency basis, also achieved an overall comparable store sales increase. In the UK, comp store sales continued their good trend and were up high single-digits despite their cycling against the introduction of computer hardware and some other service initiatives that were introduced last year. In Canada, comp store sales were up double-digits for the third quarter given the recent Nintendo 64 and some very strong merchandizing initiatives that they introduced during the quarter. In France, comp store sales were up low single-digits and the business continues to be sluggish in Spain and they were down. In Japan, comps continue to be strong and were up mid-single-digits for the quarter.

CENTRAL EUROPE RETAIL ENVIRONMENT. Central European comps continued to reflect the poor economy there and were also down in single digits. One of the encouraging things that they hope to benefit from coming into the weeks ahead, particularly in Germany where their largest investment is, is the extension of opening hours for their stores. Weekdays they were formerly required to close at 6:30 p.m. and they can now extend that to 8:00 p.m. On Saturdays they were forced to close at 2:00 p.m. and they can now stay open into the evening. They think that will help discretionary-type purchase retailers like themselves and they will be able to evaluate that more in the weeks ahead. There are no great signs of any economic improvement. For the first time they are seeing the German government really looking at dealing with some of the structural issues. There was a major reduction in sick pay in Germany and with that announcement 20,000 Daimler Benz employees went out on strike. So there has been some very negative reaction to some of the social net cutbacks that have adversely affected their business. But they do feel they are up against comps that were negative a year ago, they are running positive right now and they still feel they can close the season in the mid-single digits and that is what they are hoping and planning for.

KIDS R US RESULTS. Kids R Us also reported mid-single-digit comp store sales increases as well as a strong increase in third quarter profits. Kids R Us has been having a good year. They are up against soft numbers from a year ago so that is a plus for them. Kids R Us had a 6% comp store increase and their markdown level was very much on plan, in fact a little better than plan, so they are in good shape inventory wise. At Kids R Us they have been running inventory levels most of the year at somewhat below a year ago on a same store basis and their inventories are nice, fresh, clean. Kids R Us did very well with the license they brought in, Rug Rats, which was exclusive to Kids R Us. And they have done well on other license product and their basics have been selling well, so they don't see any inventory issues at Kids R Us. They have a new look for the Kids R Us stores that they are debuting with their new stores. They will go back and remodel older stores. The basic idea of the new look is that it is much lighter. The existing models have a lot of bright colors in them that tend to compete with the merchandise. So they toned that down and used lighter colors.

MARGINS. For the third quarter and the first nine months of the year, margins are up 20 basis points. Despite the resurgeance of the video game business (which has lower profit margins of around 4-5% for the hardware), their margins are still in good shape.

SG&A EXPENSES. While SG&A is up 9% on a worldwide basis for the quarter and 8% for the first nine months, the increase is primarily due to new stores opening. More importantly, as a percent of sales, their SG&A decreased 20 basis points for the quarter and the first nine months primarily due to leveraging based on their sales increases and expense management.

INTEREST EXPENSE AND BORROWING. Interest expense for the quarter was down almost $2 million versus last year. And for the first nine months, interest is about flat with a year ago. In the first quarter interest expense was quite a bit higher than last year, however they have been able to reduce their short term borrowing levels due to their comp store sales increases and the implementation of the restructuring initiatives. Their balance sheet is extremely strong. Their short term borrowings net of investments decreased by $548 million. This was due in part to the closing of a medium-term $325 million financing deal that will allow Toys R Us to lower its effective borrowing rate over the next 5 years.

INVENTORY. Their comp store inventories continued to be down versus the prior year by almost 5%. Toys is down slightly more than 3% in the US. International levels are down about 10%. And Kids R Us comps are slightly up.

NEW STORE FORMATS -- KIDSWORLD. Last Thursday they showed analysts their new superstore Toy's R Us KidsWorld in Elizabeth New Jersey. The goal of their KidsWorld store was to create a shopping experience like no other and based on the initial customer reaction, they feel they have succeeded. The convenience of having all of the "R Us" formats under one roof along with the amenities of their licensed departments has been a hit with their customers. They also have opened their second KidsWorld store in Fairfax which will have its grand opening this coming Saturday. When they grand opened the KidsWorld in New Jersey this past Saturday and Sunday they had unprecedented traffic, the highest grand opening figures in their chain and the New Jersey Turnpike had major delays right near the exit ramp, so they had a lot of people come to see the new store and they liked what they saw.

CONCEPT 2000 REMODEL DESIGN. Their Concept 2000 rollout is continuing on schedule. By the end of this month they will have all 13 that they wanted to do for this year open. It is difficult to assess the impact that the concept will have on sales but the early indications have been encouraging. They are reviewing the number of stores that they will remodel next year into this new Concept 2000 format and it now looks like they will do about 55 because they have gotten some good sales results on the few stores they have and, more importantly, the exit interviews from their customers indicate that they really like the concept and will shop more in a store like this. They will analyze how they do during the Christmas season at the 13 stores and can always modify their expansion plans. In addition, all of their new stores will be in a Concept 2000 look.

ROLLOUT OF CONCEPT 2000 KEPT SLOW WHILE THEY EVALUATE. There is nothing that would prevent them from doing 55 in 1998 as well. While they are targeting 55 Concept 2000 remodels for next year, they probably have 20 different gradations of what that Concept 2000 will be that they will have wide cost variations in terms of investment and they are still learning in terms of what is really driving the positive reaction. They certainly feel very strong about the low gondola height, the very intuitive signing, the lighted end caps -- those are all things that we had individual comments on and feel are very important. But they are trying to find variations in terms of what is, in fact, motivating people to feel so great about that store. That's why they have so many versions.

BABIES R US. Over the next month they will be opening 3 new Babies R Us stores which will make a total of 6. They have pushed back a few store openings into early 1997 while they digest the 80 or so Baby Superstore locations. The proposed merger with Baby Superstore immediately increases their presence in the infant/toddler market and will position them to capitalize on the synergies inherent among Babies R Us, Toys R Us, and Kids R Us. They expect the merger, subject to the approval of Baby Superstore shareholders, to close about January 31st. Right now they are doing consumer research in markets where Baby Superstore is alone without Babies R Us, to determine if they will be changing the name of the stores. They are still under the assumption that the stores will be changed to Babies R Us. But in those markets where Baby Superstore currently exists with no Babies R Us there may be some type of alteration in that name (example, Babies R Us: The Baby Superstore) but they are doing research to determine that.

MERCHANDISING -- BIG NINTENDO 64 IMPACT. The release of Nintendo 64 has definitely rejuvenated the video business. They are still selling out on the systems as soon as they get them in. As was the case in Japan early this year, sales of other hardware platforms have also picked up with the Nintendo 64 release. The availability of more software titles for Nintendo 64 in the fourth quarter should heighten the excitement and they expect some pretty hot titles including Star Wars: Shadows of the Empire and the Mortal Kombat Trilogy which just came out. All indications are that they will see a major decline in 16-bit video games. Donkey Kong 3 is coming out fairly soon and hopefully that will make up for some of it because there aren't too many hot titles out there for 16-bit. It has become a 32-bit/64-bit business with a lot of the 16-bit software being done at the $19.99 or $29.99 price point. The big thing here, because of the shortages of supply, of course relates to next year when both Nintendo and Sony will be able to have much more production and, particularly in the case of Nintendo, should have much more software. That bodes well for the outlook for video games for them over the next year.

OTHER HOT MERCHANDISE FOR CHRISTMAS. The holiday season should be a good one for the sale of products related to up and coming movie releases. Toy Story was released recently on video and stirred up that category. Space Jam just opened this past weekend and they expect the related product to do quite well and on Thanksgiving Day weekend 101 Dalmations will open. Finally, Star Wars product continues to be a top seller. As was the case in the first nine months of the year, they expect to be strong on Barbie and other dolls and the action figure business has rebounded on the strength of Star Wars, Power Rangers, Toy Story, Batman, and others. Finally they expect their juvenile business to continue to be strong. They think the environment out there is very competitive and hopefully it will continue but it's not crazy like it was last year. But it is very competitive which is what they expected.

INVENTORY REDUCTION AND REPOSITIONING IS COMPLETE. Their program to strategically reposition their inventory is substantially complete. They are happy with the level of clearance sales and are very pleased with their inventory assortment for the holiday season.

SUMMARY. The results for the first 3 quarters have been good. They have continued the momentum generated in the first half of the year and have positioned themselves well. They are excited about the coming months as they look to reap the expected rewards of all of their new initiatives.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.