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

Toys R Us (NYSE: TOY)
461 From Road
Paramus, NJ 07652-3524
(201) 262-7800
http://www.tru.com

UNION CITY, Ca., January 7, 1997/FOOLWIRE/ --- Toys R Us held a conference call to discuss holiday sales results on Monday, January 6th. Their total sales were up 4% for the 8-week holiday selling season, increasing to $4.1 billion versus $3.9 billion a year ago. For the first 11 months of the year, their sales rose 6% to $9.3 billion compared to $8.8 billion the prior year.

STRONG DOLLAR HURT SALES NUMBERS. The strong dollar has had a large negative impact on their overall sales increase. Excluding the impact of foreign currency, Toys R Us sales were actually up 5% for the holiday season and 8% for the 11 months. The currency impact amounted to about $150 million. As far as the impact on profits, it is anticipated to be about $0.01 to $0.02 per share, or in the $5 million to $7 million area. So, it's more of a sales issue than profits. A lot of it came from the US dollar versus the Japanese yen, but it was offset to some degree by the British pound.

US COMP STORE SALES. On a comparable store basis, their US toy store sales increased 4% for the month of December, but were flat for the 1996 holiday season. Despite the excitement generated in the video hardware business with the release of the Nintendo 64 and the presence of some hot products such as the Tickle-Me Elmo doll, they were impacted in part by the lack of software titles for the new video platforms and the lateness of the Thanksgiving holiday. For the 11 month period, comp store sales increased 2%.

INTERNATIONAL COMP STORE RESULTS MIXED. Internationally, they are pleased that their Canadian stores had double-digit comparable store sales increases. In Japan, Spain, and the UK, comparable store sales were flat to slightly higher, while Germany and France experienced low single-digit comp store sales declines. As was the case in the US, all of their international countries had significantly better comp store sales in December than in November. Unfortunately, Nintendo 64 was not released in Europe this year and it's currently expected there late in 1997. Nintendo is now looking at delaying the release of Nintendo 64 in Europe until September 1997 so they can restock the US and Canadian markets.

KIDS R US. Their Kids R Us comp store sales were up low single digits for the 8-week holiday season.

MARGINS STRONG, BUT EARNINGS WILL BE LOWER. Althought their margin trend continues to be stronger than last year, their lower than expected holiday sales will have an adverse impact on their 1996 earnings growth. They also managed their inventories very well and their toy store inventories both in the US and international are lower on a comparable store basis.

THE HOLIDAY SALES PATTERN. In terms of expense ratios and margins, this was an unusual year for Toys R Us in that they did so well for the first nine months and the outlook was quite good. They kept reading in the press about how great the holiday season was going to be and were watching it very closely. They decided to use a calendar very similar to 1991, the last time Thanksgiving was this late in the year. Interestingly enough, November came in lower than their plan, but right on that 1991 calendar. They knew they had a lot to make up, but decided that if 1991 could be repeated, they would be okay. Right through December 4th or 5th, they were right on their plan with comps in the projected 5% area. Then, the 2nd and 3rd weeks in December were very disappointing and the last 3 or 4 days were extremely good.

WORKING TO START HOLIDAY SEASON EARLIER. They have already started conversations with their suppliers and this is not just a Toys R Us phenomenon. They need to really work together, the supplier community as well as the retailers, to figure out how to do some more business in the November period and in the early part of December. They are pulling too much of this business too late. They are hurting themselves with their customers and then they create a terrible shopping experience. They chose not to ramp up advertising during the elections because the cost of advertising goes up, so that also played a role in pushing the start of the holiday season later.

MEDIA FRENZY ON HOT PRODUCTS. One of the things they thought more about this holiday season is that they had the media in a frenzy about Tickle-Me Elmo and the Nintendo 64, terrific products, but the Toys R Us phone lines were completely tied up with calls about Tickle-Me Elmo and Nintendo 64. The people in the stores were completely tied up with comments about it that ended up negative because they didn't have the products and people walked out. Nintendo will start to gear up in 1997 and boost that inventory, and they will be getting lots of video game hardware and lots of software coming in, and that's where they can make some money. On Tickle-Me Elmo, they will do a lot of extra business, but that is only one item.

FOURTH QUARTER IMPACT. On the merchandising area, from everything they know right now their margins will be up in the fourth quarter and that will be quite helpful for them because, although the pricing pressure did get to be a little bit worse than it was previously as people started to get very nervous, they still had pretty good margins and kept their expenses under fairly good control. They couldn't anticipate the sudden drop in business in the two weeks December. Guidance on SG&A is that it will probably be up around 10% over last year, in dollars. They think that EPS estimates should be lowered around $0.10.

VIDEO GAMES EXTREMELY HOT. On the merchandising front, the third quarter excitement generated by the video game business continued to throughout the entire holiday selling season. They simply could not meet their customers' demands due to the lack of product. They think they could have easily sold another million pieces of hardware and millions of pieces of software if they had it. Everything related to Nintendo 64 was hot. The spillover to other platforms was greater than they anticipated, leaving them to go after additional product well into December. They are pleased that this trend did not stop on Christmas Eve. Nintendo 64 was strong in the US, Canada, and Japan. Nintendo 64 is not just a winner, it is a grand slam right now. They don't have any inventory of any hardware, software, controllers, or anything related to Nintendo 64. Everything sold out. As they get more goods in, it is still selling out as soon as they get it. The Sony PlayStation turned out to be a very strong seller even with Nintendo 64 doing well. Even Sega Saturn, which was in a slump, because of the free games they gave away did very well. TOY expects to see a very strong video game business throughout 1997 with a lot more inventory available for the next holiday selling season. With regards to video software, there were quite a few items which sold briskly such as Donkey Kong 3, Twisted Metal 2 for Sony PlayStations, and every Nintendo 64 title. Not only do they look forward to greater availability of existing titles, they are eagerly anticipating the 1997 new releases. Gift certificates were also a strong item and that should help January sales due to redemption purchases, but not enough to undo the December shortfalls.

ACTION FIGURES/DOLLS. Action figure sales continued to be excellent with such hot products as Toy Story and Star Wars. Toy Story was the surprise of the year. Star Wars did quite well and that will be enhanced by the release of the Trilogy at the end of January. After that comes Jurassic Park Lost World with a big line of toys. The animated film Hercules will be released in the June timeframe. There is another Batman and Robin movie coming out. Later in the year will be Anastasia. 1997 will have a lot of kids movie releases with tie-in product. In terms of dolls, Barbie did fine and there were quite a few larger dolls that did well. The stellar category for them was plush dolls because of Tickle-Me Elmo. TOY expects Tyco to do something with Tickle-Me Elmo to make it a product line, not just one item. In addition to that, they had their own plush promotions with Spot and Dot and sold out. Dalmations was extremely strong and in short supply. Talking Barney and Tyco's Bubba plush dolls were very strong. The whole category was extremely strong and they think that hurt some of the other infant/preschool categories like Fisher Price and Playskool.

OTHER PRODUCT CATEGORIES. Radio/remote control did okay considering it was up against Nintendo 64. Last year, their board game business was up double digits over the prior year with strength in traditional games such as Monopoly, but driven by the introduction of new games such as Lucky Ducks and Chicken Limbo. This year, sales were negatively impacted by the lack of similar new game introductions. Their large environmental playset business and their roller skate and some other sports businesses continue their softness from earlier in the year. Lastly, while still a relatively small category for them, they were very pleased with their sales of computer software, especially the Barbie Fashion Panels and the Disney animated story books. They were short on some of the titles and definitely could have done more business in this area. What is most encouraging is the number of customers visiting their stores, looking and buying this product.

QUESTION RELATED TO STRONG CONSOLIDATED STORES NUMBERS. The company was asked about Consolidated Stores' double-digit holiday comp store sales and they responded that while both companies are in the toy business, they are really in different businesses. They admire what Kaybee/Consolidated was able to do during the November/December period, but asked analysts to remember what the mix of the businesses are. Probably 25%-30% of Consolidated's business is the toys that Toys R Us sells on a regular basis. Consolidated does 30%+ of their business in video games and are very good at it. But, the bulk of Consolidated's business is in close-outs and special buys, which for Toys R Us is maybe 5% of their business. That business, close-outs and special buys, was spectacular as consumers were looking for more and more value. It's an area that Toys R Us is going to try to do more with in 1997, however it is never going to be a big part of Toys R Us' business and for Consolidated it is a huge part of their business. Consolidated was also very promotional and used the special buys, close-outs, and giveaways to drive a lot of traffic. It's a much different business and Toys R Us feels they will compare very well against the more standard toy retailers and, in fact, gained market share in many markets where they had inventory that other competitors didn't.

1996 ACCOMPLISHMENTS. As they look back and review their 1996 accomplishments, there are 5 key initiatives which they feel makes their company much stronger as they enter 1997. First, they opened 13 Concept 2000 stores which have been very well received by their customers. Customer reaction to the ambiance is exciting and customer comments are positive about the level of service and friendly shopping experience. This year, they have selected 55 stores that will be remodeled to a Concept 2000 format. In addition, all new stores in 1997 will also feature the Concept 2000 look.

Secondly, they became the proud parents of their newest division, Babies R Us, utilizing many of the elements of Concept 2000 and also incorporated an expanded service level. The 6 Babies R Us stores have performed quite nicely in terms of sales and profits.

Third, they are very excited about their impending merger with Baby Superstore which is on target to close February 3, 1997. Both Toys R Us people and Baby Superstore people have done an outstanding job in preparing both companies for a seamless transition.

Fourth, 1996 will be remembered as the year Toys R Us shut down the New Jersey Turnpike with the opening of KidsWorld, their megastore format. Their second KidsWorld store opened in Fairfax Virginia a week or two later. While sales volume during the holiday season has been predictably high, 1997 will be the year they fully understand the impact of these stores and how they draw customers on a year-round basis.

Finally, they have completed their strategic inventory repositioning discussed as part of last year's restructuring initiative. They have significantly reduced the number of brands carried in their stores and their inventory assortment is excellent.

GROWTH AND EXPANSION NEXT YEAR. For 1997 they anticipate opening a total of 75 new stores, including 30 US toy stores, 25 international toy stores, some franchise stores above that, 20 Babies R Us stores, and 5 Kids R Us stores. This is in addition to the Baby Superstore merger which will add 78 stores.

* 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.