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 (March 19, 1997)/FOOLWIRE/ --- Toys R Us released their fourth quarter and year end results for 1996 on March 12th. For the fourth quarter, sales increased to a record $4.7 billion, a 1% increase over the $4.6 billion for the fourth quarter last year. For 1996, sales increased 5% to a record $9.9 billion compared to $9.4 billion reported the prior year. Last year's fourth quarter and full year had an extra week. On a comparable 13-week and 52-week basis, their sales increased 3% and 6% respectively.

CURRENCY IMPACT. In addition, the strong dollar had a negative impact on their overall sales increase (about $0.06 per share for the year and $0.03 per share for the quarter on operating earnings). Excluding the impact of foreign currency, their sales were up 4% for the quarter and 8% for the full year.

NET EARNINGS FOR Q4 AND FY 1996. For the fourth quarter they reported net earnings of $383 million or $1.37 per share compared to $93 million or $0.34 per share last year. For the full year their net earnings were $427 million or $1.54 per share compared with $148 million or $0.53 per share for 1995. The results for both 1995 and 1996 fiscal years were impacted by special charges. In 1996, a $38 million after-tax charge was recorded due to an arbitration award rendered against the company related to a dispute involving a 1982 franchise agreement for toy store operations in the Middle East. In 1995, the company began a strategic restructuring program and, as a result incurred a $269 million after-tax charge. Excluding the impact of these non-recurring charges, fourth quarter net earnings were $386 million or $1.38 per share versus $362 million or $1.32 per share. For the 1996 fiscal year, net earnings were $465 million or $1.68 per share compared to $417 million or $1.51 per share.

PRICE IMAGE/LACK OF GOOD PRODUCTS IMPACTED Q4. They agree that there was a price image issue that hurt them in the fourth quarter but they think they were much more hurt because of a lack of exciting product. They will be doing a number of things in terms of marketing programs, in terms of merchandising, as the year progresses that they think will enhance their price image both in terms of perception and reality. There will be a marked increase in proprietary products with great values to the customer that they will advertise both in-store and in their circulars.

COMP STORE SALES. They are pleased that each of their divisions experienced comparable store sales increases and improved operating earnings in 1996. On a comp store basis, their US toy store sales increased over 2% for the year. Internationally, their Canadian toy stores had high single-digit comp store gains for the year. Their UK same store sales were up mid-single digits while their Japanese stores also posted increased comp store sales for 1996. Lower comp store sales were reported for Germany, France, Spain, and Australia. Spurred primarily by the positive results in Canada, Japan, and the UK as well as the implementation of their restructuring initiatives, the international division posted a 16% increase in operating earnings over the pre-restructured 1995 results. Their Kids R Us children's clothing division reported a mid-single digit comp store increase for the year. In addition, operating profits were up over 35% for the year.

MARGINS. On a consolidated basis, their merchandise margins were up 80 basis points for the quarter and 50 basis points for the full year. While their margins were negatively impacted by the strengthening of the lower margin video hardware business, their markup on their basic toy assortment was significantly better than last year. For 1997 margins are difficult to predict because so much of it will depend on the mix. Based on what they expect the mix to be, they would think that their margins will be roughly the same in 1997 as in 1996. However, if video strengthens beyond what they are expecting, the good news is that it should increase their comp store sales above what their projections are but that would take the margins down. Based on what they are seeing so far, the outlook for 1997 is very positive on gross margin dollars.

INVENTORY. Inventory levels, including Baby Superstores, are up $215 million over last year. Payables are up $165 million. So net out-of-pocket inventory is up $50 million. Their inventories were well managed throughout the holiday selling season and on a comp store basis their inventories were down in the US and the international divisions at the end of December. However, in anticipation of their expanded baby month in February and their highly successful first quarter Star Wars feature shop, their commitment to the video hardware and software business, as well as some opportunistic end-of-year buys, their January receipts were heavy. This caused their year-end US toy store inventories to be up at the end of the year. If you exclude the impact of the restructuring reserve from last year's balance, their comp store inventories at year end were actually slightly down. As they have had some good sales in the first quarter, their comp store inventories have gone down further compared to a year ago.

SG&A EXPENSES. As a percentage of sales, their SG&A was up 20 basis points for both the fourth quarter and the full year. A portion of this increase was due to the heavier advertising and promotional efforts as well as their not leveraging their growth as efficiently as they anticipated due to the lower than planned sales volume.

BALANCE SHEET/INVESTMENTS. Their balance sheet is extremely strong and they have already consolidated the Baby Superstore merger into their balance sheet. Their investments, net of short-term borrowings, increased by $473 million versus last year even though they have assumed that $115 million of Baby Superstore financing will be paid down in the first quarter. They have an open buyback of $300 million available. They have not purchased shares during this part of the year. They have the program in place and intend to use it.

INVENTORY REPOSITIONING. They are pleased with their many 1996 initiatives, such as the implementation of the strategic inventory repositioning. By streamlining their assortment, they have eliminated the clutter in their stores and enhanced their selection advantage as they are now able to display larger facings and more dramatic presentations of desired items.

GOOD INITIAL CONCEPT 2000 RESPONSE. They have also opened 13 Concept 2000 stores, their revolutionary new toy store design. They are quite pleased with the results, both in terms of sales and customer satisfaction. Compared against control group stores when they look at their Concept 2000 remodels, they were experiencing high single-digit increases initially and that trend has improved in the ensuing time period and they are now running double-digit increases on Concept 2000 stores. They have had a chance to do exit interviewing post-Christmas with a lot of people so they now have a series of interview points and what they are seeing is not only the positives they saw during the Christmas selling season coming back again, but even stronger. Some examples, 64% of people are saying that the stores are easier to shop and use terms such as brighter, bigger, better layout, wider aisles, better signage -- all of the things they were trying to achieve in the Concept 2000 remodels. They talk about bigger selection, over half of the people are saying there is bigger selection versus the old store.

CUSTOMER SERVICE FOCUS. Their whole reputation and whole image for customer service has been enhanced. They feel there is better assistance in the store and Toys R Us thinks that a key part of that is the central location of the customer information center. In addition to that, however, they are emphasizing customer service through a program that is going through their stores and their national office called business simplification. They are looking at the entire business from top to bottom at all of the methods and procedures that they use in their stores and throughout their business to try to simplify it. The focus of this is that if something doesn't enhance customer service or drive sales or improve expenses, then why do it. This has really taken on a life of its own and they are very excited about the initiative. They are working with an outside consulting firm having meetings throughout their business and they think it is going to be a big positive. It takes the whole concept of being much more customer-focused throughout their business to another level. They are adding customer service information centers, like the ones in Concept 2000, but also put those centers in about 200 stores last year. They are extending that again to another level of stores, all of their B-volume stores, and we should see that in another 50-100 stores in addition to those put in last year. They are looking at a number of things from the stock locator system they use, extending it to more stores, to the phone system -- all to improve customer service in the stores.

PRICING REPUTATION UNCHANGED. One of the big concerns they had with the Concept 2000 model was that if they went more upscale that they could possibly hurt their pricing reputation, but there is absolutely no evidence of that, in fact 92% of the people say that the prices are the same or actually lower in the new stores. So, from a customer's standpoint and their sales response standpoint, they are very encouraged.

ACCELERATING CONCEPT 2000 ROLLOUT. They are accelerating the rollout of their new design by remodelling approximately 57 existing stores to the Concept 2000 format in 1997. They have already begun construction on a number of these locations. By the very design of how they planned on rolling out these 57 stores, they basically sprinkled them through all the various demographics as well as volume ranges of their stores. So they have stores in just about every locale in the US.

CONCEPT 2000 COSTS AND ROI. Right now they basically have four versions that they are trying and they range from slightly under $2 million in cost, they have a $1.5 million version, a $1 million version, and a $750,000 version. Those are the four remodel configurations. What they are hopeful for is that after they have looked at the customer research, they have really tried in the lower cost versions to try to incorporate the key things customers are telling them they like about the store. They are hopeful they can drive similar sales increases through the lower remodel cost. After reviewing the initial results of the 13 new Concept 2000 stores, as well as their extensive consumer research, they now believe that their return on investment after taxes for Concept 2000 should be in the mid-teens, and that is based on results from the higher-to-midrange cost remodel tests. These results will be achieved through a strong initial first-year sales increase, and higher than average comp store sales increases in years two and three. The operating margins should be in the 20% range.

CAPITAL EXPENDITURES. Their capital expenditures were $500 million including key money deposits mostly in Japan. They anticipate that 1997 capital expenditures will be about $630 million. Their projected increase is due to their aggressive plans. First, they will be remodeling 57 stores to the Concept 2000 model and opening about 25 new toy stores all in the Concept 2000 mode, 5 new Kids R Us stores, and 20 new Babies R Us sites, plus some work on the 77 stores they purchased.

EXPANSION FOCUS ON CONCEPT 2000 & BABIES R US. They are looking at 1997 as a very important year to make Concept 2000 the store of the future for them as well as the integration of Baby Superstore into Babies R Us. They could have added more new stores, but they want to keep their people focused on making those happen and then they can ramp up the program for next year. They have said on the Babies R Us concept that they would go to at least 40 stores into 1998 and they could add internationally if they see improvements in some of the international results. In those parts of the world where their returns are not adequate, they are not going to add new stores except where they have a binding commitment until they work on those stores and get them to be much more profitable. So, the big expansion internationally in terms of new stores is Japan where their business is quite good and continues to improve, the UK and a little bit in Canada, Spain, and some commitments elsewhere. Internationally, they will open approximately 40 new toy stores including 15 franchise stores. But, this year, the key thing for them is Concept 2000 which they think is the store of the future for them and one that they think will have applicability all over the world and making that happen is much more important than opening another 5-10 stores. In terms of 1998, they are really not prepared to say how many Concept 2000 stores they will open at this point.

BREAKDOWN OF CAP-EX ALLOCATION. Almost half of the capital expenditures is still going toward new stores. In the numbers for 1997 they have quite a high number for distribution center expansion to make their distribution more efficient and they also have a lot of other things related to systems work. Related to this, the PC software business, which is still a small business, has started to grow nicely and part of that is that there is more interesting kids' product like what Mattel did with Barbie last year and some interesting Disney product. For this year, Mattel has done major expansion in the PC area. For Toys R Us to really take advantage of this and improve their business in the PC area, they decided to spend some money in their distribution centers to enable them to do some central distribution and to get out of the use of distributors and also enable them to flow the goods in a more timely manner to their stores. As the year progresses they will be able to talk more about what they have been able to accomplish in that regard. That could also end up helping them in the video game business in which they expect the software end to be explosive as they approach Christmas next year.

BABIES R US/BABY SUPERSTORE INTEGRATION PROCESS. They also saw the birth of their new division, Babies R Us. Their merger with Baby Superstore on February 3rd has quickly made Babies R Us the premier retailer of juvenile products in the United States. Their transition plan to merge the Baby Superstore business with the Babies R Us business is moving smoothly and all systems should be fully integrated and all stores operating entirely within the Toys R Us infrastructure by the end of June. The cooperation between the two management teams continues to be excellent and they are really proud of the group they inherited in the merger. They are now, by the middle of June, going to be distributing the Baby Superstores out of five Toys R Us distribution centers geographically located throughout the US. As they move forward with that, they have been able to use both their Toys and Kids R Us network to help in this integration so, for example, two to three weeks before they actually cross over a store and move it from Baby Superstore mode to Babies R Us mode, that management team in the Baby Superstore has a training session within the neighboring Toy store and that has all been coordinated for their Toys, Kids, and Babies organizations. They then send a whole crew from the Toy and Kids stores over into the Babies store when the cut-over is made to help with shelf labelling and the integration process and they do it in a 12-hour period on a Sunday night. So far, that procedure is working very well and it is great to see that the synergies they planned for are actually taking place.

STRONG PRODUCTS FOR 1997. The outlook for 1997 is excellent due to the abundance of strong new product offerings. The video game business is quite vibrant with outstanding sales of Nintendo 64 in the US and Canada as well as an excellent initial launch in most of Europe on March 1st. The Sony Playstation continues to sell well worldwide and recent price reductions will undoubtedly accelerate hardware sales. The price reduction on the Sony Playstation will stimulate not only hardware unit sales, but also the whole software side of the business. They think long-term that the reduction on video hardware will have a very positive impact on their long-term business there.

SHORTAGE OF VIDEO GAME SOFTWARE UNITS AND TITLES. Right now, they have some hardware in their stores, but very little in the way of software -- one maybe two titles of the twelve that are out for the Nintendo 64. There are several reasons for that. One, the rate of sales has been far higher than Nintendo or any of the retailers expected, so that's wonderful in terms of the outlook. The other thing is that they do have a catalog breaking on Sunday and they want to make sure that they have merchandise available for that catalog. They have disappointed customers because of the rate of sale on things and so hopefully we will see some additional merchandise going forward.

INCREASED PROJECTIONS FOR NINTENDO SALES. In discussions with Nintendo, they have upped their hardware projections for the year significantly where they are now talking for the US, over 5 million hardware units for the year and they have said that the software will also be expanded. They are now talking about, by the end of June, 18 or 20 titles and for the year about 40 titles, so there will be quite a bit more. And they do have a number of titles that they consider to be mega-hits. We've seen it already with Mario 64 and Mario Cart. Torak is doing extremely well. Toys R Us has primarily sold through their first shot of it and they are holding some pieces for the catalog break. There are several others for later in the year.

PLAYSTATION ALSO IN SHORT SUPPLY. Playstation is also in very short supply all over the world and the prices have just been reduced worldwide (except for Japan where they were cheaper to begin with). That will take away some topline, but will further accelerate the sales of units and then, of course, what's most important is selling software. With the increased number of software titles coming, this should be very good for Toys R Us as they get into the third and fourth quarters and into next year.

EXPECTING MARGIN IMPROVEMENTS FROM PRICE REDUCTIONS. With the price reduction, the margin dollars stayed about the same so the margins went up from 4% to 7%, so it will help margins to some degree. Also with software changes there may be some margin enhancement there. They have not changed their models, they are still waiting to see other reactions to these pricing changes. Sega has not made a move. Nintendo actually made their move first in Japan where the retail price will be about $140. They think that when they put it all together, just a guess, that it won't have a major impact because there could be some higher margin but they would also expect that their sales forecast will also go up.

STRONG CHILDREN'S MOVIE RELEASES. In addition, 1997 will be an unprecedented year for children's oriented movies with related toy products. Currently, the Star Wars movie is creating strong consumer demand in their stores. From the response from Star Wars in terms of the positive customer impact from that movie release -- if Jurassic Park is anywhere close, they also have Hercules, Batman comes out in June -- they see that as a significant offset to the closeout bonanza they had during the second quarter last year.

CUSTOMER COUNTS INCREASING. With the success of Star Wars and Nintendo 64 what has been extremely encouraging is that the customer counts have been increasing. So, it is just not the Star Wars and Nintendo 64 giving them the same customers with a lot more dollars per shopping visit, they are also seeing an increase in customer counts.

OTHER PRODUCT CATEGORIES DOING WELL. They are seeing some other product categories that are quite strong. Their juvenile business has been pretty good. So has their plush business. Tickle Me Elmo is still a raincheck item for them, there is nothing available, and there are a number of other plush items that have done well. There are some areas of weakness, that will always happen. They are up against comps last year that were impacted by bad weather. So, categories like bicycles and outdoor sports equipment and games are doing much better this year where they had bad sales last year.

GOOD SAME STORE TRENDS IN Q1. With the current strength of video games and action figures, their same store sales in their US and Canadian toy stores for the first five weeks of their fiscal year have been excellent. Their international same store sales are also quite strong. Their review of the February New York Toy Fair confirmed their excitement for the 1997 product offerings. In addition to what they saw at the Toy Fair, to further differentiate themselves from their competition, they will be expanding their selection of their exclusive and proprietary offerings in 1997. This will be evident in their stores as the year progresses.

* 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.