The remnants of the failed Toys R Us business post worsening losses but sales grow amid 5pc toy target

The owners of what’s left of the failed global Toys R Us business plan to take an ambitious stake of the Aussie toy market despite economic headwinds leading to deeper losses.

Toys R Us managing director Louis Mittoni believes the online operations of the toy retailer in Australia and Britian can capture 5 per cent of the toy market.

Online toys and hobbies retailer Toys R Us eked out a lift in sales for 2022 against a backdrop of falling Australian toy industry sales and global supply chain disruptions, and is pursuing its ambitions to capture 5 per cent market share of toy markets it is active in and ramp up its burgeoning operations in Britain.

The company said on Friday on the release of its full-year results that it had achieved significant growth in the first half as parents and children stuck at home in lockdowns splurged on toys, puzzles and games, while the second half was tempered by the pausing of shipments in February and economic headwinds slowing trading.

The ASX-listed Toys R Us, which owns the licences to the Australian and British e-commerce websites for Toys R Us and Babies R Us, as well as a hobbies and tech distribution business, posted a 74 per cent rise in full-year revenue to $37.9m for the year to July 31 as net losses blew out to $24.7m from a loss of $3.1m in 2021.

The volatile accounts and deep dive into the red are a legacy of the restructure and backdoor listing of Toys R Us into the old ASX company Funtastic in late 2020. The worsening loss for 2022 reflects a goodwill impairment charge of $14.5m linked to its retail arm, as well as increased operating expenditure and investment in marketing, working capital and inventory to fund its ambitious growth strategy. Gross profit for 2022 of $8m was up 93 per cent.

Shares in Toys R Us, which only trade for a few cents, fell more than 15 per cent on the results and later closed down 14 per cent at 2.4c.

Through the year its sales to consumers, its business-to-consumer toys arm, booked a 98 per cent lift in sales to $26m with the average online order value for Toys R Us rising to $133.50 in the fourth quarter, a gain of 10 per cent. It recorded continued profitable growth in the business-to-business segment of the company, driven by its Mittoni IT distribution business whose earnings increased by 110 per cent to $1.3 million.

Toys R Us managing director Louis Mittoni said in delivering sales growth, the company overcame the effects of elevated Covid-19 cases across Australia and mixed Australian consumer confidence in the first half, and the flow-on effects of the outbreak of war and expectations of higher interest rates in the second half.

“During this period, we have tightened our focus on providing the leading toys, hobbies and baby products as we seek to enrich the lives of children and parents through our e-commerce direct-to-consumer retail operations,” Dr Mittoni said.

“Our B2B business complements these operations and contributes increasingly profitable growth for the company. Although the fiscal 2022 statutory loss at a group level reflects sustained investment ahead of an expected growth phase, we remain tightly focused on delivering growth in profitability and cash flow from the present period onwards.”

He said Toys R Us would continue to pursue its medium-term goal of 5 per cent market share penetration in the toys, baby and hobby markets in all licensed regions, Australia, New Zealand and Britain.

“The company sees this as a highly achievable goal and we remain focused on deploying capital efficiently to drive increasingly consistent top line growth in 2023 and beyond.”

Dr Mittoni said the business was now ready to scale up in Britain, having carefully built the operational capability to meet shoppers‘ expectations and demand from market launch right through to the peak trading season.

In July Toys R Us secured a three-year loan facility of $15m secured to support working capital and capital expenditure requirements for the company’s British expansion and e-commerce launch, including the acquisition of inventory. The toy retailer said its British expansion was on track with a capital-light, digital-first market entry in the fourth quarter, building to deliver broader e-commerce services to local shoppers for the holiday and new year season in late 2022.