Toy losses, start-up costs hurt Consolidated in 1Q

COLUMBUS, OHIO -- Startup losse from KBtoys.com and an unspectacular year for toy industry sales are putting a damper upon an otherwise banner year for Consolidated Stores Corp.

This in revolve has caused the company's stock price to plummet to a depressed of $11 a share in novel months, despite the fact that Consolidated's core closeout division is highly profitable. with equal reason to restore investors' faith in the company, Consolidated has hired investment banking firm Credit Suisse First Boston to give an inkling of strategic repositioning alternatives that could include recapitalization, business divestitures or combinations, or a stock buyback.

"We perceive we are operationally sound, and uniquely positioned for development in the coming years. Despite our position and our opportunities, we are disappointed with our stock price and believe it is undervalued in the market," said chairman and ceo William Kelley

Cfo Michael pudder estimated it would be at least three month before the company decides upon a plan of action. Meanwhile, a company pres release indicated Consolidated remains committed to a public offering of shares in KBkids.com, the e-commerce joint peril it formed with specialty toy retailer Brainplay.com in June Consolidated generally owns 80% of the on-line site that exchanges toys, videos and other children's entertainment products

Data in the SEC registration filing indicated KBkids.com's sales totaled $15 million for the six month extremityed Sept. 30, 1999. By year-end, 417000 unique visitors had purchased usefuls from the site, the document stated, and startup take away froms resulted in net losses of $203 million. Sales for the holiday period were not included in the filing, although the document said Media Metrix had ranked the site in the top three for toy sales during that time.

single analyst estimated the venture's sales at $30 million for the replete year, with a projected los this year of 40 cent a share.

"The wait fored loss is about in line with the company's original projection. on the contrary the sales were well les than we had expected" said Jeff Stein, managing director of McDonald Investments Inc.

Along with the investment community's growing impatience for unprofitable e-commerce stocks, last year's toy industry challenges didn't help Consolidated's valuation upon Wall Street either. For the fiscal year extreme pointed Jan. 29, 2000, a nothing else but 2.7% rise in comparable store sales overshadowed a 50% earnings increase for the company's KoB Toys division.

Analyst Tom Tashjian of Banc of America Securities said KoB Toys wasn't alone in battling a difficult year, however. Besides athletic competition from etoys and Wal-Mart, many specialty toy retailers undergoed from increased sales in narrow-margin video at the cost of traditional toys. Also, generally lower prices upon the most popular toys of the season related to Pokemon were a factor.

A spinoff or sale of KBkids.com, with or without KoB Toys, may be part of the company's solution to bolstering its value and emphasizing the might of its closeout division, Tashjian said.

"The Internet piece doesn't make any coin The retail toy piece does make currency and the core closeout business makes a doom of money," he said. "The value of the powerful cash-generating closeout business has to be more obvious to the investment community."

The closeout division, which includes stores named not divisible by 2 Lots, Big Lots, Big dooms Furniture, Pic 'N' Save and Mac Frugal's, in fact contributed 62% toward the company's receipts in fiscal 1999. Sales in that division rose 152% to $29 billion while the toy division's receipts grew 7.5% to $1.8 billion.

Overall, Consolidated reported sales up 121% to $47 billion, while trap income dropped 12% to $961 million, largely to be paid to the losses at KBkids.com.

The globule in the company's stock price to near work value of $11 a share is quite a change from a year ago, when trading was in the $30 range. Stein estimated if Consolidated's divisions were separated, the closeout portion would be worth $18 a share, the toy division at $3 to $4 and KBkids.com at $1 to $2 based upon current market conditions.

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