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J.P. Morgan Keeps 'Neutral' on Toys R Us


J.P. Morgan keeps neutral on Toys R Us (TOY).

The toy retailer's loss per share widened to 18 cents, from 13 cents a year ago. Analyst Danielle Fox says she was looking for a loss per share of 15 cents. Fox cited worse-than-expected operating margins and disappointing sales of U.S. toys (due to video-game sales). She also says inventories rose sequentially; the payables ratio fell from 50% to 48% on a year-to-year basis; and net debt rose to $2.3 billion.

Fox thinks Monday's stock hit is due to disappointment in sales of U.S. toys. The company says it will close 146 Kids R Us stores and 36 Imaginarium stores by the end of fiscal 2004 (Jan.), which she views as a long-term positive. She cut the $1.01 fiscal 2004 (Jan) earnings per share estimate to 99 cents, and says she thinks the valuation appropriately discounts weak fundamentals.

Still, Fox says it's hard to be a buyer of Toys R Us without greater comfort in the core toy-store business.


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