Rumors that toy retailer Toys ‘R’ Us is attempting to renegotiate its 10-year Toysrus.com joint venture with Amazon.com Inc. have made investors in both stocks nervous.
Shares of Seattle-based Amazon yesterday were down 8.01 percent to $14.48, while Toys ‘R’ Us saw a 6.89 percent drop to $18.91. The drops came the same day Toys ‘R’ Us reported quarterly earnings were down 37 percent to $284 million, excluding previously announced restructuring and other charges.
Paramus, NJ-based Toys ‘R’ Us is struggling to keep up with offline rival Wal-Mart Stores Inc., now the No. 1 seller of toys nationwide.
But Toys ‘R’ Us’ online store is not doing too badly.
Toysrus.com sales were up 24 percent in the last quarter and up 54 percent for the year. Operating losses fell to $17 million from $54 million in the comparable period. While the losses were not disclosed, Toysrus.com losses were down $42 million for the year.
Still, the market was not happy, having expected Toysrus.com to break even by the fourth quarter.
“Toysrus.com and Amazon.com continue to work closely together to realize efficiencies and to reduce costs in the online business,” a Toys ‘R’ Us statement said.
Yesterday’s volatility in the two stocks was the result of a report on financial news service TheStreet.com that Toys ‘R’ Us wanted to lower the fee and percentage of profit it pays Amazon.
Amazon and Toysrus.com in August 2000 partnered to operate Toysrus.com. The Web site sells toys, video games and baby products in this strategic alliance designed to help both companies compensate for their weaknesses.
Under the agreement, Amazon provides site development, order fulfillment, customer service and houses inventory in its warehouses. Toysrus.com will identify, buy and manage inventory.
While it is not known how much Toys ‘R’ Us pays Amazon, market scuttlebutt puts the figure at $100 million a year.
Calls to Amazon and Toys ‘R’ Us were not returned.