updated 8/23/2004 11:33:03 AM ET 2004-08-23T15:33:03

Toys "R" Us Inc. swung to a profit in the second quarter from a loss a year ago, buoyed by a reversal of $200 million in income tax reserves, though the retailer's sales fell 3.9 percent.

The earnings announcement, released Monday, is the Wayne-based company's first statement since Aug. 11, when it announced it is considering exiting the toy business in the wake of fierce competition among discounters, particularly Wal-Mart Stores Inc.

The company added little information about its plans, which include a possible spinoff of its fast-growing Babies "R" Us division. As previously announced, it recorded $14 million of severance and other related charges associated with restructuring at the company's headquarters.

For the three-month period ended July 31, the company earned $61 million, or 28 cents a share. That compared to a loss of $11 million, or 5 cents a share, a year earlier.

Total sales were $2.02 billion, down from $2.10 billion in the year-ago period.

In the U.S. toy business, same-store sales, or sales at stores open at least a year, were down 7.7 percent. Same-store sales are considered the best indicator of a retailer's health.

At Babies "R" Us, same-store sales rose 1.8 percent.

For the first half of its fiscal year, the company reported earnings of $33 million, or 15 cents a share, compared to a loss of $37 million, or 17 cents a share.

Sales in the six-month period were $4.08 billion, down 3 percent from $4.2 billion last year.

Toys "R" Us sells products through more than 1,400 stores, including 684 toy stores in the U.S. and 585 international toy stores, some 200 Babies "R" Us stores and over the Internet.

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