ToysRUs.com Cuts Benchmark Loose

Toys ‘R’ Us (NYSE: TOY) insists the refurbishing of its online store is on track, but that project will no longer get help from well known venture capitalist Benchmark Capital Inc. Along with announcing its second quarter earnings results Monday, the toy store chain confirmed it has terminated its pending partnership agreement with Benchmark, the Menlo Park, California-based company that is known for successful investments in eBay, Critical Path, E-Loan and other e-commerce and Internet-related companies.

According to Toys ‘R’ Us CEO Robert Nakasone, toysrus.com is making “great progress” despite the company’s inability to come to terms with Benchmark. “We remain on amicable terms and we have the highest respect for the Benchmark Partners,” Nakasone said, adding Toys ‘R’ Us named John Barbour CEO of its Internet toy store during the second quarter. “John has all the expertise and characteristics to implement our aggressive toysrus.com Internet strategy targeted to make us the revenue leader in the fourth quarter.”

Speaking of leadership, however, Benchmark is not the Web site’s first stumble. Toys ‘R’ Us continues to search for a CEO to head the project after Bob Moog reversed his decision to leave his post as founder and CEO of University Games. Moog made the decision less than two months after Toys ‘R’ Us announced his plan to take over toysrus.com.

Benchmark would have brought more than just a high profile to Toys ‘R’ Us’ expansion plan. The company had agreed to make a “significant investment” in the company, Toys ‘R’ Us said in late April when the two companies announced the deal. They offered no details Monday about the agreement’s subsequent collapse.

Still Making Money

Toys ‘R’ Us reported revenue growth but flat per share earnings for the second quarter, thanks to costs incurred to relaunch toysrus.com and establish it as a separate subsidiary. The new subsidiary also controls the online business of Babies ‘R’ Us and Kids ‘R’ Us which, like the toy Web site, mirror their brick-and-mortar parents.

Toys ‘R’ Us spent $4 million to relaunch the toysrus.com Web site, and another $5 million in ongoing operating costs, in the second quarter which ended July 31st. Those payouts dropped the company’s total net earnings to $15 million, or 6 cents per share, for the period, down from $16 million, also 6 cents per share, a year earlier. Revenues for the period improved from $2 billion last year to $2.2 billion. The company did not comment on specific revenues from its Internet properties.

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