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Unwrapping Toys 'R Us's Holiday Plans

This week Toys 'R Us announced it was opening new "Holiday Express" toy stores in malls and Babies 'R Us locationsacross the country.

Although much of the buzz around this announcement focused on the "pop-up", or temporary, stores it is opening in malls as part of this effort, the space the company is dedicating to toys in its more than 260 Babies 'R Us stores shouldn't be ignored.

This point was emphasized by Toys 'R Us CEO Jerry Storch in a briefing with reporters Thursday.

Toys 'R Us has been going through the process of converting many of its stores to either a supercenter or side-by-side format that allows customers to shop for baby items as well as toys in one location.

About 25 percent of Toys 'R Us locations have made this conversion already, Storch said.

This strategy was made because Storch believes the toy business suffered from lost traffic when the businesses were separated years ago. This is because Babies 'R Us customers typically come to the stores more frequently to stock up on supplies such as diapers and then might also buy a toy, especially if they have older children in tow.

Storch expects the continued conversion to supercenter and side-by-side stores will continue to help fuel Toys 'R Us growth. However, he would not detail a specific timetable for these plans.

Despite a tough economy and continued competition from discount retailers such as Wal-Mart Stores and Target , Toys 'R Us has turned in three consecutive years of profit growth. It ended fiscal 2008 with net earnings of $218 million, up from earnings of $153 million in fiscal year 2007. This was despite fiscal 2008 sales that fell slightly to $13.72 billion from $13.79 billion in the prior year.

So far, earnings in fiscal year 2009 have been stronger than a year ago, Storch said, without providing a specific forecast for the year.

The company has been actively building its business through acquisitions this year. It acquired eToys.com in February, along with babyuniverse.comand ePregnancy.com. Then, in March, it acquired Toys.com, which the company now uses to link shoppers to its Web sites.

In May, it bought FAO Schwarz and plans to relaunch FAO.com in time for the Christmas holiday season.

The company's most recent deal came in late August: the acquisition of the KB Toys brand.

It's still unclear how the company will use its full portfolio of brands.

Although the company has yet to announce which toys it expects will be its hottest sellers this Christmas season, it did highlight a few products that are sold exclusively at its stores at Thursday's briefing.

These include a Disney-branded netbook from Asus, the original Tickle Me Elmo from Mattel's Fisher-Price, and a radio-controlled all-terrain vehicle under the Toys 'R Us store brand.

Storch expects remote-controlled cars have a good chance of selling well this holiday season as it is expected to be a tough year for video game sales, and there tends to be a connection between the two trends. However, price cuts on video game consoles and some new game titles could reinvigorate video game sales heading into the holiday season, he said.

More from Consumer Nation:

Questions? Comments? Email us at consumernation@cnbc.com

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