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Toys R Us sells iconic FAO Schwarz brand

Roughly one year after shuttering FAO Schwarz's iconic New York City flagship, Toys R Us is selling off the brand.

ThreeSixty Group, a company that designs and distributes toys and other consumer products, said Tuesday that it acquired the 154-year-old toy retailer, which had been owned by Toys R Us since 2009.

Terms of the deal were not disclosed.

"We are investing heavily in this brand and believe there is a tremendous opportunity to build upon the heritage experience and nostalgia of FAO Schwarz," Kirk McLean, co-founder of ThreeSixty Group, said in a news release announcing the deal.

The new FAO Schwarz toy collection will be designed by ThreeSixty. It will "draw upon the one-of-a-kind products and legendary in-store experience at the FAO Schwarz flagship store in New York City," the company said.

The line will be sold at select retailers starting fall 2017; until then, the brand's merchandise will be available online and at Toys R Us stores.

Toys R Us is in the midst of implementing a turnaround strategy that includes cutting costs, closing stores and making its existing shops more fun and interactive for kids and their parents. Its sales have been pressured by low-price competition from Amazon to Wal-Mart, and its outstanding debt has made it difficult for the company to invest in the business.

Yet under the leadership of CEO Dave Brandon, who joined the company last summer, the specialty shop's sales and profitability have improved. In the quarter ended July 30, Toys R Us' same-store sales increased 0.5 percent, and its operating income improved by $3 million, to $18 million.

Still, its overall sales declined, largely due to the closing of its expensive, but highly trafficked, FAO Schwarz and Times Square flagships. Toys R Us ended the second quarter with $1 billion in total liquidity and $5.2 billion in long-term debt.

"While we recognize there is nostalgia and history associated with this brand, the agreement allows us to focus on the aspects of our business which will fuel our long-term growth," Toys R Us spokeswoman Elizabeth Gaerlan said.