It looks like the toy retail outlook could be improving slightly as US specialty retailer Toys ‘R’ Us saw operating earnings for the first fiscal quarter of 2012 increase US$10 million versus a US$7 million loss a year ago, with net losses coming in at US$60 million versus US$67 million a year ago.

Inventory costs fell by almost 3% and the retailer’s gross margin rate increased 1.1% coming in at 38.2% versus the same period last year, as a result of selling more profitable toys and focusing on product differentiation.

Declining demand for video games continues to impact TRU’s revenue which dropped nearly 1% to US$2.61 billion from US $2.64 billion in 2011, but the company’s learning and core toy categories continue to sell well with Q1 net sales growth of 6.7% and 4.7% respectively.

The entertainment category (which includes video game software and hardware) experienced a notable decline of 14%.

According to Toys ‘R’ Us chairman and CEO Jerry Storch, strong sales at new store locations in Southeast Asia and China helped contribute positively to its Q1 sales.

The company has still not determined when it will go public.