The toy store reported a net loss of $29m (�20m) in the second three months of the year, compared with a profit of $3m in the same period a year earlier.

Last month, the company warned on profits, saying that it was being hurt by the ailing US economy while absorbing the costs of redesigning many of its stores.

But online sales were almost four times higher than the same period a year ago, buoyed by an alliance with internet retailer Amazon.com.

Despite the boom in online demand for toys, ToysRUs.com is still running at a loss, reporting a net operating loss of $18m in the second quarter.

Future hopes for profit

Store sales were flat in the US, with the firm noting that this was healthy given the tough economic environment.

And the store's chairman and chief executive John Eyler says that the firm is well-positioned to deliver positive results in the last three months of the year.

The company is in the middle of a series of store remodellings in order to attract more customers.

"We remain confident that the improvements being made will deliver substantial benefits to Toys R Us, beginning with this year's holiday season, and will allow us to better grow and enhance our business well into the future," said Mr Eyler.

At 1052 in New York (1452 GMT), shares in the toy store were up 7% at $23.9 after some analysts had feared the store would perform worse.