Although the economic environment remains a challenge, we believe we are well-positioned for a successful season

John Eyler, Toys R Us

The firm is now predicting that it will record a loss of about 22 cents per share - more than double its previous estimate - for the quarter, which ends at the beginning of November.

"The events of September 11... combined with an extremely challenging economic environment will lead to results below previous expectations," said chief executive John Eyler.

Toys R Us slumped into the red earlier this year, thanks to the economic slowdown, and the expense involved with redesigning its stores and turning around its loss-making online operation, now jointly run with Amazon.com.

The company's shares fell by close to 2% in early New York trading, and have now almost halved in value since their May 2000 peak.

Flagship store

Mr Eyler was keen to stress some positive aspects of the firm's recent performance.

Times Square awaits the Toys R Us flagship store

Construction at the firm's new 110,000-square-foot flagship store in New York's Times Square was delayed by the attacks.

But Mr Eyler said that its opening will still go ahead on 17 November, in time to cash in on the Christmas rush.

The store is being billed as the world's largest toy shop, boasting a 60-foot Ferris wheel, a 10,000-pound Tyrannosaurus Rex and a life-size two-storey doll's house.

Mr Eyler said, however, that "many of the store's promotional materials required extensive revision" in light of the attacks.

Happy Christmas?

The firm is gearing up for what it hopes will be a busy holiday season this year.

Toys R Us sold out in four minutes

Sales, Mr Eyler said, would be helped by the launch of a few keenly-awaited new products.

The firm's online arm, toysrus.com, sold out of the first shipment of the new Nintendo GameCube console in just four minutes on Monday, and the launch of the rival Microsoft Xbox is imminent.

In addition, Toys R Us said it would have some 60% of its retail space renovated in time for Christmas.

"Although the economic environment remains a challenge, we believe we are well-positioned for a successful season," Mr Eyler said.