The retail giant reported first-quarter earnings, and the future direction of its debt will likely be driven by how far appetite for toys holds up in this year's holiday season.

Revenues rose 5.3 percent in the first quarter of 2008, due to foreign currency gains, higher sales over the Internet and the addition of 16 net new stores,

Earnings before interest, taxes, depreciation and amortization for the quarter, however, slipped 2.5 per cent to $114 million.

"Given that Toy generates 70 percent of its EBITDA in the fourth quarter, we believe the slight decline in first-quarter EBITDA will not have a material impact on the company," analysts said.

And EBITDA for the 12 months ended with the first quarter increased by 7.4 percent "given Toy's continued operational improvements," they said.

The retailer is trying to increase traffic at its Toys "R" US. stores by situating them next to its Babies "R" Us locations."

The cost to insure Toy's debt with credit default swaps fell to around 801 basis points on Wednesday, or $801,000 per year for five years to insure $10 million in debt, from 805 basis points at Tuesday's close, according to Markit Intraday.