Armed with a $3.1 billion loan, Toys "R" Us had hoped to bring its debt under control, but a disappointing showing during the holidays has worsened the outlook.
Bloomberg reported on Thursday that Toys "R" Us is making preparations for a liquidation of its bankrupt USA operations. The company had previously attempted but failed to find someone to buy the full United Kingdom operations, where the toy retailer has over 100 stores, includes its locations Babies R Us, and has a workforce that is estimated to be over 3,000.
"It's like nostalgia. I mean, everybody's gone to Toys "R" Us since they were a kid", Kayla Pitzer said as she shopped with her son. While the fate of Babies R Us is unclear, it would be safe to assume the company would close those stores as well.
Toys R Us is planning to close roughly 180 stores across the country, or about one-fifth of its USA store fleet, in a bid to restructure the company and emerge from bankruptcy protection. The company has about another 800 stores worldwide.More news: United States top diplomat to arrive in Kenya on Friday
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Toys R Us, based in Wayne, New Jersey, has struggled with debt since private-equity firms Bain Capital, KKR & Co. and Vornado Realty Trust took it private in a $6.6 billion leveraged buyout in 2005. In January, it announced 180 locations would be closed. "It's also where smaller toy companies can have an opportunity".
The company could be forced to close all remain locations if it files for Chapter 7 bankruptcy liquidation, which would wipe out the company's debt. In the 12 months through September, Toys "R" Us sales declined 5 percent.
"The worst case scenario is that about 10 percent of the sales of each of the toy companies goes away in 2018, with an associated roughly 10 percent hit to earnings", D.A. Davidson analyst Linda Weiser said.