FINANCE

Toys ‘R’ Us to close up to 182 U.S. stores as part of reorganization plan

BY Marianne Wilson

Struggling Toys “R” Us is planning to shrink its U.S. store portfolio by as much as 20% as it looks to emerge from bankruptcy protection before the 2018 holiday season, the retailer said in a court filing.

The planned closures, which include both Toys “R” Us and Babies “R” Us locations, still need court approval. But going-out-of-business sales are scheduled to begin in February and expected to be completed in April. In court documents, the nation’s largest toy store retailer also said that if it is able to negotiate more favorable lease terms some of the shutterings may be avoided.

In addition to closing stores, the company will convert a number locations into its combined Toys “R” Us and Babies “R” Us format. The company currently operates a total of approximately 840 stores in the United States.

The retailer also has won Bankruptcy Court approval of a plan to pay landlords up to $1.3 million to extend store leases beyond an April 16 deadline.

Toys “R” Us filed for bankruptcy in September, struggling under a heavy debt load and several years of lackluster sales due to increased competition from online competitors and discounters. Since then, the retailer has been working to reinvent itself and improve both its online and in-store shopping experience to appeal more to today’s customers. Its plans include smaller stores and a more inviting and interactive store experience. The chain also wants to revamp its loyalty program.

“The reinvention of our brands requires that we make tough decisions about our priorities and focus,” stated Toys “R” Us CEO Dave Brandon in a note on the company’s website. “The actions we are taking are necessary to give us the best chance to emerge from our bankruptcy proceedings as a more viable and competitive company.”

The U.S. stores slated for closure include 12 in its home state of New Jersey, according to CNBC, and 15 in New York, including its Babies “R” Us flagship in Manhattan.

The store closings did not surprise industry analysts, some of whom predict the chain is likely to shutter even locations going forward.

“We see this as the first phase of a more robust real estate clean up effort at TRU,” Jefferies analyst Stephanie Wissink told CNBC. “The move has been anticipated, but the size of the closure and the timing was heavily debated.”

Toys “R” Us’ 83 locations in Canada are not part of the scheduled store closings, Melanie Teed-Murch, president of the Canadian division, said in a letter to customers on the company’s website.

“Since the initiation of our September court proceedings, our primary focus has been reimagining our business with you, our customers in mind and ensuring a normal course of operations,” Teed-Murch stated. “Our team is hard at work strengthening our competitive position and making the improvements necessary to ensure that we have the products when, where and how you choose to shop with us.”

 

 

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Sears downgraded by Fitch Ratings

BY Marianne Wilson

Fitch Ratings downgraded Sears Holdings Corp.’s ratings to C from CC, after the retailer announced a distressed debt exchange.

Sears said it has commenced an exchange various tranches of debt held by Sears and its Kmart business, Marketwatch reported. The exchange involves pay-in-kind notes that allow the company to make interest payments with more debt.

In early January, Sears said that it was in talks with select lenders to amend the terms on more than $1 billion of non-first-lien debt, to reduce the interest expense and extend maturities.

“Fitch views these exchanges as a distressed debt exchange (DDE), given extension of maturity date and the change in interest from cash-pay basis to PIK, and assumes that the collateral base for the secured debt will remain unchanged post the exchange,” said the rating agency.

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Tween retailer hires outside firm for debt advice

BY Marianne Wilson

Claire’s Stores Inc. has hired Lazard as its investment banker to help it address the chain’s debt load.

The tween jewelry and accessories retailer is burdened with $2.2 billion of long-term debt, according to FactSet. The majority of the debt, which starts to come due in 2019, was taken on when Claire’s was acquired in a leveraged buyout by Apollo Global Management in 2007 for approximately $3.1 billion.

In a statement, the retailer stated that the hiring of Lazard is not related to operations, which it said remain strong. In December, Claire’s posted net sales of $315 million for the fiscal third quarter, a 0.8% increase from the year-ago period. (Sales would have decreased 1.1%, however, excluding the favorable impact from foreign currency exchange rate changes, primarily due to store closures.) Consolidated same-store sales increased 1.1%.

“The steps we are taking now with Lazard will help to ensure Claire’s long-term success for years to come,” said Ron Marshall, CEO, Claire’s. “We believe this is the right time to undertake this initiative and we want to assure our vendors, employees and stakeholders that we believe we have ample liquidity to honor our commitments through the completion of this process.”

Claire’s sells its products in 4,220 locations in 45 countries around the world, through company-owned stores, concessions and franchise locations.

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