FINANCE

It’s official: Toys ‘R’ Us files liquidation plan—but some stores could stay open

BY Marianne Wilson

Ending weeks of rumors, the nation’s largest toy store retailer has informed a U.S. bankruptcy court that it must liquidate. But it left open the chance that some U.S. stores will remain open under a potential deal involving its Canadian operations.

Toys “R” Us on Thursday filed documents with the court seeking approval to begin conducting a wind-down of its U.S. business and liquidation of inventory in all 735 U.S. stores, including its locations in Puerto Rico. The retailer said it will provide more details about the liquidation of its stores and going-out-of-business sales at a later date.

“This is a profoundly sad day for us as well as the millions of kids and families who we have served for the past 70 years,” stated Dave Brandon, who took the reins as CEO of Toys “R” Us in July 2015.

As had been rumored, the motion filed by Toys “R” Us included bidding procedures for its more profitable Canadian business. The retailer said it is engaged in discussions with “certain interested parties” for a deal to combine up to 200 of the top performing U.S. stores with its Canadian operations.

“We will pursue going-concern sales or reorganizations of certain of our international businesses, while our other international businesses consider their options,” the company said.

While discussions continue on the potential transaction, Toys “R” Us is seeking court approval to implement the liquidation of inventory in all its U.S. locations. It said it reserves the right to recall any stores included in the proposed Canadian transaction.

In his statement, Brandon said that Toys “R” Us no longer had the financial support to continue its U.S. operations. According to the filing, the chain initially hoped to be able to keep 400 stores open, then realized it didn’t have enough cash to do so. The “projected cash burn” was $50 to $100 million a month, without investing in any of the previously planned improvements to stores, The Record reported. Toys “R” Us said it has enough money left to pay its 33,000 workers for “no fewer than 60 days.”

In addition to Canada, Toys “R” Us is pursuing also pursuing a “going concern reorganization” and a sale process for its international operations in Asia and Central Europe, including Germany, Austria and Switzerland. Its operations in Australia, France, Poland, Portugal and Spain are considering their options, including potential sale processes in their respective markets.

In his statement, Brandon thanked the company’s “extraordinary team members” who helped build Toys “R” Us into a global brand.

“I also want to express my appreciation for my colleagues on our board who have continued to provide support to sustain the brand and our operations throughout the restructuring process,” he said. “I would also like to thank our vendors who we owe a great deal of gratitude to for their decades of support.”

Toys “R” Us filed for bankruptcy protection in September 2017.

At the time of the filing, analyst Neil Saunders, managing director of GlobalData Retail, commented that in addition to high debt, severe structural changes in the industry had created a toxic mix for Toys “R” Us. Commenting on the liquidation, Saunders called it “the unfortunate but inevitable conclusion of a retailer that lost its way and forgot core retail competencies.” He also once again brought up the chain’s debt. (Toys “R” Us has been burdened with a heavy debt load since 2005, when it was purchased by KKR, Bain Capital, and Vornado Realty Trust in a $7.5 billion buyout.)

“The leveraged buyout which burdened the company with debt reduced the room for maneuver and left Toys ‘R’ Us vulnerable,” Saunders said. “Questions should be asked as to the wisdom of this particular financial transaction which weakened the sustainability of the company.”

Added Neil Stern, senior partner, McMillanDoolittle, “The trifecta of too much debt, huge e-commerce growth and historic missteps were too much for Toys “R” Us to overcome.”

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