It’s official: Toys ‘R’ Us files liquidation plan—but some stores could stay open
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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Warby Parker hits important financial milestone
Eyewear retailer Warby Parker is on a roll.
The eight-year-old company announced it has raised $75 million in a Series E funding round led by existing investor T. Rowe Price. Warby Parker also said that it will be profitable this year for the first time in its history.
The new funding values Warby Parker at $1.75 billion, according to Recode. And it brings the company’s total funding to around $290 million.
Warby Parker plans to use the new funding to invest in technology, research and development.
“We’re working to build one of the world’s most impactful brands, and we’ve always taken a long-term view,” stated co-founder and co-CEO Neil Blumenthal.
Last year, in a development that will help streamline its operations, Warby Parker opened its first, fully-owned optical lab. The brand also entered a new market, kids eyewear.
Founded online in 2010, Warby Parker opened its first store in 2013, and currently has 65 locations in the United States in Canada. It has a goal of nearly 100 U.S. stores by the end of 2018, reported CNBC.
NRF: Retail sales inch up in February
February retail sales inched up 0.3% seasonally adjusted over January and 4.4% year-over-year as the economy continued to grow, according to the National Retail Federation. The NRF numbers exclude automobiles, gasoline stations and restaurants.
NRF’s figures are based on data from the U.S. Census Bureau, which said overall February sales – including automobiles, gasoline and restaurants – were down 0.1% seasonally adjusted from January but up 4% year-over-year. It was the third consecutive month that overall sales have declined. Economists had forecast retail sales rising 0.3% in February.
“Month-to-month comparisons don’t tell the whole story because of seasonal adjustment factors, but the three-month moving average and other year-over-year numbers are better indicators that reflect how sales are really increasing,” said NRF chief economist Jack Kleinhenz. “It’s still too early to draw conclusions about the impact of tax cuts but extra money in shoppers’ pockets should help as the year goes forward. With consumer confidence and employment growing, economic fundamentals are favorable for spending to expand in the coming months.”
The three-month moving average was up 4.4% over the same period a year ago. The results come as NRF is forecasting that 2018 retail sales will grow between 3.8% and 4.4% over 2017.
The February numbers won back a slight monthly dip seen in January, which declined 0.2% from December coming off one of the best holiday seasons in years but was up 5.4% year-over-year.
Specifics from key retail sectors during February include:
• Online and other non-store sales were up 10.5% year-over-year and up 1% over January seasonally adjusted.
• Clothing and clothing accessory stores were up 5.2% year-over-year and up 0.4% from January seasonally adjusted.
• Building materials and garden supply stores were up 5.1% year-over-year and up 1.9% from January seasonally adjusted.
• Electronics and appliance stores were up 4.3% year-over-year but down 0.1% from January seasonally adjusted.
• Furniture and home furnishings stores were up 2.9% year-over-year but down 0.8% from January seasonally adjusted.
• General merchandise stores were up 2.4% year-over-year but down 0.4% from January seasonally adjusted.
• Health and personal care stores were up 0.3 percent year-over-year but down 0.4% from January seasonally adjusted.
• Sporting goods stores were down 3.4% year-over-year but up 2.2% from January seasonally adjusted.