Toys “R” Us Goes Into Bankruptcy
Toys “R” Us has today announced that they have voluntarily filed for relief under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court and in the Ontario Superior Court of Justice in Canada. The Company intends to use these court-supervised proceedings to restructure its outstanding debt and establish a sustainable capital structure that will enable it to invest in long-term growth.
With Disney licensed toys being a major part of their business, this is obviously going to be a worry to Disney, just ahead of the Holiday season. Many say that Toys “R” Us hasn’t quickly adapted to the growing trends of customers using online stores like Amazon and also other retailers like Walmart and Target taking a bigger slice of the toy market.
The news of Toys “R” Us going into bankruptcy has also caused a hit on the stock prices of Hasbro, Mattel and Jakks Pacific, all of which sell toys based on Disney, Marvel or Star Wars characters. With nearly 10% of their overall sales coming from Toys ‘R’ Us, this problem could hit Disney in the pocket.
Many experts are saying that the lackluster summer blockbusters haven’t helped sell toys, though Hasbro is expected to do well this year due to its range of toys based on Star Wars: The Last Jedi and other Disney franchises. Sales of toys are also being hit hard due to the popularity of video games and tablets, as more children play with devices than traditional toys.
While Toys “R” Us states that the vast majority of their 1600 stores worldwide are profitable are will continue to stay open, along with its online web stores. They did however also stated that its stores operating outside the U.S. and Canada are not part of the Chapter 11 filing and CCAA proceedings.
“Today marks the dawn of a new era at Toys“R”Us where we expect that the financial constraints that have held us back will be addressed in a lasting and effective way,” said Dave Brandon, Chairman and Chief Executive Officer. “Together with our investors, our objective is to work with our debtholders and other creditors to restructure the $5 billion of long-term debt on our balance sheet, which will provide us with greater financial flexibility to invest in our business, continue to improve the customer experience in our physical stores and online, and strengthen our competitive position in an increasingly challenging and rapidly changing retail marketplace worldwide. We are confident that these are the right steps to ensure that the iconic Toys“R”Us and Babies“R”Us brands live on for many generations.”
Mr. Brandon continued, “As the holiday season ramps up, our physical and web stores are open for business, and our team members around the world look forward to continuing to put huge smiles on children’s faces. We thank our vendors for their ongoing support through this important season and beyond. We also appreciate the strong support our investors have provided over time and the constructive role they are playing in this process that will allow us to create a brighter future for our company. And as importantly, we thank our team members in advance for their hard work and dedication to serving the millions of customers who will shop with us this holiday.”
The Company has received a commitment for over $3.0 billion in debtor-in-possession (“DIP”) financing from various lenders, including a JPMorgan-led bank syndicate and certain of the Company’s existing lenders, which, subject to Court approval, is expected to immediately improve the Company’s financial health and support its ongoing operations during the court-supervised process. Toys“R”Us is committed to working with its vendors to help ensure that inventory levels are maintained and products continue to be delivered in a timely fashion.
What do you think of Toys “R” Us going into Bankruptcy?