Coverage: Toys ‘R’ Us to close 200 more stores, cut HQ staff
Struggling retailer Toys “R” Us Inc. plans to close another 200 stores and lay off a significant portion of its corporate staff following a disappointing holiday sales season.
Lillian Rizzo and Paul Ziobro of The Wall Street Journal had the news:
The Wayne, N.J., retailer recently had announced plans to close about 180 stores, affecting approximately 4,500 workers. The latest wave of closings would cut nearly in half the number of U.S. stores it had before its bankruptcy filing, the people said. The discussions about the store closings are continuing, and the number of closures could change, the people added.
The company has also walked back from a promise to offer severance to all affected employees. According to internal documents reviewed by The Wall Street Journal, managers were recently instructed to tell hourly workers that “there are no severance benefits being provided for the store-closing process.” In January, store managers were instructed to tell employees that the company would provide severance to all affected employees, including hourly workers, according to the documents.
After filing for bankruptcy, Toys “R” Us had sought approval to pay millions in incentive bonuses to its top executives. While those bonuses drew opposition from the government’s bankruptcy watchdog, a judge approved the incentive payments in December.
Lauren Hirsch of CNBC.com reported that the company is in danger of breaching its loan covenants:
The storied toy retailer secured a $3.1 billion loan from a group of lenders led by J.P. Morgan Chase prior to filing for bankruptcy protection. That loan, a so-called debtor-in-possession, or “DIP,” loan is given to a company to provide the money it needs to invest in the business while it is in bankruptcy.
But after a dismal holiday season, Toys R Us is now at risk of having too little cash to satisfy the terms of the loan.
The retailer is currently in compliance with its loan terms, and has a number of options afforded to it before it does breach the covenant, the sources said. These options include getting financing elsewhere so its cash balance does not breach the loan terms, or renegotiating the debt terms with its lenders.
If Toys R Us does breach the covenant, its DIP lenders have the option to force it to immediately pay them back, which could in turn force the retailer into liquidation.
The sources stressed that no decisions have been made and the DIP lenders remain supportive of Toys R Us.
Joan Verdon of USA Today reported that the retailer is denying it will liquidate:
Attorneys for the lenders and creditors have repeatedly told the bankruptcy court that it is in everyone’s best interests that Toys R Us survives.
But holiday sales that were significantly weaker than expected have put Toys R Us in a worse financial position than was anticipated when the debtor-in-possession covenants were drawn up.
Toys R Us this year did not release its holiday sales results, but sources told The Record that store sales dropped by 9 percent and online sales were down by roughly 20 percent.
At the North American International Toy Fair in New York City this week, a number of manufacturers said their 2017 sales were hurt by the September bankruptcy filing of Toys R Us. Manufacturers said a good number of consumers apparently had the mistaken impression that all Toys R Us stores were closing, and that the retailer didn’t do enough to combat that impression.
Toys R Us is conducting going-out-of-business sales at about 170 stores around the country, roughly 20 percent of its U.S. store fleet. The company has said it plans to emerge from bankruptcy before the 2018 holiday as a leaner and more innovative retailer.