After considering whether it should declare bankruptcy amidst its deep financial challenges, Toys ‘R’ Us has announced it has filed for bankruptcy in the US and will soon follow in Canada.
According to a release by the major toy store, the company filed for relief under Chapter 11 of the Bankruptcy Code in the US Bankruptcy Court, and the Company’s Canadian subsidiary intends to seek protection in parallel proceedings under the Companies’ Creditors Arrangement Act (“CCAA”) in the Ontario Superior Court of Justice.
Toys ‘R’ Us will use the court-supervised proceedings to restructure its outstanding debt, and establish a sustainable capital structure that will enable it to invest in long-term growth.
“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,” Brandon added. “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.”
In the company’s fiscal update for the first quarter of 2017, it reported a net loss of $164 million – an increase from $126 million during the same quarter a year earlier. As well, same-store sales have dropped by 4.1%.
While bankruptcy will affect its Canadian and US operations, approximately 255 stores and joint venture partnerships in Asia are separate entities and not part of the proceedings.
As well, the Company’s approximately 1,600 Toys ‘R’ Us and Babies ‘R’ Us stores around the world – the vast majority of which are profitable – will continue to operate as usual. All online stores, and loyalty programs, will also operate as normal.
“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,” said Brandon. “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.”
At this time, the company has received a commitment for over $3 billion US 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 says that it 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.
Founded in 1948, Toys ‘R’ Us has over 1,500 locations worldwide, including over 70 stores in Canada.