The 2013 holiday season may be the last chance for Toys R Us to turn things around, with slipping sales and high debt a potentially toxic brew for the company. The latest red flag is a decline in the value of Toys R Us debt to "deep junk" prices, according to Moody’s Analytics as reported by Quartz. The spread between the value of TRU’s debt as indicated by those prices and its Moody’s rating is followed by default on the company’s debt within three years some 80% of the time, according to a Moody’s Analytics study. Moody’s analysts say the bond price declines indicate that the holiday season is “a make-or-break time for the company” in investors’ eyes.
Toys R Us’ same store holiday sales declined 4.5% in 2012, and the company had to cancel its planned IPO last spring (see "TRU Pulls IPO"). The company has high levels of debt from its 2005 LBO, which it had hoped to reduce with the proceeds of its IPO. But the market was not receptive to equity in the world’s largest toy chain, so the debt remains.
Toys R Us is facing intense price competition from Amazon, Walmart, and other retailers again this holiday season (see "Amazon Winning Holiday Price War"), so it’s going to have a tough go to turn around its sales trends.
'Make-or-Break' Holiday Season
Posted by ICv2 on November 25, 2013 @ 1:10 am CT