Toys R Us Going Public Again with an IPO
Just five years the Toys R Us brand was taken off the market by a collection of private equity firms. With the brand refreshed, the operations streamlined, and the company ready again to take on the deep discounters, this one is interesting.
2005
Toys R Us was first taken off the market in 2005, an opportune time to buy stocks on the cheap, and an even better time for Toys R Us. The company, which you’d think would have its operations straight judging by its stores, was a mess. Toys R Us needed someone new, and the purchase couldn’t have come at a better time.
Bad Customer Service, High Prices, Increasing Competition
The above doesn’t exactly demonstrate the perfect business, but it definitely describes pre-private Toys R Us. In the 2000s the firm was nothing more than a fading star of retail, once the largest retail chains in the world. Walmart, Target and Amazon (and every other website) were threatening its dominance. Plus, as ridiculous as it sounds, Toys R Us didn’t even have a web presense to sell its products prior to being taken public. Obviously that was long overdue with the firm selling its first toys over the internet in 2006.
Leaner and Meaner
As you can expect from any firm that is the largest in the industry, you eventually get too large. The current CEO Jerry Storch, put in place after being taken private, has since combined many Toys R Us and Babies R Us properties to move the company toward profitability. Also, new revenue streams online allow for Toys R Us to serve more toys with less overhead, nevermind the natural benefits of economies of scale.
Still Ain’t Buying It
I love this company. I love its story. I loved watching it move so easily from the top and bottom of trends before it went private, but I just can’t buy it. For one, it already has IPO gravity, no one is willing to bid up on IPOs this year. Two, Toys R Us is hoping to raise $800 and give up as little as a 10-20% stake (not yet publicly known) which puts the PEG too high for me. Third, a filing with the SEC says the firm plans to use the gains to pay down debt…that sounds good, but why again are they paying down debt with the lowest rates in history? Oh, that’s right, there just isn’t any room for growth.
How about purchasing its debt?