The decision by New Jersey-based toy retailer Toys “R” Us to seek Chapter 11 bankruptcy protection makes it the latest victim of the difficult retail environment. However, the company’s struggles could mean a big victory for Amazon.com (Nasdaq: AMZN) and Wal-Mart Stores ( WMT).
Toys “R” Us obtained $3 billion in debtor-in-possession financing, and the company plans to continue operating its 1,600 global stores. However, KeyBanc analyst Edward Yruma says the writing is in the wall for the toy giant.
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While Toys “R” Us’ financing almost certainly means a liquidation is off the table in the near term, Yruma says both Walmart and Amazon are positioned to gain toy market share over time.
Together, Toys “R” Us and Babies “R” Us stores accounted for $11.5 billion in 2016 revenue.
“WMT is the largest U.S. retailer of toys and should gain share in a consolidating market,” Yruma says. He says Walmart is particularly well-positioned heading into the critical holiday season. Roughly 41 percent of Toys “R” Us’ annual revenue and 75 percent of its earnings come during the fourth quarter.
This holiday season, Yruma says Walmart will nearly double the amount of floor space it devotes to toys. Walmart has also extended the deadline for paying off layaway accounts. KeyBanc expects the $299 Disney “Frozen” Ride-On Sleigh to be a particularly hot product this year.
Yruma says Amazon has prioritized toy and baby sales for several years now, and its annual toy sales are only eclipsed by those of Walmart and Target Corp. ( TGT). “AMZN also issues a top toy list annually, and we think AMZN’s convenience has made it one of the fastest-growing baby toy retailers,” he says.
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Toy companies Hasbro ( HAS) and Mattel ( MAT) are also watching the Toys “R” Us story closely. KeyBanc estimates Hasbro could lose up to 6 cents in earnings per share for every 100 Toys “R” Us stores that close, while Mattel could lose up to 3 cents per share in earnings.
KeyBanc has “overweight” ratings on Hasbro and Walmart and “sector weight” ratings on Amazon and Mattel.
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Toys ‘R’ Us Downfall Benefits Walmart, Amazon originally appeared on usnews.com
