After a disappointing holiday sales season, Toys ‘R’ Us is reportedly closing another 200 stores on top of the 180 stores it closed following its bankruptcy filing in September. The closings have prompted speculation that Toys ‘R’ Us could ultimately choose to liquidate its remaining assets, and Bed Bath & Beyond Inc. (Nasdaq: BBBY) could be an under-the-radar winner.
According to Loop Capital Markets analyst Anthony Chukumba, Bed Bath & Beyond subsidiary Buy Buy Baby would get a huge chunk of Toys ‘R’ Us’ remaining business should the company throw in the towel and close its remaining stores. Chukumba also says liquidation appears to be the most likely outcome at this point.
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“We believe Toys ‘R’ Us’ travails are likely to eventually result in a complete liquidation of the chain, particularly given the company’s reported struggles during the typically seasonally strong [fourth quarter],” Chukumba says.
Chukumba says Bed Bath & Beyond could get a direct annual earnings per share boost of about 25 cents should Toys ‘R’ Us shut down its remaining Babies ‘R’ Us stores. That 25 cents would represent an 8.8 percent earnings uptick based on consensus 2018 earnings forecasts.
Loop estimates that more than 90 percent of Buy Buy Baby stores are located within 10 miles of a Babies ‘R’ Us store, making it relatively easy for shoppers to make the switch.
“We believe former Babies ‘R Us shoppers would be more likely to migrate to Buy Buy Baby stores than large format discounters or online given the latter’s similar store format, merchandise assortment, and customer service levels,” Chukumba says.
Investors and analysts have been watching Toys ‘R’ Us closely as it struggles to stay afloat in increasingly difficult U.S. retail environment.
Bed Bath & Beyond is just one of several potential market winners and losers in the event of a Toys ‘R’ Us liquidation. As recently as a year ago, Toys ‘R’ Us accounted for up to 20 percent of Mattel ( MAT) revenue, making Mattel a major potential loser.
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KeyBanc says Walmart ( WMT) and Amazon.com ( AMZN) would be the biggest winners from the Toys ‘R’ Us downfall.
For now, Chukumba says the unpredictable timing of a potential Toys ‘R’ Us liquidation coupled with the challenges Bed Bath & Beyond faces from online competition still makes the stock a risky bet.
Loop Capital Markets has a “hold” rating and $23 price target for BBBY stock.
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Toys ‘R’ Us Downfall a Positive For Bed, Bath & Beyond Inc. (BBBY) Stock originally appeared on usnews.com
