Toys “R” Us

(This article was published on August 28, 2018, and is being re-published on October 28th, 2018 to add to the archives.)

  • This was an actual conversation today.
  • Seeing the world through the eyes of a 6-year old.
  • Did Toys “R” Us have to liquidate?

Today, I picked up my youngest daughter from school.  The following was the actual conversation to the best of my memory.

(WTK): I am here to pick you up.

(Daughter): Where is mommy?

(WTK): She is teaching middle school today and is with your sister’s class.

(Daughter): Ask Siri on your Apple (AAPL) phone where I can buy L.O.L. dolls?

(WTK): Why would I do that?  They are like $30 or something like that.  The only person L.O.L’ing is the people who are selling these.

(Daughter): What?  Never-mind.  You can buy them at Target (TGT), Wal-Mart (WMT), and you used to be able to buy them at Toys “R” Us.

(Daughter): I have one question.  Why did they close down Toys “R” Us?

(WTK): Do you really want to know?

(Daughter): Yes.

(WTK): Toys “R” Us had too much debt from when private equity players Bain Capital and KKR (KKR) teamed with Vornado Realty Trust (VNO) for a leveraged buyout.  They had to pay too much interest from this debt, and with competition from Amazon (AMZN), Target, and Wal-Mart, it was too much.  Also, believe it or not, five hedge funds who held their debt, including Oaktree (OAK), who you care nothing about, made the decision to close down the Toys “R” Us stores, rather than keep them operating.

(Daughter): Wait…wait a minute.  So they did not close down the stores because people were not buying toys there?

(WTK):  That was part of it, but mostly it was the interest on the too big of pile of debt.

(Daughter): That is so frustrating.  Now I can’t buy L.O.L. dolls at Toys “R” Us anymore.  Life is so unfair.

(WTK): Unfair?  I will tell you about unfair.  Did I ever tell you I got the big picture right for coal, meaning a historic turnaround in coal prices, yet distressed debt buyers got all the benefit.

(Daughter):  I do not want to hear about that anymore.

(WTK): Anymore?

(Daughter): I just want to talk about Toys “R” Us.  It does not make sense.

(WTK):  I know.

P.S. When I was a young kid, all I wanted to do was have enough money to buy whatever I wanted at Toys “R” Us.  I guess somethings never change.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: Every investor’s situation is different. Positions can change at any time without warning. Please do your own due diligence and consult with your financial advisor, if you have one, before making any investment decisions. The author is not acting in an investment adviser capacity. The author’s opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.