On December 21, bankrupt retailer Toys “R” Us will announce third-quarter earnings. After that, the company will host a conference call for investors. This happens in the shadow of rumors the retailer will close 100 stores. The earnings report should indicate how several Toys “R” Us financials were as it entered the heart of the holiday season. The numbers likely will show that the company’s dire situation has gotten worse.
Toys “R” Us faces two headwinds, both of which endanger its future. The first is that, as with almost every large brick-and-mortar retailer, people have turned to e-commerce and eschewed visits to stores. The other is that as a retailer that essentially appeals to one market, it has competition from powerful retail competition.
The first of Toys “R” Us challenges is not unlike the problems that face retailers from Sears Holdings Corp. (NASDAQ: SHLD), owner of Sears and K-Mart, to J.C. Penney Co. Inc. (NYSE: JCP) or Macy’s Inc. (NYSE: M). Toys “R” Us does not have a publicly traded stock to measure its fate day to day. If it did, the stock’s performance would probably look like these others. They have brutally sold off this year, as much as 60%.
Some of the aisles of large retailers, such as Wal-Mart Stores Inc. (NYSE: WMT), are full of toys. Because of its buying power, Walmart has leverage with toy suppliers. This makes it financially easier for the world’s largest retailer to chop prices below list prices. Walmart’s 4,752 U.S. locations also make it easier for people to pick up toys or order them online for in-store pickup.
And no retailer can dodge the presence of Amazon.com Inc. (NASDAQ: AMZN). Its toy department, online, goes on and on forever, with e-commerce shelves filed with hundreds of thousands of products from thousands of vendors. Toys “R” Us can’t come even close to matching that.
The Toys “R” Us third quarter is likely to be a disaster, which means the holiday quarter won’t be any better.