Toys 'R' Us's days as a toy retailer appear to be numbered after the company filed plans for
liquidation of its more than 700 domestic stores and over 200 of its Babies 'R' Us stores. Investors are now questioning what
impact the closures will have in the overall retail sector considering Toys 'R' Us's realized $12 billion in total revenue in
fiscal 2016, $7 billion of which was in the U.S.
The Analysts
KeyBanc Capital Markets' team of analysts, led by Brett Andress, Edward Yruma, Brad Thomas, Jason Gere, Monika Garg, and Evan
Wingren discussed in a note the winners and losers across the entire retail
space.
Leisure Segment
- The timing of Toys 'R' Us's store closures in early spring should give
the leisure channel sufficient time to "recover somewhat" ahead of the holiday period.
- A portion of Toys 'R' Us sales will likely be "lost forever" but larger manufacturers will be better positioned to navigate
over the longer-term.
- The impact to Mattel, Inc. (NASDAQ: MAT) could
be more negative than its peers given its fiscal 2018 focus on top-line stabilization and its "more fragile" balance sheet.
Softline and E-Commerce
-
Walmart Inc (NYSE: WMT) should capture 200 to 300
basis points of Toys 'R' Us market share, or $1.1 billion in sales.
-
Amazon.com, Inc. (NASDAQ: AMZN) should capture at
least 200 basis points of the market share, or $870 million in sales.
- Walmart and Amazon could capture between the two of them 40 to 50 percent of Babies 'R' Us sales.
Hardlines
-
Bed Bath & Beyond Inc. (NASDAQ: BBBY) will likely
be the "most direct beneficiary" in the hardline space as 10 percent of total sales are baby products.
-
Ollie's Bargain Outlet Holdings Inc (NASDAQ: OLLI) could benefit as well as toys account for 5 percent of sales.
-
Five Below Inc (NASDAQ: FIVE) is seen as a
potential "substitute" for Toys 'R' Us in some cases.
Household Products
- Incremental risks to Newell Brands Inc (NYSE: NWL)
is "marginal" as its sales to Toys 'R' Us is at most 2 percent of total sales and full-year EPS contribution is less than 10
cents.
Vertical Software
- Elevated bankruptcy risk remains and investors should hold a cautious stance in Manhattan Associates, Inc. (NASDAQ:
MANH), SPS Commerce, Inc. (NASDAQ: SPSC), and ChannelAdvisor Corp (NYSE: ECOM).
Media And Internet
- The media and internet space will likely see a "limited impact."
- Toys 'R' Us is a "very small channel" for video game publishers and retail store closures in general is a "positive" as it
forces consumers to shift towards higher margin digital sales.
Related Links:
Analyst
Sees Buy Opportunity In Hasbro As 'Black Panther' Success Should Help Offset Toys 'R' Us Decline
Analyst:
Toys R Us Closures Could Be Positive Catalyst For Bed Bath & Beyond
Image credit: Terence Ong (Own work), via Wikimedia
Commons
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