The bankruptcy filing by Toys R Us has put a focus on retailer bankruptcies again.
Toys R Us is an example of how a retailer can become bankrupt despite being a long established big name company that generates over $10 billion in revenue.
Toys R Us has similar revenue and EBITDA to J.C. Penney.
However, Toys R Us’s filing was primarily caused by its massive amount of near-term debt maturities.
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J.C. Penney’s debt maturity schedule is quite manageable. If Toys R Us had a similar debt maturity schedule, it quite likely would not have filed.
The Toys R Us bankruptcy filing has put a renewed focus on retailer bankruptcies. This is an example of how even a big name retailer that generates billions in revenues and has been around for a long time (since 1948) can end up filing for bankruptcy.
Toys R Us is actually pretty similar in terms of revenue and EBITDA to J.C. Penney. It is more leveraged than J.C. Penney, but not by a huge amount. Despite this, I maintain my belief that J.C. Penney has a low risk of bankruptcy in the near-to-medium term. A primary cause of Toys R Us’s bankruptcy filing is its huge amount of debt maturities within the next few years. Toys R Us has close to six times as much debt maturing by 2020 as compared with J.C. Penney.
Notes On Ratios
The Toys R Us bankruptcy is another example of how a company can generate plenty of revenue, but still go bankrupt. That’s one reason why I don’t like to use ratios such as price to sales, which don’t take into account factors that can affect the overall viability of the company such as net debt and the debt maturity schedule. If Toys R Us were publicly traded, there would have probably been a fair number of investors who would have seen it trading at a price to sales ratio of something like 0.1x or less and figured that was a bargain price for a big name retailer.
Toys R Us Vs. J.C. Penney
If you look at some of the numbers, Toys R Us is actually pretty similar to J.C. Penney. The below table shows Toys R Us’s 2016 actual results and my estimate for J.C. Penney’s 2018 results if it does -1% comps in 2018.
Date: Sep 24, 2017