But the problems far outweigh the positives. Among the issues:
- The company still has more than 1,500 stores, a count that has remained essentially unchanged since the KKR-led group acquired Toys "R" Us. Certainly there are some underachieving units yet to be shed. Store closures tend to generate big one-time lease write-off losses that are better accomplished privately than under the pressures of answering to public shareholders.
- Toys "R" Us has performed a bit better lately, but it's not exactly a retail star. Sales at existing stores were still down 3 percent last year, at a time when many major retailers have bounced back and are seeing positive sales growth again.
- The company's lukewarm performance and burdensome debt load mean its private shareholders' stock only recently acquired any value, which currently stands at a paltry $117 million. That's puny for a company with nearly $14 billion in annual sales -- i.e., not exactly a sign of a thriving business.
- Finally, there's an overarching problem in trying to reintroduce this mature chain to the public markets: no growth story. Investors like companies that have a lot of upside potential, and it's hard to see much expansion in Toys "R" Us's future. It's already a global chain with little open territory left, and it's hemmed in on price by Walmart (WMT), which continues to dominate the category and drive prices down.
So far, the company has been a bit mysterious about the combined "R" stores, saying just that they "performed well" and that it plans to add "more" this year. Toys has slowly rebuilt its cash to over $1 billion, so it has some money to spend on store remodeling. If the combined stores truly generate more sales and profits, Toys "R" Us could aggressively roll out this changeover to more stores, improve sales and earnings, and present a more enticing proposal for investors in a year or so. Photo via Flickr user fluzo