Friday, May 28, 2010

TRU's new IPO

As predicted by the Bittergeeks last winter, Toys-R-Us is finally moving forward with plans to go public with a new stock offering this summer. We had predicted it would happen before the third quarter when all the new, fall toys are reset in stores and buyers and the media get the chance to see what might be selling early. Giving a glimpse at how the 2011 Holiday season may shape up.

Toys-R-Us leaders plan to raise $800M to help them alleviate some debt and likely invest in new inventory and store remodels. Their symbol on the Nasdaq with simply be "TOYS". We have not seen anyone list the actual release date of the IPO or what the opening price of the stock may be. My guess is that it would open shy of $20 per share.

There is a plenty of negative response on many of the business sites. Several vocal investors don't think the value of the IPO will hold over time much less rise and be profitable. It's a bit surprising since TRU really turned the business around from imminent disaster nearly three years ago. And they did so in a very difficult retail environment over the past two years. They have proven they can compete with Wal-Mart and Target during the all important Christmas shopping season. The main question is can they maintain both traffic and sales during the rest of the year.

They have their bad buyer issues still. They continue to invest in too much crap (half the boys action aisles, retro candy, pet supplies?!) and don't move quickly enough to dump dead ideas, brand or inventory (Hulk, Indiana Jones, Speed Racer, Star Trek, Hannah Montana, etc).

But, they will have very strong summer movie brands in the coming years to help drive 2nd quarter sales and within the next couple of years a new generation of video game systems will be released and all the rage for at least two solid Holidays.

We say: If the IPO opens under $16/share it's a buy. If it opens north of $20, it's not likely going to be profitable for some time and fluctuate wildly during the year and drive impatient investors crazy.

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