Toys retailer Toys R Us (ASX: TOY) has not had a playful history in Australia, having collapsed once in 2018, closing over 40 stores and laying off hundreds of employees. Then, it made a calculated comeback the very next year with the support of Hobby Warehouse (one of its largest shareholders), and in 2021, it got acquired by Funtastic, which changed its name to Toys R Us.
Come 2023, it decided to go big and open a massive retail centre in Victoria, for which it needed $8 million. Now, it might just have to pack up and go home instead.
After announcing a non-renounceable entitlement offer to raise a minimum of $5 million, with a targeted raising of $8 million, the Company is left hanging with not even half of the minimum amount—$1.1 million.
Toys R Us received valid applications amounting to a total of $906k. Additionally, the Company has received shortfall applications of $205k. In order to meet the minimum subscription amount of $5 million through the Shortfall facility, the Company is currently in discussions with multiple parties. If the minimum subscription amount of $5 million is not reached by July 19, 2023, the Company will not issue any shares and will refund all application funds to the applicants of the Offer.
The plan was to use the funds to boost its investment into the opening of a new 3,000 square metre Toys R Us and Babies R Us experiential retail centre in Clayton, Victoria, by $3 million. Plus, it wanted to increase its marketing efforts and get some new tech in its facilities (robots and such). Now, it is hedging its bets on anyone who would take a chance on it.
In FY22, Toys R Us struggled financially, with losses increasing from $5.3 million in FY21 to $25.2 million. The Company’s net cash balance also saw a substantial decrease of 85.4%, falling from $17.3 million to only $2.5 million. The trend continued in H1 FY23, with Toys R Us reporting an EBITDA loss of $6.7 million.
The capital raising then becomes crucial, as the Company is faced with its second downfall.
A part of the reason behind its possible collapse is the resignation of its CEO and managing director Louis Mittoni in May 2023. Mittoni is also the founder of Hobby Warehouse, the company credited for Toys R Us’s initial comeback and biggest shareholder. With new ambitious projects on its cards, Toys R Us is on a time crunch to find new investors.
The Company might find some relief in its winnings from its court case against electrical products supplier Allocacoc, with Toys R Us potentially getting $940k. It also secured a finance facility agreement via the UK Toys “R” Us global licensor Tru Kids Inc for a loan of $2.9 million. However, that is conditional.
As it casts around for financial facilities, the Company has announced a trading halt while it attempts to bring some fun back into the business.
Alinda is a Business Reporter for The Sentiment
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