Toys R Us Will Close 87 Stores

Toys R Us Inc. said Monday that it would shutter 87 locations in the coming months as part of its reorganization after being taken private last year, but will spare 12 of them by converting the locations into Babies R Us stores.

The closures will cause the company to record $155 million of restructuring charges, including $45 million for the cost of liquidating the inventory. Some $99 million will be recorded during the fourth quarter ending Jan. 28, and $56 million in the first quarter.

The announcement was made by Vornado Realty Trust, which bought the company last year in a partnership with private equity firms Kohlberg Kravis Roberts & Co. and Bain Capital Partners.

It was not known which of the 674 Toys R Us stores in the U.S. were slated to be closed.

The store closings are the first since Vornado bought Toys R Us, but Vornado said the closures were contemplated when the retailer was acquired in July.

Each of the three partners will assume $51 million of the pretax restructuring charge, though $36 million of that will have no income statement effect as a result of purchase price accounting.

However, Vornado said the remaining share relating to the cost of liquidating the inventory would be recorded as an after-tax expense of $9 million in the first quarter.

Shares of New York-based Vornado gained 99 cents to $88.58.

Toys R Us had a third-quarter loss of $126 million as customers shunned traditional toys in favor of electronics and Wal-Mart Stores Inc. attracted shoppers with low prices. Third-quarter sales at U.S. Toys R Us stores open at least a year dropped 8.9%, the company said Dec. 8.

Overall, U.S. toy sales may have had their third straight annual decline because of weak holiday-season sales, Minneapolis-based Piper Jaffray & Co. analyst Anthony Gikas wrote in a Dec. 8 report.

The job cuts expected from the store closures represent 11% of the company’s workforce, said Toys R Us spokeswoman Kathleen Waugh. Some employees may be offered positions in other locations, the company said.

The new Toys R Us owners were committed to staying in the toy business, interim Chief Executive Richard Markee said in a November interview.