KB Toys files Chapter 11
It's the second time around
-- Kids Today, 12/15/2008 2:53:00 PM
KB Toys filed for Chapter 11 bankruptcy protection Dec. 12 in Delaware; it’s the second time in four years the retailer has done so.
The retailer, which is owned by investment banking firm Prentice Capital Management, asked for permission to immediately begin closing its chain of 460 stores and hold liquidation sales; its average annual sales are $480 million.
KB Toys cited several factors for its liquidity crisis, including the decline in consumer sales due to the current economic climate, especially during its critical selling season. While its comp store sales were up .36% over last year between February and October, they decreased 19.77% between October and December.
As of Nov. 29, 2008, on a consolidated basis, KB Toys had total assets with a book value of approximately $241 million and total liabilities of approximately $362 million. The liabilities consist of approximately $200 million of secured claims and approximately $143 million of unsecured claims including, outstanding trade payables and other accrued liabilities.
Its creditors holding the 40 largest unsecured claims include Li & Fung Toy Island Mfg., $27,204,977; Mattel, $1,292,351; Energizer Battery, $728,127; Hasbro, $424,625; Lego Systems, $374,702; and Crayola, $122,193.
KB Toys employs approximately 4,400 people during the first three quarters of each fiscal year, but expands the number of employees during the holiday season. As of Dec. 5, 2008, it employed approximately 10,850 employees, of which approximately 6,515 are seasonal employees.
KB Toys has three retail-based distribution channels and one wholesale. The largest retail channel is its mall-based stores, 277 locations averaging 4,000 square feet with about 3,300 active SKUs. It also operates 40 KB Toy Works stores, mainly in strip malls with about 5,700 square feet each and 3,500 SKUs and 114 KB Toys Outlet Stores primarily in outlet shopping centers with 5,000 square feet and 3,400 SKUs. The retailer also has about 30 temporary stores during the holiday season.
The wholesale distribution business operates under the trade name Creative Innovations & Sourcing, LLC and sells merchandise and provides other merchandising services through supply or similar agreements to certain large national retail chains such as CVS Pharmacy, Supervalu and QVC.
KBToys.com is operated by The Parent Co. under a long-term licensing agreement and is not included in this filing. KB Toys sold KB Online Holdings LLC, operator of KBToys.com and eToys.com, to D.E. Shaw & Co. LP, a New York–based investment and technology development firm in 2004. D.E. Shaw later renamed the company eToys Direct Inc. EToys and BabyUniverse.com merged in late 2007 to form The Parent Co.
KB Toys started in 1922 as a family-owned business. In 1981 it was sold to Melville Corporation, which sold it to Consolidated Stores Corporation in 1996. In 2000, a corporation formed by management, together with various investment funds managed by affiliates of Bain Capital and certain related entities, purchased KB Toys from Consolidated and in 2004, KB Toys, together with 69 of its direct and indirect affiliates and subsidiaries filed voluntary chapter 11 petitions in the United States Bankruptcy Court for the District of Delaware. At that time the retailer reduced the number of retail stores from approximately 1,200 to approximately 650, sold its online business and reorganized its remaining operations. In 2005 Prentice Capital Management acquired majority ownership and holds 100% of the senior, non-voting preferred stock and 90% of the common stock.
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