Toys R Us is reportedly considering closing more stores across the U.S. as it restructures its business, and Target is a top candidate to win those customers' dollars, according to UBS analyst Michael Lasser.
Bloomberg first reported Monday evening, based on conversations with people familiar with the situation, that the embattled toy retailer is considering shuttering at a minimum 100 stores amid weak holiday sales.
Earlier this year, Toys R Us filed for Chapter 11 bankruptcy protection, citing a heavy debt burden but ensuring the brand would "live on for many generations." The company also said it would continue operations as usual throughout the restructuring process.
Toys R Us' U.S. sales have dropped roughly 15 percent this holiday season compared with a year ago, those sources told Bloomberg. Typically, the company makes 40 percent of its net sales in the fourth quarter.
On Tuesday afternoon, Toys R Us posted a third-quarter loss of $623 million on sales of $2.11 billion. Excluding Canada, the retailer's same-store sales fell 4.4 percent. The company also booked $334 million of expenses and gains and losses directly related to its ongoing restructuring process, offering no update on its real estate strategy.
"Our results for the quarter were disappointing," CEO Dave Brandon said in a statement. "They not only reflect the broad competitive trends across retail, they demonstrate the continued challenges we face in both the baby and learning categories."
Ultimately, as many as 200 of the retailer's stores could be closed, one person explained to Bloomberg, not detailing timeline on those plans. Meanwhile, Brandon had said the company was planing to open more stores in certain cities — some in smaller formats.
"Decisions about our real estate portfolio will be made only after careful consideration about the best interests of our business," a company spokesman told CNBC Tuesday afternoon. "Any speculation about potential store closures at this time is premature and likely to be inaccurate."
Should those 100-plus store closures materialize, there appears to be one retailer that shares shoppers and is located in similar markets as Toys R Us.
"We believe [Target] should be well positioned to pick up some lost sales, especially when considering that 93% of TRU stores are within a 15 min. drive of a TGT," Lasser wrote in a note to clients. Also, "TRU and Target are exposed to [a] similar consumer demographic."
Meantime, UBS wouldn't expect retail rival Walmart to pick up as much of Toys R Us' lost sales, and any store closures "wouldn't really move the needle much for WMT."
Target, in turn, has been investing more in its toy department and beefing up an exclusive selection for kids, Lasser pointed out. UBS estimated that if Toys R Us closed 183 stores, in a base case scenario, Target's same-store sales could rise 0.45 percent. Walmart, on the other hand, would see a lift of about 0.10 percent.
Out of Toys R Us' roughly 880 store fleet in the U.S., 183 stores (including those under the Babies R Us nameplate) have at least one other Toys R Us store within a 15-minute drive, UBS found, which is why Lasser said the company could close these "cannibalized" locations next year.
So far, only Toys R Us U.K. has said it plans to close at least 26 of its 105 locations in Britain in 2018.