The offering would be one of the biggest retail IPOs in years. But experts say IPOs so far this year have been disappointing, so pricing will be key.
Despite the recession dampening sales over the past year, Toys R Us has steadily improved net income under CEO Jerry Storch, the former Target Corp. vice chairman who joined the company in 2006. The year before, the company had been taken private in a $6.6 billion buyout by investors led by Bain Capital, Kohlberg Kravis Roberts and Vornado Realty Trust.
Under Storch, the company has improved its merchandise selection and customer service and become more competitive on price, toy analyst Jim Silver said.
"He put the moms back in stores," Silver said. "The whole store experience is a much better experience."
BMO Capital Markets analyst Gerrick Johnson said the timing for the IPO makes sense because the toy industry is doing well, Toys R Us has been taking market share from key competitors Target and Wal-Mart Stores Inc. And even with recent declines, the stock market is still up significantly since bottoming in March 2009.
But Paul Bard, director of research at Renaissance Capital, said pricing the offering will be key, because many IPOs have underperformed this year. Of the 12 IPOs so far this year, shares have fallen an average of 5 percent. For example, shares of clothing chain Express have fallen 14.3 percent since it went public May 13.
"There have been some missteps to date in terms of some of the private equity firms pricing (IPOs) very aggressively, and investors are quick to catch onto that," he said. While Toys R Us is a strong brand, "potential IPO investors are really going to push for a discount," he added.
Public equity firms have a vested interest in shares gaining after IPOs because they usually remain majority shareholders, he said.
Still, he said such a big name will draw attention to IPOs.
"They're a category leader they've done a good job streamlining their cost structure and improving results," he said.
The retailer said in a filing with the Securities and Exchange Commission that it will use the proceeds from the offering to pay off some of its debt and for general corporate purposes. It has about $5.2 billion in debt.
It did not say how many shares it will sell. Bard said typically in private-equity backed IPOs, firms offer a 10 percent to 20 percent stake.
The stock would trade on the New York Stock Exchange under the ticker symbol "TOYS."
Toys R Us, founded by Charles Lazarus, traces its roots back to 1948 to the opening of Children's Bargain Town, a children's furniture store in Washington, D.C. The company took the name Toys R Us in 1957. Lazarus retired as CEO in 1994.
The company, based in Wayne, N.J., first went public in 1978. For years, Toy R Us, which operates or licenses more than 1,500 stores, was the leading toy retailer in the world, but as discounters began encroaching on its territory, its sales began to suffer.
When it was taken private in 2005, it was becoming increasingly pressured by competition from Wal-Mart Stores Inc., Target Corp. and the Internet.
Toys R Us didn't begin selling online through its Toysrus.com and Babiesrus.com websites until 2006.
But since CEO Jerry Storch came aboard in 2006, the company has turned around results. It has consolidated some Toys R Us and Babies R Us stores and expanded its Web presence, acquiring the addresses eToys.com, babyuniverse.com, FAO.com and toys.com in 2009.
That year, it also bought assets from pricey toy retailer FAO Schwarz. Storch has also cut costs and streamlined operations.
Results have steadily improved.
In the year ended Jan. 30, Toys R Us said its net income rose to $312 million from $218 million. That is despite the fact that revenue fell to $13.57 billion from $13.72 billion, a year earlier, as the recession hurt sales for most retailers. From 2006 to 2008 the company logged steady revenue gains.
The IPO is being managed by some of the biggest names on Wall Street including Goldman Sachs & Co., J.P. Morgan, BofA Merrill Lynch, Credit Suisse, Citi and Well Fargo Securities. Needham & Co and Mizuho Securities are serving as co-managers.