Just a few weeks after paying Toys "R" Us more than $197 million for 124 Kids "R" Us stores, Office Depot sold 20 of the stores to Petco for $45 million plus lease obligations. These acquisitions will allow Petco to penetrate new markets such as South Florida, where six of the stores are located, and Northern Ohio, where four of the stores are located. The remaining 10 stores are in North Carolina (another new market), New York, Kansas, Illinois and Michigan.
The former Kids stores range in size from 18,000 square feet to 19,000 square feet. "The Kids "R" Us stores are comparable in size to a typical Petco store and therefore will likely require little in the way of remodeling or refixturing," says Smith Barney Citigroup analyst Bill Sims. The two-thirds of the stores that aren't leased will be converted to operating lease structures through sale-leaseback financing. As a result of the purchase, Petco now plans to open 70 new locations in 2004. Toys "R" Us still has 22 former Kids "R" Us stores to unload.