Target could be the biggest winner if Toys R Us closes more stores

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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 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.

Fast forward to today, and 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.

Ultimately, as many as 200 of the retailer's stores could be closed, one person explained to the news outlet, providing no timeline on those plans. Meanwhile, Toys R Us CEO Dave Brandon had said the company was planing to open more stores in certain cities — some in smaller formats.

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"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. "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."

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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.

Also recently, Toys R Us won court approval for a plan that will pay top executives up to $21 million in bonuses, arguing the funds will push management to boost the bankrupt retailer's sales through the new year.

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