DENVER—The term “parent company” is generic for a business that owns and controls the operations of another.
The phrase took on a secondary meaning after Denver-based eToys merged with Jupiter, Fla.-based Baby Universe last year, aptly describing the combined company’s newly broadened focus on growing families—from expectant moms to Hannah Montana-obsessed preteens.
The company officially changed its name to Parent Co. in January, right as it began trading under the new Nasdaq ticker symbol of KIDS. The moniker modification is the latest twist for the 75-employee company located in downtown Denver, which started during the early days of the Internet as Brainplay and evolved into the operator of e-content sites, including ePregnancy and BabyTV.com, as well as online retailers Posh Tots, Baby Universe and doll maker MyTwinn.
“We’re the Parent Co. because it’s all about the parents and their kids,” said Michael Wagner, CEO. “We kept going back and forth, saying that’s too corny, but we just kept coming back to it because it has that double meaning.”
The name change is one of a series of steps designed to turn around a company that has had plenty of challenges, including a weak balance sheet in need of new financing.
EToys’ merger with Baby Universe helped the Denver-based retailer diversify beyond the holiday-dependent toy business. The fourth quarter accounted for more than two-thirds of the company’s annual sales for the year ended Feb. 2.
The most recent holiday season was a rough one for toy retailers, which had a string of recalled products from China. Toy sales declined 2 percent last year to $22.1 billion, according to NPD Group. EToys, which historically has seen double-digit percentage increases in sales during the holidays, was up only 6 percent compared with the year earlier.
Baby Universe brought a slate of information, social networking and e-commerce sites focused on expectant and new mothers, one of the most lucrative markets on the Internet—some 43 million going online daily and spending an average of 85 minutes there, according to comScore Media Metrix.
“It’s the biggest life event of any woman or parent,” said Wagner, who has two high school age sons. “When you have that first kid, that’s the life change.”
The combined operations, however, had a rough 2007. The company posted a loss of $19.1 million on sales of $106.5 million in the year ended Feb. 2, 2008. Operating cash flow was negative $13.4 million.
The Parent Co. shut down Baby Universe’s Florida operations in October, saving some $6.6 million in costs, and this spring relaunched the Baby Universe Web site to give it more of a “Cherry Creek boutique” feel, said spokeswoman Sheliah Gilliland. The site sells everything from $1,100 Stokke strollers to $40 organic cotton layettes.
The recent losses left Parent Co. lacking liquidity. By May 3, its most recent balance sheet, it had just $144,620 in cash and nearly $28 million in current liabilities.
Earlier this month, the Parent Co. said it secured $10 million in financing from the D.E. Shaw group, a major shareholder, with a possibility of $15 million more to follow. D.E. Shaw also owns FAO Schwartz. The price was high: The company will pay interest of at least 15.75 percent and provided warrants to allow D.E. Shaw to purchase nearly 3 million shares at market prices.
“In this marketplace I think a lot of companies are going to fail,” Wagner said. “Raising capital and having the security to know you’re financed for the next two years is critical for this business. I can honestly say that we will be a survivor. I think there’s a lot of companies out there trying to figure out how they’re going to get through the next 12 months.”
The Parent Co. has more launches on tap. Later this year, the company plans its first foray into comparison shopping when it unveils toys.com, which will allow users to track prices and product reviews from products across the Internet.
Wagner expects that cash-strapped customers will be keeping a close eye on prices this holiday season, and are likely to postpone their purchases until close to Christmas. But he doesn’t think that parents are going to drastically curtail spending.
“In a soft economy, typically, parents are cutting on their own gifts before they’re cutting on their children’s,” he said. “They don’t want to explain that Santa Claus isn’t coming this year.”
Investors, however, are wary of the company’s prospects. The stock is down more than 80 percent from a 52-week high of $12. At Monday’s stock close of $2.10—more than double the 52-week low hit on July 14—the company was worth about $50 million.
“I feel that we’re very undervalued for the business that we have,” Wagner said. “Our analysts have us doing $150 million in revenue this year, and that’s a big company. To have a market cap that’s around $40 million, that’s a joke. That doesn’t make sense.”
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