Toys "R" Us, Last of the Big Toy Stores, Tries to Reinvent Itself For nearly two years, Toys "R" Us has waited for the right moment to take itself public. Mary Altaffer/Associated Press Although Toys "R" Us had last-minute shoppers during the holiday season domestic sales in 2011 were below what they were in 2008. Michael Falco for The New York Times Gerald L. Storch, Toys "R" Us's chief, at a Bronx store in 2009. The company filed for a public offering in 2010, when it seemed he had turned it around. That moment might be slipping away. The company is facing management defections, a decline in same-store sales and relentless competition from Walmart and Amazon. Last month, Moody's Investors Service put a negative watch on the company's debt. With more than 1,500 stores worldwide, Toys "R" Us is part of a group of big, lumbering retailers trying to reinvent their businesses for a new era. Sears is trying to turn around sales declines through customized offers to customers, in-store technology and an online push. Best Buy is adding small stores to balance its big-box ones. J. C. Penney is creating stores-within-a-store to give shoppers more variety. And Toys "R" Us, the last of the big toy stores, is grappling with how to grow. The company was bought in 2005 by a private equity group for $6.6 billion. By May 2010, when it filed for an initial public offering, its chief executive, Gerald L. Storch, seemed to have turned the once-struggling company around. But today, the toy story isn't quite as cheerful. After a lackluster holiday season, Toys "R" Us's domestic sales in 2011 were below what they were in 2008, one of the worst Christmases for retailers in recent memory. Sales at stores open at least a year, a measure of continuing demand, dropped internationally and domestically in 2011. Earnings, by one measure, fell 5 percent from 2010 to 2011 after falling about 11 percent the previous year. Management is churning as dissatisfaction deepens. The president of Toys "R" Us United States resigned in February after only 10 months, despite having signed a one-year contract. Earlier this year, the heads of both merchandising and administration left. The group of executives leading Toys "R" Us has experienced turnover in each of the seven years that Toys "R" Us has filed annual regulatory statements under Mr. Storch. Amid these challenges, Toys "R" Us's owners - two private equity giants, Kohlberg Kravis Roberts and Bain Capital, and the real estate developer Vornado Realty Trust - are facing the possibility that the window for an I.P.O. has closed, according to two people involved in the deal. In 2011, because of stock market volatility, numerous offerings were delayed or canceled. The retailers that had successful I.P.O."s last year were fast-growing companies like Michael Kors and Prada. Giant, slow-growth or no-growth chains might not have as much appeal. "Since they announced the I.P.O. in May of 2010, the operating performance has weakened," said Charles O'Shea, an analyst at Moody's. An offering would improve the company's debt-heavy balance sheet and give the owners a means to start cashing out of their investment, which private equity companies usually try to do after three to five years. It has been seven years since they bought Toys "R" Us. "This is a very crucial year for Jerry Storch and Toys "R" Us - there have been expectations for them going public, and it hasn't happened yet," said Jim Silver, editor of TimetoPlayMag.com and an influential toy industry expert. They need to come back. Retailers were popular targets of private equity firms during the leveraged buyout boom of 2005-7. Companies including Lord & Taylor, Neiman Marcus and Michaels Stores fell into private hands. In Toys "R" Us, the buyers saw an ailing franchise that was ripe for improvement and owned valuable real estate. The company was founded in 1948 and went public in 1978. But by 2005, Walmart and Target had cut prices on toys to the point that other toy retailers went out of business. Toys "R" Us said it would seek a buyer. The new private equity firms installed Mr. Storch, a former executive for McKinsey and Target, as chief executive. His strategies included increasing private labels and exclusive toys at the retailer. The company bought the rights to the defunct KB Toys and eToys brands, as well as F.A.O. Schwarz, adding F.A.O.-branded toys to its regular stores. "That now represents more than 50 percent of their toy sales, and it insulates them from competition," Lutz Muller, an analyst at Klosters Trading, said of the exclusive and private label products. The company has also converted a quarter of its locations into combined Toys "R" Us and Babies "R" Us stores and plans to continue the makeovers, saying in a filing that they seem to be generating sales gains.