Toys 'R' Us is preparing for potential liquidation if its negotiations with creditors do not result in a deal that can help the struggling toy retailer to emerge from bankruptcy, a source familiar with the matter told Reuters. 

These talks are continuing and no decision has yet been taken. 

The US company is also considering other options, including a potential sale in bankruptcy if possible, according to the source. 

Toys 'R' Us in January said it would shut about a fifth of its US stores as it tries to emerge from one of the largest ever bankruptcies by a specialty retailer. 

It was hoping that strong sales during the key Christmas season would boost its chances of clinching a deal with its creditors in bankruptcy. 

The company has also struggled in Britain in recent years, resulting in Toys 'R' Us UK to go into administration, putting around 3,000 jobs at risk there. 

The company is expected to report three-month earnings to the end of January later this month. 

Bloomberg had earlier reported yesterday that Toys 'R' Us was making preparations for a liquidation of its bankrupt US operations.