Children's Place seeking to return Disney Store to Disney

[daveypoo]

Children's Place seeking to return Disney Store business to Disney

Jeffrey Gold | Associated Press
5:05 PM EDT, March 20, 2008

NEWARK, N.J. - Children's Place Retail Stores Inc. is ready to let the Walt Disney Co. take back control of about two-thirds of the 335 stores in the Disney Store chain.

About 115 remaining stores were expected to close. Disney handed ownership of the chain to Children's Place in November 2004 with an agreement that Children's Place would pay royalties after two years.

Stock in both companies rose following the announcement Thursday from Secaucus-based Children's Place, which currently owns and operates 335 Disney Stores, in addition to 904 Children's Place stores.

Children's Place said it is in an "advanced phase of discussions" with Disney on how Disney would regain ownership and control of the stores. Children's Place intends to disclose plans for exiting the stores "in the very near term," it said.

The decision to quit came after "a thorough review of the operation, its potential for earnings growth, its capital needs and its ability to fund such needs from its own resources," Children's Place said.

Disney confirmed the talks, and said the Disney Stores "can be an important extension of the `Disney' brand."

In an interview, Gary Foster, senior vice president of Disney Consumer Products, said the talks centered on about two-thirds of the Disney Store chain in the U.S. and Canada.

"We believe that a smaller, more focused chain would be more economically sustainable and still cover the major markets that we would like to have Disney-branded outpost in," he said.

If the talks succeed, the North American Disney Store operations would be added to the 120 Disney Stores that Disney owns and operates in Europe, and 40 that it licenses in Japan.

Analyst Jeffrey Logsdon with BMO Capital Markets said Children's Place would be able to exit a capital-intensive business, while Disney could better leverage its larger number of brands on a smaller store base.

"It probably just never worked out as well as Children's Place thought it could," he said. "Disney gets something back, that they're in a better position to leverage and they get less of them. It comes down now to product and execution."

Conflict over a refurbishment plan put the companies at odds in recent years.

Last June, Children's Place said it agreed to a new refurbishment schedule in response to Disney's assertions that it had breached its licensing agreement. It committed $175 million to remodel 234 Disney stores by 2011 and redo 165 stores by this June.

Foster said by taking over the stores, Disney could better manage its growing portfolio of franchises, which now include High School Musical, Hannah Montana, and Pirates of the Caribbean.

"The company has done a phenomenal job of creating new franchises and has broadened our appeal to include boys and older kids," Foster said.

"It's much easier to launch franchises in Europe from a retail perspective if you have complete control, over the timing of the entertainment content, timing of the merchandise launches, and a retail outlet where you can really focus on those," Foster said.

The Children's Place announcement came as the company reported it swung to a loss in its fourth quarter mainly because of costs related to the pending Disney deal.

Sales at the company's Children's Place stores rose in the quarter, but revenue from the Disney Stores fell slightly.

The Disney Stores recorded an operating loss of $92.1 million for the quarter, and $107.3 million for the year.

Overall, for the three months ending Feb. 2, the company reported a loss of $58.5 million, or $2.01 a share, from a profit of $44.7 million, or $1.48, in the prior-year quarter.

Excluding asset impairment charges and other costs related to exiting the Disney business and costs associated with the decision to stop construction of a new headquarters building, the company earned $20.5 million, or about 70 cents per share.

Analysts polled by Thomson Financial expected earnings of 89 cents per share.

Fourth-quarter revenue rose 4 percent to $670.9 million, below analysts' predictions of $675.2 million.

Quarterly same-store sales, or sales at stores open at least a year, rose 3 percent across all the company's stores. Disney store same-store sales, though, fell 4 percent. Same-store sales is a key indicator of retailer performance since it measures growth at existing stores rather than new stores.

For the year, the company swung to a loss of $59.6 million, or $2.05 per share, versus a profit of $87.4 million, or $2.92, in the prior year. Revenue climbed 7 percent to $2.16 billion.

Shares in Children's Place surged 13.5 percent, or $2.65, to $22.25 Thursday. Disney shares rose 2.1 percent, or 66 cents, to $31.90.

Associated Press writer Ryan Nakashima in Los Angeles contributed to this story.
_________________
When you're curious, you find lots of interesting things to do.
--Walt Disney

[WDWFan]

So... Is this a good thing or bad?

I'm pleased Disney is going back to ownership of something that contains their name. But will this mean an improvement in the stores? Business as usual for the store? or a Delay in closing the remaining stores? Opinions?

[daguru]

Screamsape has the following breaking news:

[daveypoo]

[daguru]

I thought they were saying that an agreement has been reached and finalized.....but I haven't seen that pop up any where else. So they may just be restating that they are in talks.
_________________
Up or Down North, South, East, or West An Adventurer's Life is Best!

[daveypoo]

There hasn't been anything, and since this seems to be a positive impact on both companies stock, I'm sure a press release would have been made if an agreement was made.

From what I know, they are in talks, and have been for a while. I don;t think this is an "IF" but more of a "WHEN".

What will become more interesting is how they will align the stores...part of World of Disney or separate from those places.

Regardless of that, I hope the go back to the "original" store format and layout. The Magic is gone in the new stores...I love the old ones with the annamatronics and magic feel.
_________________
When you're curious, you find lots of interesting things to do.
--Walt Disney

[daguru]

From what I was reading some where else (Jim Hill I believe) Disney is planning on cutting back the number of stores even more once the purchase is complete. But in another article, it said they were only going to purchase a portion of the total stores. If they only purchase a percentage, does that mean the rest will close?

We are down to only two in this area, Florida Mall and Sanford Mall. I hope they don't close the Sanford Mall, it is the only one that we go to!
_________________
Up or Down North, South, East, or West An Adventurer's Life is Best!

[daveypoo]

They are going to take over 2/3 of the existing store base. The other 1/3 (about 115 stores) will close. The idea is that Disney believes they can better manage a small footprint of stores...unlike when they originally owned them and every mall had a store. Too many stores meant that it wasn't special (or magical).

I have no idea what stores are staying and what stores are going. I haven't heard what the criteria is for keeping a store open. Geography and profitability are my guesses, but it could be just about anything.

And with us in an apparent recession, economics are an important factor is the decision.

Then again, I could be wrong.
_________________
When you're curious, you find lots of interesting things to do.
--Walt Disney

[daguru]

I think the JH article said it would be the top level stores, guess that means which stores have the highest profit margin.
_________________
Up or Down North, South, East, or West An Adventurer's Life is Best!

[DylansDisneyDad]

Here's a good followup.

(Opinion follows below)

Associated Press
Disney Store Operator Expects Quick Exit
By JEFFREY GOLD 03.27.08, 11:25 AM ET

NEWARK, N.J. - The operator of the Disney Store chain on Thursday said that its return of over 200 stores to the Walt Disney Co. could be completed by May if its restructuring plan is accepted by a bankruptcy judge.

The remaining 100-plus Disney Stores in North America would be closed, said Chuck Crovitz, interim chief executive officer of The Children's Place Retail Stores Inc. (nasdaq: PLCE - news - people )

His comments came in a teleconference with analysts less than a day after the Children's Place subsidiary that operates the Disney Stores filed for Chapter 11 bankruptcy restructuring in U.S. Bankruptcy Court in Delaware.

The subsidiary, Hoop Holdings LLC, runs 322 Disney Stores. Secaucus-based Children's Place announced last week that it was negotiating to have Disney retake control of two-thirds of those stores. That announcement did not mention that bankruptcy would be used.

Neither Children's Place nor its other subsidiaries filed for bankruptcy, the company said.

Disney, of Burbank, Calif., said the bankruptcy filing was expected and that talks were continuing.

"We are very close to where we need to be, but we are not at 100 percent," Crovitz said. "There are some issues, but we don't see them as being insurmountable."

He said the transfer can be completed following the court proceedings, which he said he hoped would conclude by April 30.

"There certainly are precedents for the action contemplated here," he said.

The cost of the Disney Store transfer and shutdown is estimated at $50 million to $100 million, Crovitz said.

Shares in Children's Place fell 70 cents, or more than 2 percent, to $24.80 in morning trading. Disney shares dropped 37 cents to $31.39.

Crovitz reiterated that Children's Place was leaving the Disney Store business because needed investments were not expected to deliver economic returns. It took control of the stores in 2004.

In announcing its exit plan March 20, Children's Place said the Disney Stores recorded an operating loss of $92.1 million for the quarter that ended Feb. 2, and $107.3 million for the year. Overall, for the three months ending Feb. 2, Children's Place reported a loss of $58.5 million, or $2.01 a share, compared with a profit of $44.7 million, or $1.48, in the prior-year quarter.

No hearings were immediately scheduled by U.S. Bankruptcy Judge Brendan Linehan Shannon.

A similar filing is expected in Toronto by Children's Place's Canadian subsidiary, the company said.

The Delaware petition puts Hoop's assets at less than $50,000, and puts liabilities in the same range. Three of the largest unsecured creditors are Disney entities, but the amounts are stated as "unknown."

Copyright 2008 Associated Press. All rights reserved. This material may not be published broadcast, rewritten, or redistributed

To WDW fans point "I'm pleased Disney is going back to ownership of something that contains their name. But will this mean an improvement in the stores? Business as usual for the store? or a Delay in closing the remaining stores? Opinions? "

I think it will be a good thing. There have been a number of pressures for The Disney Company to continue their amazing quarter over quarter, year over year growth (read dividend). They will reacquire TDS, bring them back into the fold, refurb them, and recapture many lost shopping dollars for a relatively small investment. Quite an ROI for something they have already done as the owner/operator of TDS and learned a great deal about later as the license holder while "Hoop" had it.

I would guess there will be very little "learning curve" and a very positive resonse from the get go. The CM's of TDS were always secretly praying about the prospect of Disney taking back the licence. They wanted to do a good job to prove to Disney that it would be a good idea to take them back. I worked there for a little under a year. I heard this from 2 Managers of 2 different stores.

[daveypoo]

I would love for Disney to reclaim their stores (and I'm hoping more that my store local is one they keep!). I understand there is a lot to consider and we have no idea what stores are staying and what stores will be closed.

I think the plan (smaller footprint of stores) is a good one. Make the Disney Store "special and magical" again. The next month will be interesting, to say the least.
_________________
When you're curious, you find lots of interesting things to do.
--Walt Disney

[daguru]

According to the Business Journal, the sale of the Disney Stores back to Disney has been completed: