Disney Takes Control of Disney Stores
By RYAN NAKASHIMA,AP
Posted: 2008-05-01 15:01:24
LOS ANGELES (May 1) - The Walt Disney Co. said Thursday it has taken over 220 Disney Store outlets in North America from The Children’s Place Retail Stores Inc. and will close about 98 stores in the U.S. and two in Canada.
The Walt Disney Co. says it has taken over management of two-thirds of the Disney Stores in the U.S. and Canada from a subsidiary of youth apparel chain Children’s Place, which took over operation of the chain four years ago.
The move to reclaim most of the money-losing operation came after the Children’s Place subsidiary that ran the chain filed for Chapter 11 bankruptcy protection in March.
Analysts said Disney’s reclamation of just two-thirds of the stores and the elimination of license fees paid to Disney would help make the outlets profitable again.
“The Disney Stores should have more of a positive outlook than the low margins and frequent quarterly losses they used to generate,” Miller Tabak & Co. analyst David Joyce said in a research note after the deal was first announced in March.
Part of the turnaround would also hinge on refocusing on high-margin products, he said, referring to “more DVDs and video games, rather than hundreds of huge plush Goofys taking up a great deal of shelf and floor space.”
Specific financial terms weren’t disclosed, but Secaucus, N.J.-based Children’s Place said it will cost the company $50 million to exit the operations, at the bottom of its estimated range of $50 million to $100 million.
Children’s Place will provide transitional support services to Disney for up to six months. After the deal closes, Children’s Place said its Hoop Holdings LLC subsidiary would continue with its bankruptcy filing and submit a reorganization plan by the end of the year.
“For The Children’s Place, we can once again focus exclusively on building our core namesake brand and driving the business forward,” said Chuck Crovitz, interim chief executive of the children’s clothing chain.
The transfer of the stores back to Disney “maximizes the return to creditors, enables a substantial portion of the chain to continue operating and is in the best interest of Hoop’s suppliers, landlords, creditors and others,” he said.
Children’s Place took control of the stores in 2004. Crovitz said in March that the arrangement hadn’t worked out.
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.
Disney has said that by taking over the stores, it could better manage merchandise from its growing portfolio of franchises, which now include High School Musical, Hannah Montana, and Pirates of the Caribbean.
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.
Disney said company veteran James Fielding would become president of Disney Stores Worldwide, overseeing North American operations and the 107 Disney Stores in Europe.
Disney shares rose 92 cents, or 2.8 percent, to $33.35 in afternoon trading on Thursday, while Children’s Place shares were up $1.31, or 5.6 percent, at $24.56.