Children's Place exiting Disney Store biz

By Staff -- Playthings, 3/21/2008 11:00:00 PM

SECAUCUS, N.J.—The Children’s Place Retail Stores is exiting its deal to operate Disney Stores North America, the retailer said on March 20 while announcing its annual results.

According to the company, Children’s Place and its subsidiaries that run its Disney Stores business, Hoop Holdings and Hoop Holdings Canada, are “actively pursuing alternatives for immediately implementing the exit from the DSNA business,” with discussions currently underway regarding terms under which Disney would regain ownership and control of approximately two-thirds of the existing Disney Store locations.

Children’s Place's decision 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,” according to a company statement. The divestiture of those Disney Store locations could cost the company between $50 million and $100 million in pre-tax cash exit costs. 

Reflecting its decision to exit the Disney Store business, Children’s Place recognized a pre-tax asset impairment charge of $80.3 million in the fourth quarter of its just-completed fiscal year.

In this week’s financial results statement, Children’s Place also said it had been notified of “several material breaches” under its license agreement with The Walt Disney Company, which it described as “unrelated to the company’s decision to exit the [Disney Store] business.” Hoop Holdings believes it has "cured some of the asserted breaches and intends to cure or to assert defenses to other asserted breaches."

According to published reports, Walt Disney Co. has confirmed it is in discussions to take over from 200 to 230 Disney Stores from Children’s Place.

Children’s Place was licensed by Disney in 2004 to operate the more than 300 Disney Stores in operation at the time in North America in exchange for $100 million investment in the stores, plus royalties.

The decisions follows a difficult year for the children's clothing retailer. Children’s Place reported a loss of $58.5 million in its fiscal fourth quarter ended on Feb. 2, 208, down from a $44.7 million profit in the corresponding period of the prior year. Its Disney Stores posted an operating loss of $92.1 million in the quarter and $107.3 million for the year, compared to the company's core Children’s Place stores, which recorded a $35 million profit for the quarter and $125.6 million profit for the year.