UPDATE 5-Children's Place to exit Disney chain, posts loss
(Adds details on top number of stores)
NEW YORK, March 20 (Reuters) - U.S. retailer Children's Place (PLCE.O) on Thursday said it was exiting the Disney Stores in North America and would cut spending and jobs, sending its shares up more than 12 percent.
Walt Disney Company (DIS.N), which sold a struggling chain of 313 stores to Children's Place in 2004, is in advanced talks to take back about 220 stores, Children's Place said. Disney confirmed it was in talks to take back stores.
Disney sold its Japan stores in 2002 and considered divesting its European stores, but never found a buyer.
Relations between Disney and Children's Place have been strained lately, as evidenced in securities filings, mainly over Children's Place's failure to meet deadlines for $200 million in refurbishments that were part of the 2004 deal.
Since then, global retail sales for Disney products have risen to $11.5 billion in 2007 from $6.5 billion in 2004 and Disney is now expanding the 120-store European chain.
The Disney Store chain ballooned to 725 stores globally, including 590 in North America, before Disney started selling off and closing stores.
"Today, we have a variety of franchises that are very strong and robust and really broaden our (retail) appeal," Disney Consumer Products spokesman Gary Foster said. "We are in a much stronger ... overall position at retail."
Children's Place, which like many retailers has suffered from a tough U.S. economic environment, said it would cut 80 jobs of its shared-services workforce and not fill 50 open positions as part of the plan to exit the Disney Stores business.
The company also said it sees capital spending down by more than half in fiscal 2008 and said its inventory per square foot would be flat to lower in the first quarter.
"All the actions they've announced today are positive. Most importantly: the exit from the Disney store -- it was a drain -- the cutback in capital spending, the inventory strategy, and the job cuts," Sterne Agee analyst Margaret Whitfield said.
Children's Place also on Thursday posted a net loss for the fourth quarter, compared with a year-ago net gain, hurt mostly by one-time charges related to its exit of the Disney Store.
The company reported a quarterly net loss of $58.5 million, or $2.01 per share, compared with a net profit of $44.7 million, or $1.48 per share, a year earlier.
While Children's Place posted a gain when one-time items were excluded, they still fell short of analysts' average estimates.
Excluding items such as asset impairment charges linked to the Disney exit, the company earned $20.5 million, or 70 cents a share. Analysts polled by Reuters Estimates had expected 89 cents a share.
Children's Place said a challenging economic environment and high inventory hurt earnings apart from the charges.
"TOUGH YEAR"
"By any measure, fiscal 2007 was a very tough year for our company. For the majority of the year, our merchandise assortments ... did not resonate with the consumer and our inventory levels were too high, particularly given the challenging economic environment," said Chuck Crovitz, interim chief executive officer of Children's Place.
Net loss for the full year was $59.6 million compared to a net profit of $87.4 million last year.
Consolidated comparable sales for all its stores in the fourth quarter rose 3 percent, while the Disney Stores comparable sales fell 4 percent. Crovitz said he anticipates sales will increase in the mid-single digits in 2008, driven in part by 30 new store openings in the latter part of the year.
The company owned and operated 906 The Children's Place stores and 335 Disney Stores in North America and its online stores at www.childrensplace.com and www.disneystore.com as of March 1, according to its Web site.
Children's Place shares closed up 13.52 percent at $22.25 on the Nasdaq. (Reporting by Kristina Cooke; Editing by Leslie Gevirtz; Editing by Andre Grenon)
