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Children’s Place to Part Ways With Disney Chain

The marriage of Children's Place Retail Stores Inc. and the Disney Store chain is coming to an end after more than three years.

The marriage of Children’s Place Retail Stores Inc. and the Disney Store chain is coming to an end after more than three years.

Children’s Place said last week it planned to exit the Disney Stores, allowing The Walt Disney Co. to take back the business, after a review of the operation, earnings growth potential and capital needs. The Secaucus, N.J.-based retailer operated the Disney Stores through an agreement with subsidiaries Hoop Holdings LLC and Hoop Holding Canada under a license from Disney. The agreement allows Disney to regain as many as two-thirds of the existing stores. The rest will be closed.

Children’s Place expects to incur pretax exit costs in the range of $50 million to $100 million, payable over time. The firm also recognized a pretax charge of $80.3 million in the fourth quarter of fiscal 2007.

The company plans to eliminate 80 positions from its shared services workforce, in addition to 50 open positions it doesn’t intend to fill. Children’s Place will incur severance costs of about $1.5 million to $2 million. The reduction, which is about 30 percent of its workforce, will result in an estimated savings of $12 million.

Exiting the Disney business and trimming jobs, as well as other initiatives to streamline operations, such as the decision not to move forward with the build-out of its new corporate headquarters, will bring spending for 2008 in the range of $65 million to $75 million. This represents a 50 percent decrease from its previously announced capital expenditure level of $150 million, and more than 60 percent less than the $200 million spent last year.

“Given the challenging macroeconomic environment, we believe the steps we are taking today, while difficult, will put Children’s Place in position to realize its full potential,” said Chuck Crovitz, interim chief executive officer.

For the fourth quarter ended Feb. 2, the company reported a loss of $58.5 million, or $2.01 a diluted share, from a profit of $44.7 million, or $1.48 a diluted share in the year prior. Sales for the quarter grew 4 percent to $670.9 million from $645.2 million last year, and total same-store sales rose 3 percent. By division, Children’s Place jumped 7 percent, while Disney Stores’ comps slumped 4 percent.

For the full-year period, the children’s retailer said it lost $59.6 million, or $2.05 a diluted share, from a gain of $87.4 million, or $2.92, in the year-ago period. Sales increased 7.2 percent to $2.16 billion from $2.02 billion.

“By any measure, fiscal 2007 was a very tough year for our company,” Crovitz said. “For the majority of the year, our merchandise assortments at Children’s Place brand did not resonate with the consumer and our inventory levels were too high, particularly given the challenging environment.”

The company expects sales in the midsingle digits in 2008, fueled by the opening of 30 stores in the second half of the year.

In 2007, Children’s Place opened 54 new Children’s Place stores and closed 16. It rolled out 15 Disney stores and shuttered eight.