Children's Place puts itself up for sale

[brisem]

Children's Place puts itself up for sale
Souces tell Fortune the retailer has hired an investment bank to advise it on a potential sale after a string of bad news, including the ouster of its CEO.
By Suzanne Kapner, Fortune
October 11 2007: 7:43 PM EDT


(Fortune) -- The Children's Place has put itself up for sale, following a sharp decline in its stock price, the result of a string of bad news that includes the dismissal of its chief executive and the resignation of its auditor, Fortune has learned.

The Secaucus, N.J.-based retailer of children's clothing has hired the investment bank Peter J. Solomon to advise it on a potential sale, according to two people familiar with the company's plans. Financial information is currently being circulated to prospective suitors, who include private equity and apparel firms, these people said. The Children's Place and Peter J. Solomon declined to comment.

Once a high flying company, the Children's Place has stumbled over the past year as it faced investigations into options backdating, improper stock trades by CEO Ezra Dabah that led to his termination, and a high-profile dispute with The Walt Disney Company with whom it has an agreement to operate Disney Stores. As a result of these and other issues, the Children's Place has not filed a quarterly report with the Securities and Exchange Commission since June 2006.

The problems bedeviling the company are likely to complicate any deal. Potential suitors will need to feel comfortable that the books are sound, a prospect made more difficult given yesterday's announcement by Deloitte & Touche that it would not stand for re-election as auditor.

Deloitte said that it could no longer rely on information provided by Dabah in its audits and said that control deficiencies could result "in a more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected." Children's Place said it is in discussions with a nationally recognized accounting firm, which it expects to engage shortly.

Another sticking point is the Disney agreement. To resolve Disney's accusations that it was in breach of contract, Children's Place this summer agreed to invest $175 million to remodel 234 Disney Stores over the next five years, meaning that it will likely lose money on the deal for the foreseeable future. But exiting the agreement is costly.

Big retailers raise the alarm
Margaret Whitfield, an analyst with Sterne, Agee & Leach, estimates that Children's Place would be on the hook for $93 million in minimum royalty, breach of contract and other fees - plus "hundreds of millions of dollars" to unwind store leases. Should Children's Place change hands, Disney would have a say in approving the new owners.

The appeal for potential bidders is an opportunity to scoop up a major name in children's clothing for a bargain price. Children's Place shares have tumbled 68 percent in the past 12 months, making it one of the cheaper stocks in retailing, trading at 9 times 2008 earnings estimates and one-third of sales.

The suitors eyeing Children's Place, which operates 899 of its own stores and 328 under the Disney (Charts, Fortune 500) banner, see an opportunity to improve the company's operating performance, which has suffered from a series of merchandise missteps. Inventory has piled up on store shelves - an increase of 25 percent per square foot by some analyst estimates - despite a dip in sales at stores open at least a year of 3 percent in September.

Analysts recently slashed earnings estimates for fiscal 2007, and some worry that operations could deteriorate further before showing an improvement. JPMorgan analyst Brian Tunick wrote in a research note that operating margins fell to 2.2 percent during a difficult period back in 2002, lower than its current level of 2.8 percent and far below a peak of 4.6 percent seen in 2003.

Holiday retail: Bah, Humbug!
Any acquisition of the company would likely result in a wholesale overhaul of management. Many observers say cleaning house could be the best thing for Children's Place (Charts), which at times has been run more like a family business than a publicly traded company. Until his resignation in September, Dabah had served as CEO almost since his family bought the company in 1989. (It went public in 1997.) He remains on the board and along with other family members owns about 18 percent of Children's Place outstanding stock.

Also on the board is Dabah's father-in-law Stanley Silverstein. The board recently censured his sister-in-law Nina Miner, who serves as chief creative officer, for "irregularities in expense reimbursement practices."

The Dabahs have a long and not always pristine history in the garment business. Ezra, along with his father Morris and brothers Haim and Isaac, founded Gitano Group, which road the 1980s designer jeans craze before flaming out amid federal investigations into customs violations, insider trading and accounting irregularities.

Morris and four other executives agreed to pay $1.06 million to settle with the SEC. Gitano was later sold to Fruit of the Loom.

 

[unkadug]

Any company trying to live up to the Disney Standards, as Disney had stipulated that they do with the take over of the Disney Stores, has a plate full.

I knew they were in trouble a while back, when they had not lived up to their obligations for upgrading the stores.

Could be that Disney will buy them out? :shrug:

 

[clarksfan95]

I don't really think that Disney will buy them out...they got rid of the Disney Stores originally because they didn't really make any money. It sounds perhaps mean on my part, but Disney did willingly get rid of their own stores for a reason...it wasn't like CP swindled them into getting the stores.

The problem with specialty stores is that it's very hard for them to compete with places like Target and Wal-Mart. Toy stores are in the same boat as the Disney Stores...it's hard to compete with the larger companies..Toys R Us for example has a really hard time competeing with Wal-Mart and even though TRU is the worlds largest toy store, it's certainly not the worlds largest seller of toys when it comes down to money....that title belongs sadly enough, to Wal-Mart.

The Warner Bros Store is an amazing example of how hard it is for stores like the Disney Store to stay in business. Warners had not only all of the Looney Tunes, but they also had Powerpuff Girls (who at the time were very popular), Bat-Man, Superman and of all things...........they had Scooby Doo. How does a store which owns rights to merchandise of Scooby Doo go under? Scooby had reemerged years before those stores went under....he was right back on top of the cartoon hill reigning as kind of Cartoon Network (let alone all the Direct to Video releases).

I was shocked to see the WB store go under, but the reality is that stores like that are a specialty store of a very extreme kind....they have to deal with the larger retailers and in most cases can't handle it.

I don't believe Disney will re-purchase it's stores...by selling them originally, it really said a lot about what they meant to Disney as a company.

I know this'll ruffle some Disney store employee feathers, but this is how I feel and how I see the lifespans of specialty stores.

 

[wedway71]

I dont think at this point Disney will let any new company run Disney Store.
CP was top dog in kids retail and if they failed to live up to the contract I dont think Disney will have trust in any at this time.

What I think Disney needs to do is break the contract with CP. I also think they should take ownership of the stores again.

They do need to scale the stores back to about 100.
They need to have Parks and Resorts run them-not Consumer Products since Consumer Products main vision at this point it seems is to have more License deals through Wal-Mart/Target etc.

Have each store themed locally with Disney Flair with each store having is own design and theme verses the cookie cutter set up it has had.

Have alot of synergy with the parks and other divisions of TWDC with Kiosks that allow Guests to order tickets and maked reservations for the parks etc.

Have a traditional mix of merchandise like when DS first opened-put price it at a margin that wont have product collecting dust on the shelves.

I hope Disney does in fact do this and at this point I dont think they will trust anyone else since CP Didnt live up to the challenge.

Dislcaimer...... I think the employees have done a great job currently. I have seen only great cutomer service in the stores that I have been in. My Issues are with the Corporate office who breached the contract.

 

[TheDisneyGirl02]

Have each store themed locally with Disney Flair with each store having is own design and theme verses the cookie cutter set up it has had.

The only problem is that it would be very expensive to theme each store to it's own city. Even though the store's are cookie cutters now, each one is a bit different. My store has somethings that the King of Prussia store doesn't have and vice versa.

As far as the sale, although I know I read it on CNN, when the one CM asked the manager about it yesterday, she called the DM and told the CM it was just a rumor. I work tonight so hopefully I'll find out a bit more at that time.

 

[wedway71]

The only problem is that it would be very expensive to theme each store to it's own city. Even though the store's are cookie cutters now, each one is a bit different. My store has somethings that the King of Prussia store doesn't have and vice versa.

As far as the sale, although I know I read it on CNN, when the one CM asked the manager about it yesterday, she called the DM and told the CM it was just a rumor. I work tonight so hopefully I'll find out a bit more at that time.

Yes it would be expensive but Disney must reinvent itself to save this sinking ship. CP did keep it afloat but the life vest has many holes in it.
Being in retail Mgt for the last 22 years, currently a Human Resources Manager for a Specialty Retailer which operates 500 stores around the Globe, I feel DS can be brought back to its former glory.

It must be an Adventure in Retailing with a huge focus on "Merchantainment" like the stores at the parks.

My company operates stores about the same size as DS locations.It would take about 300k to remodel one of my stores so I would think it would be about the same for each store at DS..
DS must also advertise. This is one huge mistake they made before since they never did any advertisements.
They must have it under WDPR since traditional Execs from Most retailers have different goals and mind sets than what is needed to make this work.

 

[drew81]

The only problem is that it would be very expensive to theme each store to it's own city. Even though the store's are cookie cutters now, each one is a bit different. My store has somethings that the King of Prussia store doesn't have and vice versa.

As far as the sale, although I know I read it on CNN, when the one CM asked the manager about it yesterday, she called the DM and told the CM it was just a rumor. I work tonight so hopefully I'll find out a bit more at that time.

I agree. They would have to spend major $$$ to do the theming for each city.

 

[BRER STITCH]

The only problem is that it would be very expensive to theme each store to it's own city.

If APPLEBEES can do it in every new restaurant they open, so can the Disney Stores in any Mall-town they are in.

Local theming is easy to do because in many case the stuff is FREE! Local Chamber of Commerce Offices would love to get their town's name to be a part of their local Disney Store's decor.

 

[wedway71]

Yes, It will cost the company money.

TWDC has to make a decision to either shutter the stores or reinvent them.

They can not continue to operate with lackluster sales with alot of stores still not up to par as far as the remodels go.

Being said,if they want DS to ever come back strong they need to bite the bullet and get it done or again let the ship sink.

TWDC prides itself with being the leader in family entertainment so it must rise to the challenge and make some major changes or DS will continue its same old path.
I do think luckily most of the stores have the Casting issue taken care of.I have seen nothing but great Guest Servive from not only Managers but Hourly CMs as well-Great job people!

 

[mickster]

Could be that Disney will buy them out? :shrug:

Yes...and Michael Eisner will be reinstated as Chairman and CEO, Mission: Space will be knocked down to make room to rebuild Horizons and they are going to start opening Disney Quest locations all over the country. :hammer::hammer:

 

[brisem]

Ousted CEO may bid for Children's Place
Ezra Dabah has hired Bear Stearns to advise him on a potential acquisition of the apparel retailer in combination with unidentified strategic partners.
By Suzanne Kapner, Fortune
October 15 2007: 12:42 PM EDT


(Fortune) -- Ousted Children's Place Chief Executive Ezra Dabah said he has hired Bear, Stearns & Co. to advise him on a potential acquisition of the company in combination with unidentified private equity or strategic partners.

The disclosure, made Monday in a Securities and Exchange Commission filing, confirms a report by Fortune on Friday that Dabah was considering a bid.

Dabah and his wife Renee own 17.9 percent of the Children's Place (Charts) outstanding common stock, according to the filing. In discussing his reasons for exploring an acquisition, Dabah, in the filing, said he and his wife were concerned "about the future of the company and a possible decline in shareholder value." Dabah also did not rule out the possibility of supporting a third party's proposal for the Children's Place.

Children's Place puts itself up for sale
The Children's Place stock has tumbled 64 percent over the past 12 months, as the company faced a series of problems, including an investigation into options backdating and accusations that it breached a contract with The Walt Disney Company (Charts, Fortune 500) to run 328 Disney Stores.

The most recent investigation into whether Dabah followed proper disclosure rules in the holding and trading of certain securities resulted in his resignation on Sept. 24.

Dabah opened fire on the board last week with a letter that suggested his ouster was a power play on the part of certain directors. He also accused the company of disparaging his integrity. Children's Place chairman Sally Frame Kasaks issued a statement on Friday saying the board disagrees with Dabah's assertions.

A potential hurdle for any Dabah-led bid is the Disney agreement. A clause in the contract allows Disney to vet potential Children's Place suitors based on whether they are considered qualified bidders. So far, Disney has not been happy with how the Children's Place managed its stores under Dabah's leadership. This summer the entertainment giant accused Children's Place of breach of contract. To resolve the dispute, Children's Place agreed to invest $175 million to remodel 234 Disney Stores over five years.

Mattel posts profit decline on recalls
Tensions between Dabah and the board erupted after the company's auditor Deloitte & Touche threatened to withhold approval of financial reports if Dabah remained in his post, two sources said. Deloitte & Touche on Thursday said it would not stand for re-election as the company's auditor.

The Children's Place, which has not filed a quarterly report with the Securities and Exchange Commission since June 2006, said it is in discussions with a nationally recognized accounting firm, which it expects to engage shortly.

 

[BRER STITCH]

Ousted CEO may bid for Children's Place
Ezra Dabah has hired Bear Stearns to advise him on a potential acquisition of the apparel retailer in combination with unidentified strategic partners.

YIKES!!!!!!!!

Aside from the stores closing altogether, this is the absolute WORST thing that could happen!!!

 

[brisem]

YIKES!!!!!!!!

Aside from the stores closing altogether, this is the absolute WORST thing that could happen!!!

I guess he's not done screw it up

 

[TheDisneyGirl02]

If APPLEBEES can do it in every new restaurant they open, so can the Disney Stores in any Mall-town they are in.

Local theming is easy to do because in many case the stuff is FREE! Local Chamber of Commerce Offices would love to get their town's name to be a part of their local Disney Store's decor.

The only difference is going into Applebees you expect one thing, going into a Disney Store, you expect another. At the Disney Stores, you expect Disney theming, not a sports theming. I can't imagine a store without at least one big Disney character in it.

Personally, I don't think that a 'copy cat' Applebees decor in the Disney Stores would help the business. If anything, I'm afraid it would hurt it. The decor at my store is great. I can't tell you how many times small kids ask me if the Big Bad Wolf has ever moved. (It's directly behind the cash wrap).

As far as the sale part is concerned, I was told at my store on Saturday night it was a rumor. I haven't worked since then so I'm not sure what has happened since. I did read that the former CEO may bid for it (I read it on here while reading through the thread), but other than that, I don't know if the rumor has been confirmed or not.

Should be interesting.