Though both CP and Disney executives said in the call that negotiations are going smoothly to keep the contract in place, it's clear that the company must now go to great lengths to show analysts and shareholders that it can be trusted to make it through the current pitfalls. The company's stock was at $27.43 per share at the 4 p.m. close Thursday, down almost 17% from the day's start.
Consolidated net sales for the second quarter ended Aug. 4 increased 7% to $424.3 million compared to Q2 2006. However, the company is reporting preliminary financial results, as it has yet to complete historical financial statements and file its SEC reports. Company executives said the reports are due Aug. 31, and the deadline should be met, but negotiations are still ongoing with Disney over its store remodels.
A June letter agreement imposed specific obligations on the Children's Place with respect to the remodeling and refreshing of numerous Disney Stores between this year and 2011. The Children's Place has not met these obligations, and puts the entire exclusivity agreement with Disney in jeopardy. The company owns and operates 883 Children's Place stores, and 328 Disney Stores in North America.
Executives, including CEO Ezra Dabah, did not mention much about the reasons for missing obligations, giving some examples as tenants not vacating in time for store renovations. However, Dabah says the company does not take the privilege of selling the Disney brand lightly. "This brand is really going places, its popularity is immense. I think we are going to have a great future together," Dabah says.
The drop in sales was blamed on a late back-to-school season and merchandising mistakes. As for the executives who violated policy with a "serious lack of judgment" from one of the employees, both workers will be punished but will stay with the company, executives said.
As for store count, Sue Riley, EVP of finance and administration for the company, says 16 Children's Place store opened in Q2 2007, and one was closed. No new Disney stores were opened. The firm revised its earnings per share to $2.25 to $2.40 for 2007
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