SECAUCUS, NJ—Demonstrating that dealing with The Mouse can be both profitable and pricey, Children’s Place Retail Stores Inc. issued robust May financial results that extend a season of growth after an impressive 2006. But a 13% leap in May sales versus last year’s mark of $112.7 million was tempered by a sweeping $175 million agreement favoring Walt Disney Co. to re-design and refresh the Disney Store chain acquired by CPRS in 2004.

“We are pleased to have come to an understanding with the Walt Disney Co.,” CPRS Chief Executive Ezra Dabah tendered in a Friday release announcing the settlement. “We are committed to executing on this important remodel program, which will contribute to our goal of elevating the guest experience.” The purveyor of children’s merchandise was violating an intricate agreement made in securing the retail division, according to Disney, which also won the right to peddle products to other retailers and via alternative means such as the Internet.

A prototype known as the “Mickey” format will be incorporated into most existing stores no later than the end of FY 2011, including nine remodels this fiscal year. The timetable calls for 67 to be overhauled in FY 2008, 33 in the “Mickey” mode, followed by completions of 53, 70 and 35 units in subsequent years. Eighteen new Disney Stores must be added by the end of FY 2008, the pact stipulates.

CPRS agreed to other significant changes, among them ceding royalty relief for “non-core” Disney stores; allowing the entertainment kingpin to grant direct merchandising agreements to other specialty retail store chains; and implementing a so-called “maintenance refresh” program to yield immediate results in 165 Disney Stores, among them the flagship location on Michigan Avenue in Chicago. That program needs to be complete in 12 months.Failure to comply to the licensing modifications could cost CPRS $18 million initially, and the loss of the licensing deal altogether.

That threat could prove to be a motivator considering the hefty returns enjoyed from the Disney group, bringing in $612 million of the $2 billion in sales CPRS reaped last year. CPRS, which provides clothing and accessories to youngsters from one month to 10 years, presently operates 876 stores under The Childrens Place flag and 328 Disney units.

The Disney Store posted a 23% gain in sales compared to FY 2005 and a 14% comp store increase, and has continued to deliver in FY 2007. The group posted a 15% gain through May in overall sales, from $137.6 million a year ago to $158.7 million, including a modest 1% gain in May from $33.1 million to $35.8 million. CPRS overall is up 12% year-to-date since FY 2006, with $448 million in sales compared to $401.6 million. On a comp store basis, the Disney Store is up 17% from a year ago, while the Children’s Place brand is up 11%.

Eight new Children’s Place stores were christened in May after CPRS opened six and closed four in the first quarter. Unlike the Disney Store, which is almost totally mall-based, Children’s Place stores can be found in a variety of venues. Select big box offerings are balanced by units in outlet malls, strip centers and street retail.

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