Tigger58
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Posted: May 24, 2003 3:31 am/pm |
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Disney Stores Could Fetch $495 Million
Penelope Patsuris, 05.23.03, 1:32 PM ET
http://www.forbes.com
NEW YORK - Disney's sale of its retail stores in the U.S. and Europe could fetch as much as $495 million--and pay down a nice chunk of its $13 billion debt to help keep its current BBB+ credit rating from slipping further.
Prudential Securities analyst Katherine Styponias bases that valuation on her observation that troubled retail chains are generally valued at between 0.4 and 0.5 times sales, which in Disney's (nyse: DIS - news - people ) case are roughly $1 billion.
Disney officially revealed its plans to sell the ailing chain last night after the market close, but it has been shuttering its stores for some time. Since the late 1990s, the number of Disney store locations worldwide has been reduced to 548 from 740, according to a spokesman. Since late 2001, U.S. store locations have shrunk to 387 from 522.
The chain has been struggling for some time, operating at a slight loss. "This is a way to get rid of a distraction and an irritant," says Sanford Bernstein analyst Tom Wolzien. "They've put a lot effort into this, and it's just not worked."
Styponias estimates that the Disney stores will contribute 42% of the sales at its consumer products division for the 2003 fiscal year, and 3.6% of total revenue. For the quarter ending March 31, the company said the division's sales shrank 14%, to $500 million from $580 million, while operating income plummeted 38% to $53 million from $86 million. Aside from the Disney stores, consumer products also includes licensing revenue from merchandise sold outside those stores and well as the proceeds from sales of products like games.
But a sale of the properties isn't the only option, and it may not even be the best option for the mouse house. Disney has indicated that it would be interested in replicating the licensing agreement it has in Japan with Oriental Land. That company runs Tokyo Disneyland and Tokyo DisneySea Park, as well as 46 stores throughout that country, and pays Disney an undisclosed annual royalty on those sales.
While the store chain hasn't panned out, a Disney spokesman says the company is shifting its retail focus to working directly with stores like Wal-Mart (nyse: WMT - news - people ), Target (nyse: TGT - news - people ) and Toys 'R' Us (nyse: TOY - news - people ). Together they are designing product lines aimed exclusively at each chain's clientele.
Assuming Disney can find any takers in a tough market--AOL Time Warner's (nyse: AOL - news - people ) Warner Bros. unit closed its store chain in 2001 after failing to find a buyer--a Disney Store sale would provide much needed cash. That cash could be especially critical now as the U.S. Federal Communications Commission considers whether to loosen media ownership rules that would permit media giants to buy more media properties.
"With their current debt, they don't have a lot of flexibility to buy anything right now if they wanted to," says Wolzien. On the other hand, he adds, "even if they have to practically give the stores away, they might be better off if they could do a licensing deal and get a recurring revenue stream." Styponias says such an arrangement would provide a "high-margin, low-capital-intensive revenue stream."
Disney hasn't said publicly how much it aims to pare from its debt, but it is clearly making a concerted effort to do so. On May, 15 Disney closed the sale of its World Series-winning Anaheim Angels baseball team to billboard magnate Arturo Moreno for $184 million. Disney is also endeavoring to unload the Mighty Ducks, ironically, as they head for the Stanley Cup.
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