Children’s Place Agrees to Settle Class-Action Lawsuit for $12 Million

Wednesday, July 1st, 2009 By

Children’s Place fends off trial

Children's PlaceChildren’s Place kids clothing retailer has agreed to pay $12 million to settle a class-action lawsuit against the company. Reuters reports that the lawsuit accused “its officers of misrepresenting facts about operations that caused the company’s stock to artificially inflate.”

Though the company has agreed to pay the $12 million, it denies that it has committed any wrongdoing. Reuters reports:

The company said it denied all allegations made in the suit and decided to settle the suit to eliminate further litigation and related expenses.

The children’s clothing retailer said the cost of the settlement would be covered by insurance.

Wow, good thing they had that lawsuit insurance. I wish I had some kind of insurance to pay off all my personal loans.

More drama at Children’s Place

Apparently business at Children’s Place has been shaky for quite some time. The Wall Street Journal reports:

Since taking the reins of Children’s Place in 2007, Mr. Crovitz has been aggressively cutting costs to maintain profitability in a difficult retail environment. Selling, general and administrative expenses fell to 29% of sales in fiscal 2008 from 32% in fiscal 2007. For its most recent quarter, the retailer posted a profit of $23.5 million, up from $19.5 million a year earlier. The company’s shares have risen 17% since Mr. Dabah resigned in September 2007.

The WSJ also reports that Dabah resigned at the request of the previous board because he failed to report an increase in his wife’s stock.

Battle on the board

The Wall Street Journal on June 19 reported the details of the struggle going on between Dabah and Crovitz:

In the six-page letter, accompanied by a gold proxy card, Mr. Dabah criticized the current directors for the company’s recent sales performance, said he was concerned about the company’s failure to plan for the future and pointed to “the promising children’s footwear concept, which has largely been abandoned.” Mr. Dabah … has nominated three executives for positions on the board of the Secaucus, N.J., children’s apparel seller.

In an interview, Mr. Dabah said, “A company cannot be successful — especially a company like ours — just on cost cutting. We need vision, we need growth initiatives, we need to constantly be thinking about what’s next. And we have not seen the company articulate that.”

The company’s annual meeting was scheduled for July 31, but that date is a bit shaky now that the lawsuit settlement has been announced.

Get to know the Children’s Place

The Children’s Place has been a publicly traded company since 2007. However, the retailer has been selling children’s clothing since several years before that. The company also owned some Disney stores from 2004 to 2007. On March 26, 2008, Hoop Holdings/Hoop Retail Stores LLC and related subsidiaries of TCP that operated Children’s Place and Disney Store retail locations filed a voluntarily petition for relief under Chapter 11 Bankruptcy.

The Children’s Place stores are usually located in regional malls. The stores sell clothing for newborns through preteens, as well as accessories and a limited selection of toys and games. It doesn’t appear the lawsuit settlement will affect daily store operations.

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