Disney Shops Opening inside Target Stores Starting in October

Walt Disney Company (DIS) is partnering with Target Corporation (TGT) to offer a shop-within-a-shop experience to customers. The companies issued a joint statement, announcing that Disney shops within Target stores “will launch at 25 select Target stores in October, with 40 more opening by October 2020.” The statement added that shoppers would be able to shop for their favorite merchandise via Target’s digital platforms.

According to the statement, there will be a huge collection of merchandise at these stores: “Guests will find favorites like Disney Princess, Star Wars, Marvel, Disney Junior characters, Classic Disney plush, apparel, home and holiday products, along with collectibles like the Disney Animators’ Collection.”

The company’s move comes at a time when it is closing down standalone stores in multiple locations. On May 21, West Virginia–based Huntington Mall announced the closure of a Disney Store, indicating its displeasure with the decision: “We are surprised and disturbed by this decision, which was only confirmed to us today, May 21. The store had been doing well financially and our leasing executives have been working with the tenant to ensure its ongoing presence in the mall.”

However, Huntington Mall noted that the closure was “part of a strategy Disney has been pursuing for the past few years, systematically closing most, if not all, of its retail stores.”

Disney stores within Target reflect a changing strategy, and stock faces headwinds

Following the recent developments at Disney, we believe that the entertainment giant is exploring a different strategy. In addition to launching its shops-in-shops in collaboration with Target, the company is diving into video streaming.

In November, the entertainment giant plans to launch Disney+, a video streaming service for all of the company’s content. We believe the company is counting on the service to help raise revenue above Wall Street expectations.

In its earnings report for Q3 of fiscal 2019, which it released in early August, Disney missed expectations. Notably, the company registered EPS of $1.35 against Refinitiv’s estimated EPS of $1.75. In our view, the company’s shift in strategy could be a way to set the company on the path to inorganic growth.

However, DIS stock faces headwinds from allegations of revenue misrepresentation.  On August 19, Variety reported that the SEC received whistleblower tips from a former employee about alleged “systematically overstated” revenue by the company. Disney denies the claims, and the company’s stock slid 0.12% on August 20.

However, DIS stock remains bullish, having climbed 20.83% year-to-date. We believe that the stock has the potential to climb higher once the Disney+ service goes live in early November. In particular, the opening of the Disney shops within Target stores is significant in terms of market access. In our view, there is potential for the company to beat its estimates in the next quarter.