The Children's Place Retail Stores Inc has entered into a non-binding letter of intent to buy the ailing Disney Store chain in North America.

Disney Store, which has 335 outlets across the United States and Canada, sells apparel and toys based on Walt Disney's famous cartoon characters, is estimated to be losing $50 million a year.

Children's Place said in a statement that the discussions focus on the possible acquisition and operation of the Disney Store retail chain under a long-term license arrangement. Its talks with Walt Disney Co have been ongoing since June.

But it stressed: "There is no certainty at this stage that our discussions will lead to any definitive agreement or transaction."

Separately, the mall-based children's clothing retailer said July sales grew 21 per cent to $60.4 million.

Same-store sales for the four-week period increased 14 per cent, compared to a 7 per cent increase in the prior year period.

Second quarter sales increased 19 per cent to $189.2 million from $159.1 million in the year-ago period.

Same-store sales for the quarter increased 10 per cent, versus a 3 per cent increase in the prior year period.

Based on July results the company said it anticipates reporting a loss for the second quarter of approximately $0.38 to $0.40 per share.

"The result of our strategic decision to launch a $3.99 summer sales event in July brought customers into our stores, drove strong sales and allowed us to end the second quarter with approximately 30 per cent less old season merchandise compared to last year," said Ezra Dabah, chairman and chief executive officer.

"While the July sale resulted in higher sales and markdowns than originally expected, it had a neutral effect on our gross margin."