Release Details

• Net sales $654 million, decline of 12%
• Loss per diluted share of $1.82; adjusted loss per diluted share $0.81
• Adjusted results reflect store closures in North America, lower wholesale sales, and higher inventory and bad debt provisions related to the COVID-19 pandemic
• The Company believes it has sufficient liquidity to weather the disruption caused by the current global health crisis
• Board of Directors suspends quarterly dividend

ATLANTA--(BUSINESS WIRE)--May 5, 2020-- Carter’s, Inc. (NYSE:CRI), the largest branded marketer in North America of apparel exclusively for babies and young children, today reported its first quarter fiscal 2020 results.

“The global pandemic has meaningfully disrupted the lives of families with young children. It began to impact our Company’s performance in March and will weigh on the growth we had planned this year,” said Michael D. Casey, Chairman and Chief Executive Officer.

“Through early March, our sales and earnings were in line with our growth objectives, and 2020 was forecasted to be another good year for Carter’s. In the second week of March, our sales began to decline as consumers reacted to the various media reports which heightened the awareness of significant risks related to COVID-19, and related precautions needed. In the days that followed, for the safety of consumers and employees, our store operations and related sales were suspended.

“Thankfully, Carter’s has remained open for business, and continues to support the demand for our brands through our extensive eCommerce capabilities, both direct-to-consumer, and through the major retailers. We also have the benefit of demand from some of our largest customers, including Target and Walmart, whose stores have remained open.

“Several states have begun to lift restrictions on store operations and stay-at-home orders. We plan to begin reopening some of our stores later this week. We expect the market will gradually begin to recover, and our sales and earnings will benefit from that recovery.

“Over the past several weeks, we have focused on improving liquidity, reducing spending, and enhancing our financial flexibility. We believe steps taken, and underway, together with the support of our customers, business partners, and employees, will enable Carter’s to strengthen its ability to overcome the current market challenges. As stores reopen in the balance of this year, we believe Carter’s will be well positioned to continue providing the best value and experience in young children’s apparel for many years to come.”

Consolidated Results

First Quarter of Fiscal 2020 compared to First Quarter of Fiscal 2019

Net sales decreased $86.6 million, or 11.7%, to $654.5 million, reflecting store closures in North America and lower wholesale customer demand as a result of the COVID-19 pandemic. Changes in foreign currency exchange rates in the first quarter of fiscal 2020 did not meaningfully affect first quarter results.

The Company posted an operating loss in the first quarter of fiscal 2020 of $78.5 million, compared to operating income of $60.8 million in the first quarter of fiscal 2019. First quarter fiscal 2020 results included $49.2 million in inventory provisions (principally related to COVID-19 excess inventory), a $17.7 million goodwill impairment charge recorded in the Company’s International segment, and a $26.5 million impairment charge related to the Skip Hop and OshKosh tradename assets. First quarter fiscal 2020 results also include a total of $7.9 million in charges related to COVID-19 expenses and organizational restructurings. First quarter fiscal 2019 results include a net benefit of $0.4 million related to the Company’s China business model change and organizational restructuring.

The Company’s adjusted operating loss (a non-GAAP measure, which excludes the impairment charges and $7.9 million in unusual items noted above) was $26.3 million, compared to adjusted operating income of $60.3 million in the first quarter of fiscal 2019. The decrease principally reflects lower sales volumes, higher inventory provisions, and increased bad debt expense. First quarter fiscal 2020 inventory provisions and bad debt expense increased over the prior-year period by approximately $46.6 million and $6.9 million, respectively.

The Company’s net loss in the first quarter of fiscal 2020 was $78.7 million, or $1.82 per diluted share, compared to net income of $34.5 million, or $0.75 per diluted share, in the first quarter of fiscal 2019. First quarter fiscal 2020 results included after-tax charges of $42.2 million in inventory provisions (principally related to COVID-19 excess inventory), a $17.7 million goodwill impairment charge, and a $20.2 million tradename impairment charge. First quarter fiscal 2020 results also include a total of $6.0 million in after-tax charges related to COVID-19 expenses and organizational restructurings. First quarter fiscal 2019 results include an after-tax net charge of $5.2 million related to early extinguishment of debt, organizational restructuring, and changes in the Company’s business model in China.

The Company posted an adjusted net loss (a non-GAAP measure, which excludes the impairment charges and $6.0 million in unusual items noted above) of $34.8 million, compared to adjusted net income of $39.6 million in the first quarter of fiscal 2019. Adjusted loss per diluted share (a non-GAAP measure) in the first quarter of fiscal 2020 was $0.81, compared to adjusted earnings per diluted share of $0.87 in the first quarter of fiscal 2019.

Net cash used in operations in the first quarter of fiscal 2020 was $14.3 million compared to net cash provided by operations of $37.0 million in the first quarter of fiscal 2019. The decline was primarily due to reduced sales related to COVID-19. Cash and cash equivalents at the end of the first quarter of fiscal 2020 were $759.1 million, reflecting $613.0 million in incremental borrowing on the Company’s revolving credit facility compared to the first quarter of fiscal 2019.

See the “Reconciliation of GAAP to Adjusted Results” section of this release for additional disclosures and reconciliations regarding non-GAAP measures.

Business Segment Results

U.S. Retail Segment

First Quarter of Fiscal 2020 compared to First Quarter of Fiscal 2019

U.S. Retail segment sales decreased $56.3 million, or 14.9%, to $320.7 million. The decrease in net sales was primarily driven by store closures as precautionary measures in response to the COVID-19 pandemic, partially offset by an increase in eCommerce sales. Due to the COVID-19 related closure of stores, U.S. Retail segment comparable sales metrics are not meaningful in the first quarter of fiscal 2020.

In the first quarter of fiscal 2020, the Company opened three stores and closed five stores in the United States. As of the end of the first quarter of fiscal 2020, the Company operated 860 retail stores in the United States.

U.S. Wholesale Segment

First Quarter of Fiscal 2020 compared to First Quarter of Fiscal 2019

U.S. Wholesale segment net sales decreased $23.2 million, or 8.4%, to $252.1 million, reflecting reduced demand due to the closure of certain wholesale customers’ stores as a result of COVID-19.

International Segment

First Quarter of Fiscal 2020 compared to First Quarter of Fiscal 2019

International segment net sales decreased $7.0 million, or 7.9%, to $81.6 million, reflecting a decrease in retail store sales in Canada driven by store closures in response to COVID-19 and delayed wholesale shipments as a result of COVID-19.

Changes in foreign currency exchange rates in the first quarter of fiscal 2020 compared to the first quarter of fiscal 2019 adversely affected International segment net sales in the first quarter of fiscal 2020 by $0.7 million, or 0.8%. On a constant currency basis (a non-GAAP measure), International segment net sales declined 7.1%.

As of the end of the first quarter of fiscal 2020, the Company operated 198 retail stores in Canada and 43 retail stores in Mexico.

Return of Capital

In the first quarter of fiscal 2020, the Company returned to shareholders a total of $71.5 million through share repurchases and cash dividends as described below.

During the first quarter of fiscal 2020, the Company repurchased and retired 474,684 shares of its common stock for $45.3 million at an average price of $95.34 per share. All shares were repurchased in open market transactions pursuant to applicable regulations for such transactions. On March 26, 2020, the Company announced the suspension of its share repurchase program; as of that date, the total remaining capacity under previously announced repurchase authorizations was approximately $650 million. The timing and amount of any future repurchases will be determined by the Company based on its evaluation of market conditions, share price, other investment priorities, and other factors. The share repurchase authorizations have no expiration date.

In the first quarter of fiscal 2020, the Company paid a cash dividend of $0.60 per share totaling $26.3 million. On May 1, 2020, the Company’s Board of Directors suspended its quarterly cash dividend. The Board of Directors will evaluate future distributions of capital, including dividends, based on a number of factors, including business conditions, the Company’s financial performance, and other considerations.

Liquidity and Financial Position

The Company believes it has sufficient liquidity for the foreseeable future to maintain its operations as the disruption caused by COVID-19 pandemic moderates and its operations and the broader marketplace begin to gradually recover.

On May 4, 2020, the Company, through its wholly-owned subsidiary The William Carter Company, entered into an agreement with its lenders to amend its secured revolving credit agreement. Under the terms of the amendment, financial maintenance covenants under the credit facility were waived for the balance of fiscal year 2020 and relaxed for much of fiscal year 2021. Further, the credit facility was amended to permit the Company to pursue additional unsecured financing at its discretion.

The Company has taken the following steps to address the disruption related to COVID-19:

• For the safety of its customers and employees, the Company suspended substantially all store operations in North America on March 19, 2020. Store employee compensation and benefits continued to April 3, 2020, at which time all store employees were furloughed. Compensation payments to the Company’s store employees will resume when its stores reopen and they are able to return to work; employee benefits will continue during the furlough.
• To support consumer demand for its brands in North America, the Company continues to make its brands available 24/7 online at www.carters.com, www.oshkosh.com, www.skiphop.com, www.cartersoshkosh.ca, and www.carters.com.mx. The Company’s distribution centers continue to operate and fulfill online demand from consumers and its wholesale customers.
• The Company has provided compensation incentives and implemented workplace safety protocols to support the health and well-being of its distribution center employees.

In response to lower sales related to the global pandemic and extended payment terms by its wholesale customers, the Company has taken the following steps to strengthen its financial position, including:

• drawdown of substantially all of its $750 million credit facility;
• significant reduction of planned inventory commitments;
• extension of payment terms with suppliers, vendors, and landlords;
• suspension of share repurchases and dividends;
• reduction in planned capital expenditures;
• temporary salary reductions and suspension of merit increases, incentive compensation, and 401(k) matching contributions;
• reduction in Board compensation;
• furlough and reductions of office-based employees; and
• reduction of other variable and discretionary expenses.

The Company is actively pursuing additional opportunities to further improve its cost structure, financial flexibility, and liquidity.

2020 Business Outlook

Given the market disruption caused by the COVID-19 pandemic, and related uncertainty on timing and extent of market recovery, the Company is not providing fiscal 2020 sales and earnings guidance at this time.

Conference Call

The Company will hold a conference call with investors to discuss first quarter fiscal 2020 results and its business outlook on May 5, 2020 at 8:30 a.m. Eastern Daylight Time. To participate in the call, please dial 323-701-0225. To listen to a live broadcast via the internet and view the accompanying presentation materials, please visit ir.carters.com and select links for “News & Events” followed by “Webcasts & Presentations”. A replay of the call will be available shortly after the broadcast through June 4, 2020, at 888-203-1112 (U.S. / Canada) or 719-457-0820 (international), passcode 9220682. The replay will also be archived online on the “Webcasts & Presentations” page noted above.

About Carter’s, Inc.

Carter’s, Inc. is the largest branded marketer in North America of apparel exclusively for babies and young children. The Company owns the Carter’s and OshKosh B’gosh brands, two of the most recognized brands in the marketplace. These brands are sold in leading department stores, national chains, and specialty retailers domestically and internationally. They are also sold through more than 1,100 Company-operated stores in the United States, Canada, and Mexico and online at www.carters.com, www.oshkosh.com, and www.cartersoshkosh.ca. The Company’s Child of Mine brand is available at Walmart, its Just One You brand is available at Target, and its Simple Joys brand is available on Amazon. The Company also owns Skip Hop, a global lifestyle brand for families with young children. Carter’s is headquartered in Atlanta, Georgia. Additional information may be found at www.carters.com.

Forward Looking Statements

This press release contains forward-looking statements within the meaning of the federal securities laws relating to our future performance, including statements with respect to liquidity, store closures, and cost reduction strategies. Such statements are based on current expectations only, and are subject to certain risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize or not materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. Certain of the risks and uncertainties that could cause actual results and performance to differ materially are described in the Company’s most recently filed Annual Report on Form 10-K and other reports filed with the Securities and Exchange Commission from time to time under the headings “Risk Factors”. Included among those risks are those related to: the effects of the current coronavirus outbreak; financial difficulties for one or more of our major customers; an overall decrease in consumer spending; our products not being accepted in the marketplace; increased competition in the market place; diminished value of our brands; the failure to protect our intellectual property; the failure to comply with applicable quality standards or regulations; unseasonable or extreme weather conditions; pending and threatened lawsuits; a breach of our information technology systems and the loss of personal data; increased margin pressures, including increased cost of materials and labor; our foreign sourcing arrangements; disruptions in our supply chain; the management and expansion of our business domestically and internationally; the acquisition and integration of other brands and businesses; and changes in our tax obligations, including additional customs, duties or tariffs. The Company does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

EBITDA and Adjusted EBITDA are supplemental financial measures that are not defined or prepared in accordance with GAAP. We define EBITDA as net income before interest, income taxes, and depreciation and amortization. Adjusted EBITDA is EBITDA adjusted for the items described in footnotes (a) - (h) to the table above.

We present EBITDA and Adjusted EBITDA because we consider them important supplemental measures of our performance and believe they are frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. These measures also afford investors a view of what management considers to be the Company's core performance.

The use of EBITDA and Adjusted EBITDA instead of net income or cash flows from operations has limitations as an analytical tool, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP. EBITDA and Adjusted EBITDA do not represent net income or cash flow from operations as those terms are defined by GAAP and do not necessarily indicate whether cash flows will be sufficient to fund cash needs. While EBITDA, Adjusted EBITDA and similar measures are frequently used as measures of operations and the ability to meet debt service requirements, these terms are not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation. EBITDA and Adjusted EBITDA do not reflect the impact of earnings or charges resulting from matters that we consider not to be indicative of our ongoing operations. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as discretionary cash available to us for working capital, debt service and other purposes.

The Company evaluates its net sales on both an “as reported” and a “constant currency” basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates that occurred between the comparative periods. Constant currency net sales results are calculated by translating current period net sales in local currency to the U.S. dollar amount by using the currency conversion rate for the prior comparative period. The Company consistently applies this approach to net sales for all countries where the functional currency is not the U.S. dollar. The Company believes that the presentation of net sales on a constant currency basis provides useful supplemental information regarding changes in our net sales that were not due to fluctuations in currency exchange rates and such information is consistent with how the Company assesses changes in its net sales between comparative periods.

View source version on businesswire.com: https://www.businesswire.com/news/home/20200505005476/en/

Sean McHugh
Vice President & Treasurer
(678) 791-7615

Source: Carter’s, Inc.