Release Details

• Net sales $734 million, growth of 5%
• Diluted EPS $0.97, growth of 23%; adjusted diluted EPS $0.95, growth of 21%
• Returned $138 million to shareholders through share repurchases and dividends in the first half of fiscal 2019
• Company reaffirms full year fiscal 2019 outlook
  • Net sales growth of 1% to 2%
  • Adjusted diluted EPS growth of 4% to 6%

ATLANTA--(BUSINESS WIRE)--Jul. 25, 2019-- Carter’s, Inc. (NYSE:CRI), the largest branded marketer in North America of apparel exclusively for babies and young children, today reported its second quarter fiscal 2019 results.

“We achieved our sales and earnings growth objectives in the second quarter,” said Michael D. Casey, Chairman and Chief Executive Officer. “Our growth was driven by our retail and wholesale businesses, and reflects good demand for our spring and summer product offerings. Given the strength of our product offerings and related marketing strategies, we are expecting good growth in the second half and reaffirming our sales and earnings growth objectives for 2019.”

Consolidated Results

Second Quarter of Fiscal 2019 compared to Second Quarter of Fiscal 2018

Net sales increased $38.2 million, or 5.5%, to $734.4 million, driven by growth in the Company’s U.S. Retail and U.S. Wholesale segments, partially offset by a decline in net sales in the International segment. Changes in foreign currency exchange rates in the second quarter of fiscal 2019 compared to the second quarter of fiscal 2018 adversely affected consolidated net sales in the second quarter of fiscal 2019 by $2.1 million, or 0.3%. On a constant currency basis (a non-GAAP measure), consolidated net sales increased 5.8% in the second quarter of fiscal 2019.

Operating income in the second quarter of fiscal 2019 increased $7.5 million, or 13.2%, to $64.5 million, compared to $57.0 million in the second quarter of fiscal 2018. Second quarter fiscal 2019 results include a $0.7 million reversal of retail store restructuring costs previously recorded during the third quarter of fiscal 2017. Operating margin increased 60 basis points to 8.8%, compared to 8.2% in the second quarter of fiscal 2018.

Adjusted operating income (a non-GAAP measure which excludes the reversal of restructuring costs in the second quarter of fiscal 2019 noted above) increased $6.8 million, or 11.9%, to $63.8 million, compared to $57.0 million in the second quarter of fiscal 2018. Adjusted operating margin (a non-GAAP measure) increased 50 basis points to 8.7%, compared to 8.2% in the second quarter of fiscal 2018, which principally reflects sales growth and expense leverage.

Net income in the second quarter of fiscal 2019 increased $6.7 million, or 17.9%, to $43.9 million, or $0.97 per diluted share, compared to $37.3 million, or $0.79 per diluted share, in the second quarter of fiscal 2018.

Adjusted net income (a non-GAAP measure which excludes the reversal of restructuring costs in the second quarter of fiscal 2019 noted above) increased $6.1 million, or 16.4%, to $43.4 million, compared to $37.3 million in the second quarter of fiscal 2018. Adjusted earnings per diluted share (a non-GAAP measure) in the second quarter of fiscal 2019 increased 21.1% to $0.95, compared to $0.79 in the second quarter of fiscal 2018.

First Half of Fiscal 2019 compared to First Half of Fiscal 2018

Net sales increased $23.5 million, or 1.6%, to $1.5 billion, driven by growth in the Company’s U.S. Retail and U.S. Wholesale segments, partially offset by a net sales decline in the International segment. Changes in foreign currency exchange rates in the first half of fiscal 2019 compared to the first half of fiscal 2018 adversely affected consolidated net sales in the first half of fiscal 2019 by $5.1 million, or 0.4%. On a constant currency basis (a non-GAAP measure), consolidated net sales increased 2.0% in the first half of fiscal 2019.

Operating income in the first half of fiscal 2019 increased $8.0 million, or 6.8%, to $125.2 million, compared to $117.3 million in the first half of fiscal 2018. Fiscal 2019 first half results include a net benefit of $1.2 million, comprised of a favorable recovery in value of China-related inventories and a reversal of retail store restructuring costs previously recorded during the third quarter of fiscal 2017, offset in part by costs related to organizational restructuring. Fiscal 2018 first half results include $12.4 million in net charges, principally related to the bankruptcy of a wholesale customer, Toys “R” Us. Operating margin increased 40 basis points to 8.5%, compared to 8.1% in the first half of fiscal 2018.

Adjusted operating income (a non-GAAP measure which excludes the unusual items noted in the prior paragraph) decreased $5.6 million, or 4.3%, to $124.1 million, compared to $129.7 million in the first half of fiscal 2018. Adjusted operating margin (a non-GAAP measure) decreased 50 basis points to 8.4%, compared to 8.9% in the first half of fiscal 2018, which principally reflects changes in channel and customer mix and higher distribution and freight expenses, partially offset by the elimination of operating losses in China due to the transition of the Company’s business model in this market.

Net income in the first half of fiscal 2019 decreased $1.3 million, or 1.7%, to $78.4 million, or $1.72 per diluted share, compared to $79.7 million, or $1.68 per diluted share, in the first half of fiscal 2018. Fiscal 2019 first half results include after-tax net charges totaling $4.6 million related to early extinguishment of debt, in addition to the favorable recovery in value of China-related inventories, retail store restructuring, and organizational restructuring items noted above. Fiscal 2018 first half results include after-tax net charges totaling $9.5 million, principally related to the wholesale customer bankruptcy noted above.

Adjusted net income (a non-GAAP measure which excludes the unusual items noted above) decreased $6.2 million, or 7.0%, to $83.0, compared to $89.2 million in the first half of fiscal 2018. Adjusted earnings per diluted share (a non-GAAP measure) in the first half of fiscal 2019 decreased 3.0% to $1.82, compared to $1.88 in the first half of fiscal 2018.

Cash flow from operations in the first half of fiscal 2019 was $104.5 million compared to $103.1 million in the first half of fiscal 2018. The increase was primarily due to the timing of payments by customers, partially offset by higher payments for inventory.

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

Second Quarter of Fiscal 2019 compared to Second Quarter of Fiscal 2018

U.S. Retail segment sales increased $21.1 million, or 5.3%, to $423.1 million. U.S. Retail comparable sales increased 3.8%, reflecting growth in both retail store and eCommerce sales. The Company believes second quarter fiscal 2019 comparable sales benefited from the later timing of Easter in 2019 compared to 2018.

In the second quarter of fiscal 2019, the Company opened five stores and closed six stores in the United States.

First Half of Fiscal 2019 compared to First Half of Fiscal 2018

U.S. Retail segment sales increased $14.4 million, or 1.8%, to $800.2 million. U.S. Retail comparable sales increased 0.1%, reflecting growth in eCommerce sales which was offset by a decline in store sales.

In the first half of fiscal 2019, the Company opened nine stores and closed 20 stores in the United States. As of the end of the second quarter of fiscal 2019, the Company operated 833 retail stores in the United States.

U.S. Wholesale Segment

Second Quarter of Fiscal 2019 compared to Second Quarter of Fiscal 2018

U.S. Wholesale segment net sales increased $19.6 million, or 9.4%, to $229.1 million, driven by increased demand for the Company’s exclusive brands.

First Half of Fiscal 2019 compared to First Half of Fiscal 2018

U.S. Wholesale segment net sales increased $14.1 million, or 2.9%, to $504.5 million, reflecting increased demand for the Company’s exclusive brands, partially offset by discontinued sales to Toys “R” Us, Bon-Ton, and Sears. Toys “R” Us, Bon-Ton, and Sears in aggregate contributed approximately $16 million to net sales in the first half of 2018.

International Segment

Second Quarter of Fiscal 2019 compared to Second Quarter of Fiscal 2018

International segment net sales decreased $2.5 million, or 3.0%, to $82.2 million, reflecting the transition of the Company’s business model in China and lower sales in other markets outside of North America, partially offset by increased demand in Mexico.

Changes in foreign currency exchange rates in the second quarter of fiscal 2019 compared to the second quarter of fiscal 2018 adversely affected International segment net sales in the second quarter of fiscal 2019 by $2.1 million, or 2.5%. On a constant currency basis (a non-GAAP measure), International segment net sales declined 0.5%.

In the first quarter of fiscal 2019, the Company completed the transition of its China retail and wholesale operations to a licensing arrangement with a China-based retailer and wholesaler of young children’s apparel.

First Half of Fiscal 2019 compared to First Half of Fiscal 2018

International segment net sales decreased $5.1 million, or 2.9%, to $170.8 million, reflecting lower demand in Canada and the change in business model in China, partially offset by growth in Mexico and various markets outside of North America.

Changes in foreign currency exchange rates in the first half of fiscal 2019 compared to the first half of fiscal 2018 adversely affected International segment net sales in the first half of fiscal 2019 by $5.1 million, or 2.9%. On a constant currency basis (a non-GAAP measure), International segment net sales were comparable to 2018.

As of the end of the second quarter of fiscal 2019, the Company operated 189 retail stores in Canada and 42 retail stores in Mexico.

Return of Capital

In the second quarter and first half of fiscal 2019, the Company returned to shareholders a total of $75.0 million and $137.7 million, respectively, through share repurchases and cash dividends as described below.

During the second quarter of fiscal 2019, the Company repurchased and retired 545,620 shares of its common stock for $52.5 million at an average price of $96.18 per share. In the first half of fiscal 2019, the Company repurchased and retired 1,005,877 shares of its common stock for $92.4 million at an average price of $91.90 per share. Fiscal year-to-date through July 24, 2019, the Company has repurchased and retired a total of 1,169,588 shares for $107.7 million at an average price of $92.11 per share. All shares were repurchased in open market transactions pursuant to applicable regulations for such transactions. As of July 24, 2019, the total remaining capacity under the Company’s previously announced repurchase authorizations was approximately $285 million.

In the second quarter of fiscal 2019, the Company paid a cash dividend of $0.50 per share totaling $22.5 million. In the first half of fiscal 2019, the Company paid cash dividends of $0.50 per share each quarter totaling $45.3 million. Future declarations of quarterly dividends and the establishment of related record and payment dates will be at the discretion of the Company’s Board of Directors based on a number of factors, including the Company’s future financial performance and other considerations.

2019 Business Outlook

For the third quarter of fiscal 2019, the Company projects net sales will increase approximately 1% compared to the third quarter of fiscal 2018 and adjusted diluted earnings per share will increase approximately 3% to 4% compared to adjusted diluted earnings per share of $1.61 in the third quarter of fiscal 2018.

For fiscal 2019, consistent with its previously-issued outlook, the Company projects net sales will increase approximately 1% to 2% compared to fiscal 2018 and adjusted diluted earnings per share will increase approximately 4% to 6% compared to adjusted diluted earnings per share of $6.29 in fiscal 2018. This fiscal 2019 adjusted earnings forecast excludes the following pre-tax items: 1) charges totaling $7.8 million related to early extinguishment of debt; 2) expenses of $1.6 million related to organizational restructuring; 3) a benefit of $2.1 million related to a favorable recovery in value of China-related inventories, and 4) a $0.7 million reversal of store restructuring costs previously recorded during the third quarter of fiscal 2017.

The Company believes these non-GAAP measurements provide investors with a meaningful view of the Company’s core operating results, and are the same measurements used by the Company’s executive management to assess the Company’s performance.

Adoption of New Accounting Standard

Beginning in fiscal 2019, the Company adopted the Financial Accounting Standards Board’s Accounting Standards Codification No. 842, Leases (“ASC 842”), which requires substantially all of its operating leases, including retail leases, to be recorded on the balance sheet as a right-of-use asset and lease liability. The adoption of ASC 842 had a material impact on the Company’s consolidated balance sheets, but did not have a material impact on its consolidated income statements or statements of cash flows.

Conference Call

The Company will hold a conference call with investors to discuss second quarter fiscal 2019 results and its business outlook on July 25, 2019 at 8:30 a.m. Eastern Daylight Time. To participate in the call, please dial 334-323-0501. 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 August 4, 2019, at 888-203-1112 (U.S. / Canada) or 719-457-0820 (international), passcode 5418782. 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 1,000 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 Youbrand 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 safe harbor provisions of the Private Securities Litigation Reform Act of 1995 relating to the Company’s future performance, including, without limitation, statements with respect to the Company’s anticipated financial results for the third quarter of fiscal 2019 and fiscal year 2019, or any other future period, assessments of the Company’s performance and financial position, and drivers of the Company’s sales and earnings growth. 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 the risks and uncertainties that may impact future results are the risks of: financial difficulties for one or more of the Company’s major customers, vendors, or licensees, or an overall decrease in consumer spending; our products not being accepted in the marketplace due to quality concerns, changes in consumer preference and fashion trends, or otherwise; losing one or more major customers, vendors, or licensees due to competition, inadequate quality of the Company’s products, or otherwise; negative publicity, including as a result of product recalls or otherwise; a failure to protect the Company’s intellectual property; a failure to meet regulatory requirements, including those relating to product quality and safety; extreme or unseasonable weather conditions; various types of litigation, including class action litigation brought under various consumer protection, employment, and privacy and information security laws; a breach of the Company’s consumer databases, systems, or processes; deflationary pressures on our selling price and increases in production costs; unsuccessful expansion into international markets or failure to successfully manage legal, regulatory, political and economic risks of the Company’s existing operations, including unexpected changes in regulatory requirements and maintaining compliance with worldwide anti-bribery laws; disruptions, slow-downs, or strikes in the Company’s supply chain, including disruptions resulting from increases in the cost of raw materials or labor, foreign supply sources, the Company’s distribution centers, or in-sourcing capabilities; failure to successfully integrate acquired businesses; fluctuations in foreign currency exchange rates; the imposition of new regulations relating to imports, tariffs, duties, or taxes; and an inability to obtain additional financing on favorable terms. 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) - (e) 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/20190725005343/en/

Source: Carter’s, Inc.

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