ATLANTA, July 26 /PRNewswire-FirstCall/ -- Carter's, Inc. (NYSE: CRI), the largest branded marketer of apparel for babies and young children in the United States, today reported its second quarter results for fiscal 2005.
Net sales in the second quarter of fiscal 2005 increased $36.2 million, or 23%, to $192.5 million from $156.3 million in the second quarter of fiscal 2004. The increase in net sales for the second quarter of fiscal 2005 includes a $12.5 million, or 17%, increase in sales in the wholesale channel from $73.5 million to $86.0 million and a $16.2 million, or 71%, increase in sales in the mass channel from $22.8 million to $39.0 million.
The Company's retail store sales in the second quarter of fiscal 2005 increased $7.5 million, or 13%, to $67.5 million from $60.0 million in the second quarter of fiscal 2004 due to an increase of 7.1% in comparable store sales and incremental sales from 11 new store openings since July 3, 2004. As of July 2, 2005, Carter's had a total of 185 retail stores, including four stores opened during the second quarter of fiscal 2005.
Net income in the second quarter of fiscal 2005 decreased $0.5 million to $5.5 million, or $0.18 per diluted share, from $5.9 million, or $0.20 per diluted share, in the second quarter of fiscal 2004. This decrease was driven by after-tax charges of $3.3 million associated with the closure of two sewing facilities in Mexico. Excluding these charges, pro forma net income in the second quarter of fiscal 2005 increased 48% to $8.8 million, or $0.29 per diluted share.
Fred Rowan, Chairman of the Board of Directors and Chief Executive Officer of Carter's said, "We continue to experience strong results in all channels of distribution because of our focus on essential core products and superior execution. We are very excited about the acquisition of OshKosh B'Gosh, Inc. This acquisition brings together two of America's most trusted children's apparel brands with annual sales of approximately $1.3 billion. There is tremendous potential to be realized by leveraging our proven brand management and supply chain skills which we believe will result in significant long-term value for our shareholders, customers, and consumers."
Net sales in the first six months of fiscal 2005 increased 18%, or $59.7 million, to $398.7 million from $339.0 million in the first six months of fiscal 2004. In our wholesale channel, net sales increased $20.9 million, or 13%, in the first six months of fiscal 2005 to $185.0 million from $164.1 million in the first six months of fiscal 2004.
Net sales to the mass channel in the first six months of fiscal 2005 increased $22.7 million, or 41%, to $78.4 million from $55.7 million in the first six months of fiscal 2004. This increase reflects growth in sales of our Child of Mine brand to Wal-Mart, including our newborn playwear product category, and increased sales of our Just One Year brand to Target.
The Company's retail store sales in the first six months of fiscal 2005 increased $16.0 million, or 13%, to $135.3 million from $119.2 million in the first six months of fiscal 2004 due to incremental sales from new store openings and a comparable store sales increase of 7.9%. During the first six months of fiscal 2005, the Company opened five stores.
For the first six months of fiscal 2005, net income increased 19%, or $3.1 million, to $19.3 million, or $0.64 per diluted share, from $16.2 million, or $0.54 per diluted share, for the first six months of fiscal 2004. Excluding charges related to plant closures in Mexico in fiscal 2005 and facility closings in fiscal 2004, pro forma net income increased 37% to $22.6 million, or $0.75 per diluted share, for the first six months of fiscal 2005 as compared to pro forma net income of $16.6 million, or $0.55 per diluted share, for the first six months of fiscal 2004.
Net cash provided by operating activities for the first half of fiscal 2005 was $22.6 million compared to net cash used in operating activities of $5.4 million in the first half of fiscal 2004. The improvement in cash flow from operations is primarily attributable to the growth in earnings and improvement in working capital.
On July 14, 2005, The William Carter Company ("TWCC") a subsidiary of Carter's completed the acquisition of OshKosh B'Gosh, Inc. for approximately $312 million, which includes payment for vested stock options.
Also, in July, in connection with the previously announced cash tender offer by TWCC for its outstanding 10.875% Senior Subordinated Notes due 2011, Carter's paid approximately $132.9 million, including a redemption premium of approximately $14.0 million and accrued and unpaid interest.
Financing for the acquisition, tender offer and consent solicitation, the refinancing of TWCC's existing credit facility, and related fees and expenses was provided by borrowings under TWCC's new credit facility consisting of (i) a term loan facility of $500 million and (ii) a committed revolving credit facility in an aggregate principal amount of up to $125 million for working capital and general corporate purposes and for the issuance of letters of credit.
Carter's Business Outlook
This outlook is based on current expectations and includes "forward- looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Although the Company believes the comments reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct.
($ in millions) Third Quarter Fiscal Year
2005 2005
Net Sales-Carter's $275 +9%(1) $924 to $928 +12% to +13%(2)
Net Sales-OshKosh 95 195 to 200
Consolidated Net
Sales $370 +47%(1) $1,119 to $1,128 +36% to +37%(2)
Third Quarter Fiscal Year
2005 2005
Diluted EPS-
Carter's $0.76 +23%(3) $2.08 to $2.12 +25% to +27%(4)
Diluted EPS-
OshKosh 0.05 0.08 to 0.10
Consolidated
Diluted EPS $0.81 +31%(3) $2.16 to $2.22 +29% to +33%(4)
(1) Comparison to third quarter of fiscal 2004.
(2) Comparison to fiscal 2004.
(3) Estimated pro forma increase, excluding plant closures, purchase
accounting charges (amortization of licensing agreements and inventory
adjustments), and debt extinguishment costs.
(4) Estimated pro forma increase, excluding plant closures, purchase
accounting charges (amortization of licensing agreements and inventory
adjustments), and debt extinguishment costs. For Carter's, comparison
to pro forma fiscal 2004 results of $1.67 per diluted share as
previously described in our earnings release filed February 22, 2005
on Form 8-K.
Carter's will broadcast its quarterly conference call on July 27, 2005 at 8:30 a.m. EDT. To participate in the call, please dial 1-913-981-4910. To listen to the live broadcast over the internet, please log on to www.carters.com, go to "Investor Relations" and then click on the link, "Second Quarter Conference Call." A replay of the call will be available shortly after the broadcast through midnight EDT, Friday, August 5, 2005, at 1-719-457-0820, pass code 2546530, and archived on the Company's website at the same location as the live webcast.
For more information on Carter's, please visit www.carters.com.
Cautionary Language
Statements contained herein that relate to the Company's future performance, including, without limitation, statements with respect to the Company's anticipated results for fiscal 2005 or any other future period, are forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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 should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. Factors that could cause actual results to materially differ include a decrease in sales to, or the loss of one or more of the Company's key customers, deflationary trends in prices, disruptions in foreign supply sources, negative publicity, the loss of one or more of the Company's major suppliers for raw materials, competition in the baby and young children's apparel market, changes in consumer preference and fashion trends, a decrease in the overall level of consumer spending, the Company's leverage which increases the Company's exposure to interest rate risk and could require the Company to dedicate a substantial portion of its cash flow to repay principal, the impact of governmental regulations and environmental risks applicable to the Company's business, and seasonal fluctuations in the children's apparel business. These risks are described in the Company's and OshKosh B'Gosh, Inc.'s most recently filed annual reports on Form 10-K under the headings "Risk Factors" and "Statement Regarding Forward-Looking Statements." The Company undertakes no obligation to publicly update or revise any forward- looking statements, whether as a result of new information, future events, or otherwise.
CARTER'S, INC.
CONSOLIDATED STATEMENT OF INCOME
(dollars in thousands, except for share data)
(unaudited)
Three-month Six-month
periods ended periods ended
July 2, July 3, July 2, July 3,
2005 2004 2005 2004
Net sales $192,500 $156,307 $398,707 $339,027
Cost of goods sold 126,435 96,716 256,877 213,166
Gross profit 66,065 59,591 141,830 125,861
Selling, general, and
administrative expenses 51,243 48,024 103,239 95,394
Closure costs 4,569 6 4,569 540
Royalty income (2,813) (2,504) (6,336) (5,668)
Operating income 13,066 14,065 40,358 35,595
Interest expense, net 4,055 4,364 8,457 8,988
Income before income taxes 9,011 9,701 31,901 26,607
Provision for income taxes 3,561 3,784 12,602 10,377
Net income $5,450 $5,917 $19,299 $16,230
Basic net income per
common share $0.19 $0.21 $0.68 $0.58
Diluted net income per
common share $0.18 $0.20 $0.64 $0.54
Basic weighted average
number of shares
outstanding 28,579,943 28,002,221 28,523,342 27,993,791
Diluted weighted
average number of
shares outstanding 30,321,705 29,890,163 30,257,332 29,875,271
Pro forma Net Income
Pro forma results for the second quarter and first half of fiscal 2005 exclude $3.3 million in after-tax restructuring charges related to the closures of the Company's sewing facilities in Mexico. Pro forma results for the first half of fiscal 2004 exclude $0.3 million in after-tax restructuring charges related to the closures of the Company's sewing facilities in Costa Rica and a distribution facility in Leola, Pennsylvania. These adjustments are set forth in the reconciliation of results in accordance with generally accepted accounting principles (GAAP) to the pro forma results shown in the table below. The Company believes that the pro forma information in this release provides a meaningful comparison of its operational and financial results.
In addition to the results provided in this earnings release in accordance with GAAP, the Company has provided pro forma, non-GAAP financial measurements that present net income and net income on a per share basis excluding certain adjustments discussed above. Details of these items are presented in the table below, which reconciles the GAAP results to pro forma net income and pro forma net income per share. The pro forma, non-GAAP financial measurements included in this earnings release should not be considered as an alternative to net income or as any other measurement of performance derived in accordance with GAAP. The pro forma, non-GAAP financial information is presented for informational purposes only and is not necessarily indicative of our future condition or results of operations. Also, this earnings release and the reconciliation from GAAP results to pro forma results can be found on the Company's website at www.carters.com.
Contact: Eric Martin, Vice President of Investor Relations
(404) 745-2889
CARTER'S, INC.
GAAP VS. PRO FORMA RESULTS
(dollars in thousands, except for share data)
(unaudited)
Three-month Six-month
periods ended periods ended
July 2, July 3, July 2, July 3,
2005 2004 2005 2004
Net income (GAAP) $5,450 $5,917 $19,299 $16,230
Pro forma adjustments
(net of tax):
Closure costs 2,764 4 2,764 329
Accelerated depreciation
related to closures
(included in cost of
goods sold) 567 -- 567 --
Pro forma net income $8,781 $5,921 $22,630 $16,559
Diluted weighted average
shares outstanding 30,321,705 29,890,163 30,257,332 29,875,271
Diluted net income per
share, as reported $0.18 $0.20 $0.64 $0.54
Pro forma diluted net income
per share $0.29 $0.20 $0.75 $0.55
CARTER'S, INC.
CONSOLIDATED BALANCE SHEET
(dollars in thousands, except for share data)
(unaudited)
July 2, January 1, July 3,
2005 2005 2004
ASSETS
Current assets:
Cash and cash equivalents $15,376 $33,265 $13,176
Accounts receivable, net 82,005 80,440 71,982
Inventories, net 139,644 120,792 148,423
Prepaid expenses and other
current assets 5,364 4,499 3,401
Deferred income taxes 12,866 12,571 8,301
Total current assets 255,255 251,567 245,283
Property, plant, and equipment, net 49,612 53,187 52,627
Tradename 220,233 220,233 220,233
Cost in excess of fair value of
net assets acquired 139,282 139,282 139,282
Licensing agreements, net -- -- 625
Deferred debt issuance costs, net 4,801 5,867 6,837
Other assets 3,070 2,829 2,943
Total assets $672,253 $672,965 $667,830
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of
long-term debt $368 $724 $927
Accounts payable 35,073 26,453 50,428
Other current liabilities 42,705 40,696 30,429
Total current liabilities 78,146 67,873 81,784
Long-term debt 148,911 183,778 204,002
Deferred income taxes 83,610 83,579 82,293
Other long-term liabilities 9,802 9,802 9,816
Total liabilities 320,469 345,032 377,895
Commitments and contingencies
Stockholders' equity:
Preferred stock; par value $.01 per
share; 100,000 shares authorized;
none issued or outstanding at
July 2, 2005, January 1, 2005,
and July 3, 2004 -- -- --
Common stock, voting; par value $.01
per share; 40,000,000 shares
authorized; 28,702,789 shares issued
and outstanding at July 2, 2005,
28,432,452 shares issued and
outstanding at January 1, 2005,
and 28,073,103 shares issued and
outstanding at July 3, 2004 287 284 281
Additional paid-in capital 254,104 247,610 242,948
Deferred compensation (2,040) (95) --
Retained earnings 99,433 80,134 46,706
Total stockholders' equity 351,784 327,933 289,935
Total liabilities and
stockholders' equity $672,253 $672,965 $667,830
SOURCE Carter's
CONTACT:
Eric Martin
Vice President of Investor Relations of Carter's
+1-404-745-2889
Web site: http://www.carters.com
(CRI)