Carter’s, Inc. Reports Fourth Quarter and Fiscal 2016 Results
-
Fourth quarter fiscal 2016 results
- Net sales $934 million, growth of 8%
-
Diluted EPS $1.76, growth of 27%; adjusted diluted EPS $1.79,
growth of 28%
- Net sales $3.2 billion, growth of 6%
-
Diluted EPS $5.08, growth of 13%; adjusted diluted EPS $5.14,
growth of 11%
ATLANTA–(BUSINESS WIRE)–Carter’s, Inc. (NYSE:CRI), the largest branded marketer in the United
States and Canada of apparel exclusively for babies and young children,
today reported its fourth quarter and fiscal 2016 results.“The fourth quarter represented a strong finish to another record year
of sales and profitability for Carter’s,” said Michael D. Casey,
Chairman and Chief Executive Officer. “Our focus on providing the best
value and experience in young children’s apparel, extending the reach of
our brands, and improving profitability enabled us to achieve our 28th
consecutive year of sales growth, improve our profit margins, and
increase the return of capital to shareholders. We are forecasting good
growth in sales and earnings in 2017 as we strive to be the world’s
favorite brands in young children’s apparel.”(Carter’s, Inc. today also issued a separate news release announcing
the acquisition of Skip Hop Holdings, Inc., a leading global lifestyle
brand for families with young children.)Consolidated Results
Fourth Quarter of Fiscal 2016 compared to Fourth Quarter of Fiscal
2015Consolidated net sales increased $67.7 million, or 7.8%, to $934.2
million. This increase reflects sales growth in nearly every business
segment.Changes in foreign currency exchange rates in the fourth quarter of
fiscal 2016 compared to the fourth quarter of fiscal 2015 negatively
affected consolidated net sales in the fourth quarter of fiscal 2016 by
$0.4 million. On a constant currency basis (a non-GAAP measure),
consolidated net sales increased 7.9% in the fourth quarter of fiscal
2016.Operating income in the fourth quarter of fiscal 2016 increased $23.2
million, or 20.0%, to $139.4 million, compared to $116.2 million in the
fourth quarter of fiscal 2015. Operating margin in the fourth quarter of
fiscal 2016 increased 150 basis points to 14.9%, compared to 13.4% in
the fourth quarter of fiscal 2015. Adjusted operating income (a non-GAAP
measure) in the fourth quarter of fiscal 2016 was $142.0 million,
compared to $117.1 million in the fourth quarter of fiscal 2015.
Adjusted operating margin (a non-GAAP measure) in the fourth quarter of
fiscal 2016 was 15.2%, compared to 13.5% in the fourth quarter of fiscal
2015, principally driven by improved gross margin.Net income in the fourth quarter of fiscal 2016 increased $14.5 million,
or 20.0%, to $87.1 million, or $1.76 per diluted share, compared to
$72.6 million, or $1.39 per diluted share, in the fourth quarter of
fiscal 2015. Adjusted net income (a non-GAAP measure) in the fourth
quarter of fiscal 2016 increased $15.5 million, or 21.2%, to $88.7
million, compared to $73.2 million in the fourth quarter of fiscal 2015.
Adjusted earnings per diluted share (a non-GAAP measure) in the fourth
quarter of fiscal 2016 increased 27.9% to $1.79, compared to $1.40 in
the fourth quarter of fiscal 2015.Fiscal 2016 compared to Fiscal 2015
Consolidated net sales increased $185.3 million, or 6.1%, to $3.2
billion. The net sales increase reflects growth in nearly every business
segment.Changes in foreign currency exchange rates in fiscal 2016 compared to
fiscal 2015 negatively affected consolidated net sales in fiscal 2016 by
$7.1 million. On a constant currency basis, consolidated net sales
increased 6.4% in fiscal 2016.Operating income in fiscal 2016 increased $33.7 million, or 8.6%, to
$426.6 million, compared to $392.9 million in fiscal 2015. Operating
margin in fiscal 2016 increased 30 basis points to 13.3%, compared to
13.0% in fiscal 2015. Adjusted operating income in fiscal 2016 increased
$30.4 million, or 7.6%, to $431.4 million, compared to $401.0 million in
fiscal 2015. Adjusted operating margin in fiscal 2016 increased 20 basis
points to 13.5%, compared to 13.3% in fiscal 2015, reflecting improved
gross margin and expense deleverage.Net income in fiscal 2016 increased $20.3 million, or 8.5%, to $258.1
million, or $5.08 per diluted share, compared to $237.8 million, or
$4.50 per diluted share, in fiscal 2015. Adjusted net income in fiscal
2016 increased $17.5 million, or 7.2%, to $261.1 million, compared to
$243.6 million in fiscal 2015. Adjusted earnings per diluted share in
fiscal 2016 increased 11.5% to $5.14, compared to $4.61 in fiscal 2015.Cash flow from operations in fiscal 2016 was $369.2 million compared to
$308.0 million in fiscal 2015. The increase reflects higher net income
and favorable changes in net working capital.See the “Reconciliation of GAAP to Adjusted Results” section of this
release for additional disclosures and reconciliations regarding
non-GAAP measures.Business Segment Results
In the fourth quarter of 2016, the Company saw a moderation in the
effects of the stronger U.S. dollar which we believe still affected the
demand from international consumers for our brands and weighed on 2016
comparable retail store sales.Carter’s Retail Segment Results
Fourth Quarter of Fiscal 2016 compared to Fourth Quarter of Fiscal
2015Carter’s retail segment sales increased $41.7 million, or 11.8%, to
$393.3 million. Carter’s retail comparable sales increased 5.4%,
comprised of eCommerce comparable sales growth of 21.7% and a comparable
retail store sales increase of 0.1%.Fiscal 2016 compared to Fiscal 2015
Carter’s retail segment sales increased $102.9 million, or 8.9%, to $1.3
billion. Carter’s retail comparable sales increased 3.1%, comprised of
eCommerce comparable sales growth of 20.4% and a comparable retail store
sales decline of 1.7%.As of the end of the fourth quarter of fiscal 2016, the Company operated
654 Carter’s retail stores in the United States, comprised of 495
stand-alone and 159 dual-branded locations.Carter’s Wholesale Segment Results
Fourth Quarter of Fiscal 2016 compared to Fourth Quarter of Fiscal
2015Carter’s wholesale segment sales increased $3.1 million, or 1.1%, to
$286.2 million, reflecting increased fall product shipments, offset in
part by lower spring 2017 product shipments.Fiscal 2016 compared to Fiscal 2015
Carter’s wholesale segment sales increased $20.7 million, or 1.9%, to
$1.1 billion, reflecting increased demand and favorable product mix,
offset in part by lower spring 2017 product shipments.OshKosh Retail Segment Results
Fourth Quarter of Fiscal 2016 compared to Fourth Quarter of Fiscal
2015OshKosh retail segment sales increased $16.3 million, or 13.7%, to
$134.6 million. OshKosh retail comparable sales increased 5.8%,
comprised of eCommerce comparable sales growth of 25.9% and a comparable
retail stores decline of 0.6%.Fiscal 2016 compared to Fiscal 2015
OshKosh retail segment sales increased $39.2 million, or 10.8%, to
$402.3 million. OshKosh retail comparable sales increased 3.3%,
comprised of eCommerce comparable sales growth of 25.3% and a comparable
retail store sales decline of 2.6%.As of the end of the fourth quarter of fiscal 2016, the Company operated
297 OshKosh retail stores in the United States, comprised of 138
stand-alone and 159 dual-branded locations.OshKosh Wholesale Segment Results
Fourth Quarter of Fiscal 2016 compared to Fourth Quarter of Fiscal
2015OshKosh wholesale segment sales decreased $5.6 million, or 33.8%, to
$10.9 million, due to lower demand.Fiscal 2016 compared to Fiscal 2015
OshKosh wholesale segment sales decreased $15.9 million, or 24.3%, to
$49.7 million, due to lower demand and a decrease in the average price
per unit.International Segment Results
Fourth Quarter of Fiscal 2016 compared to Fourth Quarter of Fiscal
2015International segment sales increased $12.2 million, or 12.6%, to $109.2
million, principally driven by growth in the Company’s retail and
wholesale businesses in Canada and China, offset in part by a decrease
in wholesale demand in other international markets.Changes in foreign currency exchange rates in the fourth quarter of
fiscal 2016 as compared to the fourth quarter of fiscal 2015 negatively
affected international segment net sales in the fourth quarter of fiscal
2016 by $0.4 million. On a constant currency basis, international
segment net sales increased 13.0%.The Company’s Canadian retail comparable sales increased 10.9% in the
fourth quarter of fiscal 2016, reflecting retail stores comparable sales
growth of 6.9% and eCommerce comparable sales growth of 61.1%.Fiscal 2016 compared to Fiscal 2015
International segment sales increased $38.5 million, or 11.8%, to $364.7
million. This increase principally reflects growth in the Company’s
retail businesses in Canada, and eCommerce and wholesale growth in
China, partially offset by unfavorable foreign currency exchange rates.Changes in foreign currency exchange rates in fiscal 2016 as compared to
fiscal 2015 negatively affected international net sales in fiscal 2016
by $7.1 million. On a constant currency basis, international segment net
sales increased 14.0%.Compared to fiscal 2015, the Company’s Canadian retail comparable sales
increased 8.4% in fiscal 2016, primarily due to retail stores sales
growth of 5.9% and eCommerce sales growth of 46.4%.As of the end of the fourth quarter of fiscal 2016, the Company operated
164 retail stores in Canada.Return of Capital
In the fourth quarter of fiscal 2016, the Company returned a total of
$77.5 million to shareholders through share repurchases and cash
dividends. In fiscal 2016, the Company returned a total of $366.8
million to shareholders through share repurchases and cash dividends, as
described below.Cumulatively from fiscal years 2013 through 2016, the Company returned a
total of $1.1 billion to shareholders through share repurchases and cash
dividends.Stock Repurchase Activity
During the fourth quarter of fiscal 2016, the Company repurchased and
retired 690,434 shares of its common stock for $61.3 million at an
average price of $88.79 per share. During fiscal 2016, the Company
repurchased and retired 3.0 million shares for $300.4 million at an
average price of $98.53 per share. Fiscal 2017 year-to-date through
February 22, 2017, the Company has repurchased and retired a total of
356,729 shares for $30.0 million at an average price of $84.10 per
share. All shares were repurchased in open market transactions pursuant
to applicable regulations for open market share repurchases.As of February 22, 2017, the total remaining capacity under the
Company’s previously-announced repurchase authorizations was
approximately $244 million.Dividends
During the fourth quarter of fiscal 2016, the Company paid a cash
dividend of $0.33 per share totaling $16.2 million. In fiscal 2016, the
Company paid cash dividends of $1.32 per share totaling $66.4 million.On February 15, 2017, the Company’s Board of Directors authorized a 12%
increase ($0.04 per share) to its quarterly cash dividend, to $0.37 per
share, for payment on March 24, 2017, to shareholders of record at the
close of business on March 10, 2017.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.2017 Business Outlook
For fiscal 2017, the Company projects net sales to increase
approximately 4% to 6% over fiscal 2016 and adjusted diluted earnings
per share to increase approximately 8% to 10% compared to adjusted
diluted earnings per share of $5.14 in fiscal 2016. This forecast for
fiscal 2017 adjusted earnings per share excludes anticipated expenses of
approximately $1.0 million related to the announced Skip Hop transaction
and approximately $1.4 million related to the Company’s direct sourcing
initiative. 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.For the first quarter of fiscal 2017, the Company projects net sales to
decline in the low-single digit range compared to the first quarter of
fiscal 2016 and adjusted diluted earnings per share to be approximately
$0.80 to $0.85 compared to adjusted diluted earnings per share of $1.05
in the first quarter of fiscal 2016. This projection contemplates growth
in U.S. retail sales, declines in domestic wholesale and international
sales, and increased investments in the Company’s growth agenda compared
to the prior-year period. This forecast for first quarter fiscal 2017
adjusted earnings per share excludes anticipated expenses of
approximately $1.0 million related to the announced Skip Hop transaction
and approximately $0.3 million related to the Company’s direct sourcing
initiative. 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.Conference Call
The Company will hold a conference call with investors to discuss fourth
quarter and fiscal 2016 results and its business outlook on February 23,
2017 at 8:30 a.m. Eastern Standard Time. To participate in the call,
please dial 913-312-0822. To listen to a live broadcast of the call on
the internet, please visit www.carters.com
and select the “Fourth Quarter 2016 Earnings Conference Call” link under
the “Investor Relations” tab. Presentation materials for the call can be
accessed under the same tab by selecting links for “News & Events”
followed by “Webcasts & Presentations”. A replay of the call will be
available shortly after the broadcast through March 4, 2017, at
888-203-1112 (U.S. / Canada) or 719-457-0820 (international), passcode
2504885. The replay will also be archived on the Company’s website under
the “Investor Relations” tab.About Carter’s, Inc.
Carter’s, Inc. is the largest branded marketer in the United States and
Canada of apparel and related products 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 nearly 1,000 Company-operated stores in the United States and
Canada and online at www.carters.com,
www.oshkoshbgosh.com,
and www.cartersoshkosh.ca.
The Company’s Just One You, Precious Firsts, and Genuine
Kids brands are available at Target, and its Child of Mine
brand is available at Walmart. Carter’s is headquartered in Atlanta,
Georgia. Additional information may be found at www.carters.com.Cautionary Language
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 first quarter of
fiscal 2017 and fiscal year 2017, 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”
and “Forward-Looking Statements.” Included among the risks and
uncertainties that may impact future results are the risks of: losing
one or more major customers, vendors, or licensees, due to competition,
inadequate quality of the Company’s products, or otherwise; financial
difficulties for one or more of the Company’s major customers, vendors,
or licensees, or an overall decrease in consumer spending; fluctuations
in foreign currency exchange rates; our products not being accepted in
the marketplace, due to quality concerns, changes in consumer preference
and fashion trends, or otherwise; negative publicity, including as a
result of product recalls or otherwise; failure to protect the Company’s
intellectual property; 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; the risk of slow-downs,
disruptions, or strikes along the Company’s supply chain, including
disruptions resulting from foreign supply sources, the Company’s
distribution centers, or in-sourcing capabilities; unsuccessful
expansion into international markets or failure to successfully manage
legal, regulatory, political and economic risks of the Company’s
existing international operations, including maintaining compliance with
worldwide anti-bribery laws; 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.CARTER’S, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except for share data)
(unaudited)
For the fiscal quarters ended For the fiscal years ended December 31,
2016January 2,
2016December 31,
2016January 2,
2016Net sales $ 934,203 $ 866,544 $ 3,199,184 $ 3,013,879 Cost of goods sold 523,711 503,006 1,820,035 1,755,855 Gross profit 410,492 363,538 1,379,149 1,258,024 Selling, general, and administrative expenses 282,624 258,737 995,406 909,233 Royalty income (11,545 ) (11,378 ) (42,815 ) (44,066 ) Operating income 139,413 116,179 426,558 392,857 Interest expense 6,723 6,497 27,044 27,031 Interest income (110 ) (115 ) (563 ) (500 ) Other expense (income), net 334 (1,302 ) 4,007 (1,862 ) Income before income taxes 132,466 111,099 396,070 368,188 Provision for income taxes 45,349 38,500 137,964 130,366 Net income $ 87,117 $ 72,599 $ 258,106 $ 237,822 Basic net income per common share $ 1.77 $ 1.40 $ 5.13 $ 4.55 Diluted net income per common share $ 1.76 $ 1.39 $ 5.08 $ 4.50 Dividend declared and paid per common share $ 0.33 $ 0.22 $ 1.32 $ 0.88 CARTER’S, INC.
BUSINESS SEGMENT RESULTS
(dollars in thousands)
(unaudited)
For the fiscal quarters ended For the fiscal years ended December 31,
2016% of
total salesJanuary 2,
2016% of
total salesDecember 31,
2016% of
total salesJanuary 2,
2016% of
total salesNet sales:
Carter’s Retail (a) $ 393,286 42.1 % $ 351,633 40.6 % $
1,254,140
39.2 % $ 1,151,268 38.2 % Carter’s Wholesale 286,235 30.6 % 283,106 32.7 % 1,128,371 35.3 % 1,107,706 36.8 % Total Carter’s 679,521 72.7 % 634,739 73.3 % 2,382,511 74.5 % 2,258,974 75.0 % OshKosh Retail (a) 134,559 14.4 % 118,300 13.7 % 402,274 12.6 % 363,087 12.0 % OshKosh Wholesale 10,891 1.2 % 16,456 1.9 % 49,663 1.6 % 65,607 2.2 % Total OshKosh 145,450 15.6 % 134,756 15.6 % 451,937 14.2 % 428,694 14.2 % International (b) 109,232 11.7 % 97,049 11.1 % 364,736 11.3 % 326,211 10.8 % Total net sales $ 934,203 100.0 % $ 866,544 100.0 % $ 3,199,184 100.0 % $ 3,013,879 100.0 % Operating income:
Operating margin Operating margin Operating margin Operating margin Carter’s Retail (a) $ 74,426 18.9 % $ 64,483 18.3 % $ 202,164 16.1 % $ 199,040 17.3 % Carter’s Wholesale 62,477 21.8 % 60,012 21.2 % 250,132 22.2 % 232,497 21.0 % Total Carter’s 136,903 20.1 % 124,495 19.6 % 452,296 19.0 % 431,537 19.1 % OshKosh Retail (a) 11,031 8.2 % 8,535 7.2 % 10,417 2.6 % 11,931 3.3 % OshKosh Wholesale 2,555 23.5 % 3,555 21.6 % 10,821 21.8 % 13,270 20.2 % Total OshKosh 13,586 9.3 % 12,090 9.0 % 21,238 4.7 % 25,201 5.9 % International (b) (c) 22,003 20.1 % 16,037 16.5 % 59,194 16.2 % 47,004 14.4 % Corporate expenses (d) (e) (33,079 ) (36,443 ) (106,170 ) (110,885 ) Total operating income $ 139,413 14.9 % $ 116,179 13.4 % $ 426,558 13.3 % $ 392,857 13.0 % (a) Includes eCommerce results. (b) Net sales include international retail, eCommerce, and wholesale
sales. Operating income also includes international licensing income.(c) Includes charges associated with the revaluation of the Company’s
contingent consideration related to the Company’s 2011 acquisition
of Bonnie Togs of approximately $1.9 million for the fiscal year
ended January 2, 2016.(d) Corporate expenses include expenses related to incentive
compensation, stock-based compensation, executive management,
severance and relocation, finance, building occupancy, information
technology, certain legal fees, consulting, and audit fees.(e) Includes the following charges: For the fiscal quarter ended For the fiscal years ended (dollars in millions) December 31,
2016January 2,
2016December 31,
2016January 2,
2016Amortization of H.W. Carter and Sons tradenames $ — $ 1.0 $ 1.7 $ 6.2 Direct sourcing initiative $ 0.2 $ — $ 0.7 $ — Acquisition-related costs $ 2.4 $ — $ 2.4 $ — CARTER’S, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except for share data)
(unaudited)
December 31,
2016January 2,
2016ASSETS Current assets: Cash and cash equivalents $ 299,358 $ 381,209 Accounts receivable, net 202,471 207,570 Finished goods inventories
487,591 469,934 Prepaid expenses and other current assets 32,180 37,815 Deferred income taxes 35,486 34,080 Total current assets 1,057,086 1,130,608 Property, plant, and equipment, net 385,874 371,704 Tradenames and other intangible assets, net 308,928 310,848 Goodwill 176,009 174,874 Other assets 18,700 15,620 Total assets $ 1,946,597 $ 2,003,654 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 158,432 $ 157,648 Other current liabilities 119,177 105,070 Total current liabilities 277,609 262,718 Long-term debt, net 580,376 578,972 Deferred income taxes 130,656 128,838 Other long-term liabilities 169,832 158,075 Total liabilities 1,158,473 1,128,603 Commitments and contingencies Stockholders’ equity: Preferred stock; par value $.01 per share; 100,000 shares
authorized; none issued or outstanding at December 31, 2016 and
January 2, 2016— — Common stock, voting; par value $.01 per share; 150,000,000 shares
authorized; 48,948,670 and 51,764,309 shares issued and outstanding
at December 31, 2016 and January 2, 2016, respectively489 518 Additional paid-in capital — — Accumulated other comprehensive loss (34,740 ) (36,367 ) Retained earnings 822,375 910,900 Total stockholders’ equity 788,124 875,051 Total liabilities and stockholders’ equity $ 1,946,597 $ 2,003,654 CARTER’S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(dollars in thousands)
(unaudited)
For the fiscal years ended December 31, 2016 January 2, 2016 Cash flows from operating activities: Net income $ 258,106 $ 237,822 Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization 71,522 61,982 Amortization of tradenames 1,919 6,417 Accretion of contingent consideration — 809 Amortization of debt issuance costs 1,461 1,603 Non-cash stock-based compensation
16,847 17,029 Unrealized foreign currency exchange loss, net 33 4 Income tax benefit from stock-based compensation (4,800 ) (8,839 ) Loss on disposal of property, plant, and equipment 1,167 870 Deferred income taxes 1,294 8,657 Effect of changes in operating assets and liabilities: Accounts receivable, net 5,041 (23,837 ) Inventories (17,482 ) (34,352 ) Prepaid expenses and other assets 2,060 (3,496 ) Accounts payable and other liabilities 32,061 43,318 Net cash provided by operating activities 369,229 307,987 Cash flows from investing activities: Capital expenditures (88,556 ) (103,497 ) Proceeds from sale of property, plant, and equipment 216 72 Net cash used in investing activities (88,340 ) (103,425 ) Cash flows from financing activities: Payments of debt issuance costs — (1,628 ) Borrowings under secured revolving credit facility — 205,586 Payments on secured revolving credit facility — (205,237 ) Repurchase of common stock (300,445 ) (110,290 ) Payment of contingent consideration — (7,572 ) Dividends paid (66,355 ) (46,028 ) Income tax benefit from stock-based compensation 4,800 8,839 Withholdings of taxes from vesting of restricted stock (8,673 ) (12,651 ) Proceeds from exercise of stock options 7,166 6,976 Net cash used in financing activities (363,507 ) (162,005 ) Net effect of exchange rate changes on cash 767 (1,986 ) Net (decrease) increase in cash and cash equivalents (81,851 ) 40,571 Cash and cash equivalents, beginning of fiscal year 381,209 340,638 Cash and cash equivalents, end of fiscal year $ 299,358 $ 381,209 Contacts
Carter’s, Inc.
Sean McHugh, 678-791-7615
Vice President &
Treasurer
