Carter’s, Inc. Reports Third Quarter Fiscal 2015 Results

  • Net Sales $850 Million, Up 6%
  • Operating Profit $130 Million, Up 18%; Adjusted Operating Profit
    $131 Million, Up 16%
  • Diluted EPS $1.51, Up 22%; Adjusted Diluted EPS $1.52, Up 20%
  • Company Reaffirms Fiscal 2015 Adjusted Diluted EPS Growth Outlook
    of 13% – 15%

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 third quarter fiscal 2015 results.

“We continued to outperform the market, with good growth in sales and
earnings in the third quarter,” said Michael D. Casey, Chairman and
Chief Executive Officer. “The strength of our brands, broad market
distribution, and expense discipline enabled us to achieve our profit
objectives and mitigate the effects of foreign currency fluctuations.
Given the progress with our growth initiatives this year and current
business trends, we are reaffirming our profit objectives for fiscal
2015.”

Consolidated Results

Third Quarter of Fiscal 2015 compared to Third Quarter of Fiscal 2014
Net
sales increased $50.9 million, or 6.4%, to $849.8 million, principally
driven by growth in the Company’s Carter’s wholesale and U.S. Carter’s
and OshKosh direct-to-consumer (“DTC”) businesses. Changes in
foreign currency exchange rates in the third quarter of fiscal 2015 as
compared to the third quarter of fiscal 2014 negatively impacted
consolidated net sales in the third quarter of fiscal 2015 by $12.7
million, or 1.6%. On a constant currency basis, consolidated net sales
increased 8.0% in the third quarter of fiscal 2015.

Operating income in the third quarter of fiscal 2015 increased $19.8
million, or 17.9%, to $130.2 million, compared to $110.5 million in the
third quarter of fiscal 2014. Operating margin in the third quarter of
fiscal 2015 increased 150 basis points to 15.3%, compared to 13.8% in
the third quarter of fiscal 2014. Adjusted operating income (a non-GAAP
measure) in the third quarter of fiscal 2015 increased $17.7 million, or
15.6%, to $131.2 million, compared to $113.4 million in the third
quarter of fiscal 2014. Adjusted operating margin (a non-GAAP measure)
in the third quarter of fiscal 2015 increased 120 basis points to 15.4%,
compared to 14.2% in the third quarter of fiscal 2014, principally
driven by improved gross margin and expense leverage.

Net income in the third quarter of fiscal 2015 increased $13.4 million,
or 20.4%, to $79.3 million, or $1.51 per diluted share, compared to
$65.9 million, or $1.23 per diluted share, in the third quarter of
fiscal 2014. Adjusted net income (a non-GAAP measure) in the third
quarter of fiscal 2015 increased $12.0 million, or 17.7%, to $79.9
million, compared to $67.9 million in the third quarter of fiscal 2014.
Adjusted earnings per diluted share (a non-GAAP measure) in the third
quarter of fiscal 2015 increased 19.5% to $1.52, compared to $1.27 in
the third quarter of fiscal 2014.

First Three Quarters of Fiscal 2015 compared to First Three Quarters
of Fiscal 2014

Net sales increased $122.7 million, or 6.1%, to
$2.1 billion, principally driven by growth in the Company’s U.S. Carter’s
and OshKosh DTC and Carter’s wholesale businesses. Changes
in foreign currency exchange rates in the first three quarters of fiscal
2015 as compared to the first three quarters of fiscal 2014 negatively
impacted consolidated net sales in the first three quarters of fiscal
2015 by $23.9 million, or 1.2%. On a constant currency basis,
consolidated net sales increased 7.2% in the first three quarters of
fiscal 2015.

Operating income in the first three quarters of fiscal 2015 increased
$57.3 million, or 26.1%, to $276.7 million, compared to $219.3 million
in the first three quarters of fiscal 2014. Operating margin in the
first three quarters of fiscal 2015 increased 210 basis points to 12.9%,
compared to 10.8% in the first three quarters of fiscal 2014. Adjusted
operating income in the first three quarters of fiscal 2015 increased
$41.5 million, or 17.1%, to $283.9 million, compared to $242.4 million
in the first three quarters of fiscal 2014. Adjusted operating margin in
the first three quarters of fiscal 2015 increased 120 basis points to
13.2%, compared to 12.0% in the first three quarters of fiscal 2014,
reflecting improved gross margin and expense leverage.

Net income in the first three quarters of fiscal 2015 increased $39.1
million, or 31.0%, to $165.2 million, or $3.12 per diluted share,
compared to $126.1 million, or $2.34 per diluted share, in the first
three quarters of fiscal 2014. Adjusted net income in the first three
quarters of fiscal 2015 increased $29.5 million, or 21.0%, to $170.4
million, compared to $140.9 million in the first three quarters of
fiscal 2014. Adjusted earnings per diluted share in the first three
quarters of fiscal 2015 increased 23.3% to $3.22, compared to $2.61 in
the first three quarters of fiscal 2014.

Cash flow from operations in the first three quarters of fiscal 2015 was
$146.0 million compared to $24.9 million in the first three quarters of
fiscal 2014. The increase reflects higher earnings and favorable
movements 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.

Note on Net Sales vs. Comparable Sales (52 vs. 53 Week Calendars)

The Company’s fiscal 2015 results will include 52 weeks compared to 53
weeks in fiscal 2014 (a 13 week fourth quarter in 2015 versus a 14 week
fourth quarter in 2014). This change in weeks will impact the
comparability of results for the fourth quarter and fiscal year 2015
compared to fiscal 2014. In the following segment discussions the net
sales amounts and related comparisons are based on the Company’s
reported fiscal 2015 and 2014 calendars. However, DTC, retail store, and
eCommerce comparable sales are based on adjusted 2014 periods that have
been aligned to the corresponding 13 and 39 week periods in fiscal 2015.

Carter’s Retail Segment Results

Third Quarter of Fiscal 2015 compared to Third Quarter of Fiscal 2014
Carter’s
retail segment sales increased $13.5 million, or 4.8%, to $294.9
million. Carter’s DTC comparable sales decreased 3.2%, comprised
of a retail stores comparable sales decline of 5.6%, partially offset by
eCommerce comparable sales growth of 6.2%. During the third quarter of
fiscal 2015, the Company believes, based on analysis of credit card
transactions and other data, that Carter’s DTC comparable sales
were negatively impacted by lower demand from international tourists
shopping in its U.S. stores and websites, driven by the strength of the
U.S. dollar.

In the third quarter of fiscal 2015, the Company opened 15 Carter’s
retail stores in the United States. The Company operated 577 Carter’s
retail stores in the United States as of October 3, 2015.

First Three Quarters of Fiscal 2015 compared to First Three Quarters
of Fiscal 2014

Carter’s retail segment sales increased
$54.2 million, or 7.3%, to $799.6 million. Carter’s DTC
comparable sales decreased 0.7%, comprised of a retail stores comparable
sales decline of 3.7%, partially offset by eCommerce comparable sales
growth of 12.0%. During the first three quarters of fiscal 2015, the
Company believes that Carter’s DTC comparable sales were
negatively impacted by lower demand from international tourists shopping
in its U.S. stores and websites, driven by the strength of the U.S.
dollar.

In the first three quarters of fiscal 2015, the Company opened 48 Carter’s
retail stores in the United States and closed two stores.

Carter’s Wholesale Segment Results

Third Quarter of Fiscal 2015 compared to Third Quarter of Fiscal 2014
Carter’s
wholesale segment sales increased $33.8 million, or 10.9%, to $343.6
million, reflecting increased product demand, in part due to timing, and
a new playwear initiative.

First Three Quarters of Fiscal 2015 compared to First Three Quarters
of Fiscal 2014

Carter’s wholesale segment sales
increased $43.1 million, or 5.5%, to $824.6 million, reflecting
increased product demand, in part due to timing, and a new playwear
initiative.

OshKosh Retail Segment Results

Third Quarter of Fiscal 2015 compared to Third Quarter of Fiscal 2014
OshKosh
retail segment sales increased $6.9 million, or 7.5%, to $98.3 million. OshKosh
DTC comparable sales decreased 2.0%, comprised of a retail stores
comparable sales decline of 5.4%, partially offset by eCommerce
comparable sales growth of 14.1%. During the third quarter of fiscal
2015, the Company believes that OshKosh DTC comparable sales were
negatively impacted by lower demand from international tourists shopping
in its U.S. stores and websites, driven by the strength of the U.S.
dollar.

In the third quarter of fiscal 2015, the Company opened 12 OshKosh
retail stores in the United States and closed one store. The Company
operated 232 OshKosh retail stores in the United States as of
October 3, 2015.

First Three Quarters of Fiscal 2015 compared to First Three Quarters
of Fiscal 2014

OshKosh retail segment sales increased
$22.3 million, or 10.0%, to $244.8 million. OshKosh DTC
comparable sales increased 1.7%, comprised of eCommerce comparable sales
growth of 21.9%, partially offset by a retail stores comparable sales
decline of 2.6%. During the first three quarters of fiscal 2015, the
Company believes that OshKosh DTC comparable sales were
negatively impacted by lower demand from international tourists shopping
in its U.S. stores and websites, driven by the strength of the U.S.
dollar.

In the first three quarters of fiscal 2015, the Company opened 36 OshKosh
retail stores in the United States and closed four stores.

OshKosh Wholesale Segment Results

Third Quarter of Fiscal 2015 compared to Third Quarter of Fiscal 2014
OshKosh
wholesale segment sales decreased $6.3 million, or 25.1%, to $18.8
million, reflecting lower seasonal bookings and a decline in sales to
the off-price channel.

First Three Quarters of Fiscal 2015 compared to First Three Quarters
of Fiscal 2014

OshKosh wholesale segment sales decreased
$3.2 million, or 6.1%, to $49.2 million, reflecting a decline in sales
to the off-price channel and lower seasonal bookings.

International Segment Results

Third Quarter of Fiscal 2015 compared to Third Quarter of Fiscal 2014
International
segment sales increased $3.1 million, or 3.4%, to $94.2 million, driven
by growth in the Company’s DTC business in Canada and new eCommerce
sales in China. This growth was partially offset by unfavorable foreign
currency exchange rates and the impact of the Target Canada bankruptcy
in early 2015.

Changes in foreign currency exchange rates in the third quarter of
fiscal 2015 as compared to the third quarter of fiscal 2014 negatively
impacted international segment net sales in the third quarter of fiscal
2015 by $12.7 million, or 14.0%. On a constant currency basis,
international segment net sales increased 17.3%.

Canadian comparable retail stores sales increased 4.8%. In the third
quarter of fiscal 2015, the Company opened 7 retail stores in Canada.
The Company operated 140 retail stores in Canada as of October 3, 2015.

First Three Quarters of Fiscal 2015 compared to First Three Quarters
of Fiscal 2014

International segment sales increased $6.3
million, or 2.8%, to $229.2 million. This increase reflects growth in
the Company’s DTC business in Canada, increased wholesale demand in
other international markets, and new eCommerce sales in China. This
growth was partially offset by unfavorable foreign currency exchange
rates, the impact of the Target Canada bankruptcy in early 2015, and the
Company’s exit of retail operations in Japan in fiscal 2014. The
Company’s former retail operations in Japan contributed $4.4 million to
segment sales in the first three quarters of fiscal 2014.

Changes in foreign currency exchange rates in the first three quarters
of fiscal 2015 as compared to the first three quarters of fiscal 2014
negatively impacted international segment net sales in the first three
quarters of fiscal 2015 by $23.9 million, or 10.7%. On a constant
currency basis, international segment net sales increased 13.5%.

Canadian comparable retail stores sales increased 3.9% in the first
three quarters of fiscal 2015. In the first three quarters of fiscal
2015, the Company opened 16 retail stores in Canada.

Return of Capital

During the third quarter of fiscal 2015, the Company paid a cash
dividend of $0.22 per share totaling $11.5 million. The Company paid
cash dividends totaling $34.6 million in the first three quarters of
fiscal 2015. 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.

During the third quarter of fiscal 2015, the Company repurchased and
retired 290,800 shares of its common stock for $29.4 million at an
average price of $101.26 per share. In the first three quarters of
fiscal 2015, the Company repurchased and retired 795,025 shares for
$78.3 million at an average price of $98.54 per share. Year-to-date
through October 28, 2015, the Company repurchased and retired a total of
908,188 shares for $88.5 million at an average price of $97.49 per
share. All shares were repurchased in open market transactions pursuant
to applicable regulations for such transactions. As of October 28, 2015,
the total remaining capacity under the Company’s previously-announced
repurchase authorizations was $97 million.

In the first three quarters of fiscal 2015, the Company returned a total
of $113.0 million to shareholders through dividends and share
repurchases.

2015 Business Outlook

As noted above, the Companys fiscal 2015 results will include 52
weeks, compared to 53 weeks in fiscal 2014. The Companys fourth
quarter fiscal 2015 results will include 13 weeks, compared to 14 weeks
in the fourth quarter of fiscal 2014. The Company estimates that the
additional week in fiscal 2014 contributed approximately $44.1 million
in consolidated net sales and approximately $0.05 in adjusted diluted
earnings per share.

For the fourth quarter of fiscal 2015, the Company projects net sales to
decline approximately 2% compared to the fourth quarter of fiscal 2014
and adjusted diluted earnings per share in the range of $1.22 to $1.30
compared to adjusted diluted earnings per share of $1.32 in the fourth
quarter of fiscal 2014. The adjusted diluted earnings per share forecast
excludes anticipated expenses of approximately $1 million related to the
amortization of acquired tradenames and other items the Company believes
to be non-representative of underlying business performance.

For fiscal 2015, the Company projects net sales to increase
approximately 4% over fiscal 2014 and adjusted diluted earnings per
share to increase approximately 13% to 15% compared to adjusted diluted
earnings per share of $3.93 in fiscal 2014. This forecast for fiscal
2015 adjusted diluted earnings per share excludes anticipated expenses
of approximately $6 million related to the amortization of acquired
tradenames, approximately $2 million related to the revaluation of the
Bonnie Togs contingent consideration, and other items the Company
believes to be non-representative of underlying business performance.

Conference Call

The Company will hold a conference call with investors to discuss third
quarter fiscal 2015 results and its business outlook on October 29, 2015
at 8:30 a.m. Eastern Daylight Time. To participate in the call, please
dial 913-312-6677. To listen via the internet, please visit www.carters.com
and select links for “Investor Relations” followed by “Third Quarter
2015 Earnings Conference Call”. Presentation materials for the call can
be accessed under the same “Investor Relations” section by selecting
links for “News & Events” followed by “Webcasts & Presentations”. A
replay of the call will be available shortly after the broadcast through
November 6, 2015, at 888-203-1112 (U.S. / Canada) or 719-457-0820
(international), passcode 585850. 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 more than 900 Company-operated stores in the United States and
Canada and on-line 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 our future performance,
including, without limitation, statements with respect to our
anticipated financial results for the fourth quarter of fiscal 2015 and
fiscal year 2015, or any other future period, assessment of our
performance and financial position, and drivers of our 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 our
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 our products, or otherwise; financial
difficulties for one or more of our 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; negative
publicity, including as a result of product recalls or otherwise;
failing to protect our intellectual property; a breach of our consumer
databases, systems or processes; the risk of slow-downs, disruptions or
strikes along our supply chain, including disruptions resulting from
foreign supply sources, our distribution centers or in-sourcing
capabilities; and unsuccessful expansion into international markets or
failure to successfully manage legal, regulatory, political and economic
risks of our existing international operations, including maintaining
compliance with worldwide anti-bribery laws. We undertake 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.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS

(dollars in thousands, except for share data)
(unaudited)

 
 
      Fiscal quarter ended     Three fiscal quarters ended

October 3,

2015

   

September 27,

2014

October 3,

2015

   

September 27,

2014

Net sales $ 849,806 $ 798,936 $ 2,147,335 $ 2,024,645
Cost of goods sold 502,267   477,730   1,252,849   1,196,237  
Gross profit 347,539 321,206 894,486 828,408
Selling, general, and administrative expenses 230,017 221,939 650,496 638,349
Royalty income (12,699 ) (11,190 ) (32,688 ) (29,276 )
Operating income 130,221 110,457 276,678 219,335
Interest expense 6,907 6,843 20,534 20,623
Interest income (91 ) (45 ) (385 ) (317 )
Other (income) expense, net (622 ) 1,311   (560 ) 1,718  
Income before income taxes 124,027 102,348 257,089 197,311
Provision for income taxes 44,701   36,462   91,866   71,232  
Net income $ 79,326   $ 65,886   $ 165,223   $ 126,079  
 
Basic net income per common share $ 1.52 $ 1.24 $ 3.15 $ 2.36
Diluted net income per common share $ 1.51 $ 1.23 $ 3.12 $ 2.34
Dividend declared and paid per common share $ 0.22 $ 0.19 $ 0.66 $ 0.57
 
 
 
 
 
 

CARTER’S, INC.
BUSINESS SEGMENT RESULTS
(dollars
in thousands)
(unaudited)

 
    Fiscal quarter ended     Three fiscal quarters ended
October 3,
2015
 

% of
Total Net

Sales

 

September

27,

2014

 

% of
Total Net

Sales

October 3,
2015
 

% of
Total Net

Sales

 

September

27,

2014

 

% of
Total Net

Sales

Net sales:
Carter’s Wholesale $ 343,555 40.4 % $ 309,772 38.8 % $ 824,600 38.4 % $ 781,460 38.6 %
Carter’s Retail (a) 294,928   34.7 % 281,455   35.2 % 799,635   37.2 % 745,473   36.8 %
Total Carter’s 638,483   75.1 % 591,227   74.0 % 1,624,235   75.6 % 1,526,933   75.4 %
OshKosh Retail (a) 98,292 11.6 % 91,427 11.4 % 244,787 11.4 % 222,500 11.0 %
OshKosh Wholesale 18,794   2.2 % 25,107   3.1 % 49,151   2.3 % 52,342   2.6 %
Total OshKosh 117,086   13.8 % 116,534   14.5 % 293,938   13.7 % 274,842   13.6 %
International (b) 94,237   11.1 % 91,175   11.5 % 229,162   10.7 % 222,870   11.0 %
Total net sales $ 849,806   100.0 % $ 798,936   100.0 % $ 2,147,335   100.0 % $ 2,024,645   100.0 %
 
Operating income: % of
Segment
Net Sales
% of
Segment
Net Sales
% of
Segment
Net Sales
% of
Segment
Net Sales
Carter’s Wholesale $ 74,347 21.6 % $ 55,762 18.0 % $ 172,485 20.9 % $ 133,489 17.1 %
Carter’s Retail (a) 51,733   17.5 % 54,501   19.4 % 134,557   16.8 % 137,659   18.5 %
Total Carter’s 126,080   19.7 % 110,263   18.6 % 307,042   18.9 % 271,148   17.8 %
OshKosh Retail (a) 6,171 6.3 % 5,300 5.8 % 3,396 1.4 % (883 ) (0.4 )%
OshKosh Wholesale 4,487   23.9 % 2,240   8.9 % 9,715   19.8 % 5,125   9.8 %
Total OshKosh 10,658   9.1 % 7,540   6.5 % 13,111   4.5 % 4,242   1.5 %

International (b)(c)

18,220   19.3 % 15,896   17.4 % 30,967   13.5 % 27,039   12.1 %

Corporate expenses (d)(e)

(24,737 ) (23,242 ) (74,442 ) (83,094 )
Total operating income $ 130,221   15.3 % $ 110,457   13.8 % $ 276,678   12.9 % $ 219,335   10.8 %
 

(a) Includes eCommerce results.

(b) Net sales includes international retail, eCommerce, and
wholesale sales. Operating income includes international licensing
income.

(c) Includes charges associated with the revaluation of the Companys
contingent consideration related to the Companys 2011
acquisition of Bonnie Togs of approximately $1.9 million for the
three-fiscal-quarter period ended October 3, 2015, and $0.4
million and $0.9 million for the fiscal quarter and the
three-fiscal-quarter period ended September 27, 2014,
respectively. Also includes expenses of approximately $0.5 million
for the three quarters of fiscal 2014, related to the Company’s
exit from Japan retail operations.

(d) Corporate expenses include expenses related to incentive
compensation, stock-based compensation, executive management,
severance and relocation, finance, building occupancy, information
technology, legal, consulting and audit fees.

(e) Includes the following charges:

 
    Fiscal quarter ended     Three fiscal quarters ended
(dollars in millions) October 3,
2015
  September 27,
2014
October 3,
2015
  September 27,
2014
Closure of distribution facility in Hogansville, GA (1) $ $ 0.2 $ $ 0.9
Office consolidation costs $ $ $ $ 6.6
Amortization of tradenames $ 1.0 $ 2.3 $ 5.4 $ 14.2
 

(1) Continuing operating costs associated with the closure of the
Company’s distribution facility in Hogansville, Georgia. This
facility was sold in December 2014.

Contacts

Carter’s, Inc.
Sean McHugh, 678-791-7615
Vice President &
Treasurer

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