News Column

Carter's Reports Second Quarter Fiscal 2014 Results

July 25, 2014



ENP Newswire - 25 July 2014

Release date- 24072014 - Carter's Inc Reports Second Quarter Fiscal 2014 Results Highlights:

Net Sales $574 Million, Up 11%

Total U.S. Direct-to-Consumer Sales: Carter's +17%, OshKosh +20%

EPS $0.48, Up 46%; Adjusted EPS $0.61, Up 33%

Company Raises Earnings Guidance For Fiscal 2014

ATLANTA - Carter's, Inc. (NYSE:CRI), the largest branded marketer in the United States of apparel exclusively for babies and young children, today reported its second quarter fiscal 2014 results.

'We exceeded our sales and earnings goals, and made good progress with our growth initiatives in the second quarter,' said Michael D. Casey, Chairman and Chief Executive Officer. 'We believe consumers are responding to the beauty and compelling value of our product offerings across all channels of distribution. We are very pleased with our first half performance and expect to achieve our sales and earnings objectives this year.'

Second Quarter of Fiscal 2014 compared to Second Quarter of Fiscal 2013

Consolidated net sales increased $56.2 million, or 10.9%, to $574.1 million. Net domestic sales of the Company's Carter's brands increased $37.6 million, or 9.5%, to $433.7 million. Net domestic sales of the Company's OshKosh B'gosh brand increased $11.4 million, or 16.9%, to $79.2 million. Net international sales increased $7.1 million, or 13.1%, to $61.2 million. Changes in foreign currency exchange rates in the second quarter of fiscal 2014 as compared to the second quarter of fiscal 2013 negatively impacted consolidated net sales in the second quarter of fiscal 2014 by $2.9 million. On a constant currency basis, consolidated net sales increased 11.4% in the second quarter.

Operating income in the second quarter of fiscal 2014 increased $14.6 million, or 44.6%, to $47.3 million, compared to $32.7 million in the second quarter of fiscal 2013.

Second quarter fiscal 2014 operating income includes expenses totaling $11.5 million related to the following: the amortization of acquired tradenames; the corporate office consolidation; the exit of retail operations in Japan; and the Hogansville, Georgia distribution center closure. Second quarter fiscal 2013 operating income included expenses totaling $12.1 million related to the following: the corporate office consolidation; the amortization of acquired tradenames; and the revaluation of the Bonnie Togs contingent consideration.

Excluding the expenses noted above in both periods, adjusted operating income in the second quarter of fiscal 2014 increased $14.0 million, or 31.1%, to $58.8 million, compared to $44.9 million in the second quarter of fiscal 2013. The increase in adjusted operating income reflects sales growth and expense leverage that were partially offset by higher product costs.

Net income in the second quarter of fiscal 2014 increased $6.2 million, or 31.6%, to $25.9 million, or $0.48 per diluted share, compared to $19.7 million, or $0.33 per diluted share, in the second quarter of fiscal 2013. Excluding the expenses noted above in both periods, adjusted net income in the second quarter of fiscal 2014 increased $5.5 million, or 19.7%, to $33.1 million, compared to $27.7 million in the second quarter of fiscal 2013. Adjusted earnings per diluted share in the second quarter of fiscal 2014 increased 32.9% to $0.61, compared to $0.46 per diluted share in the second quarter of fiscal 2013.

Business Segment Results

(Second Quarter of Fiscal 2014 compared to Second Quarter of Fiscal 2013)

Carter's Segments

Carter's retail segment sales increased $34.3 million, or 17.2%, to $233.7 million. The increase was driven by incremental sales of $19.6 million generated by new retail store openings, an eCommerce sales increase of $10.3 million, and a comparable retail stores sales increase of $4.9 million. This growth was partially offset by $0.4 million in lower sales due to retail store closings. Carter's direct-to-consumer comparable sales increased 7.7%, comprised of eCommerce comparable sales growth of 36.5% and a comparable retail stores sales increase of 2.9%.

In the second quarter of fiscal 2014, the Company opened 20 Carter's retail stores in the United States and closed two. The Company operated 509 Carter's retail stores in the United States as of June 28, 2014.

Carter's wholesale segment sales increased $3.3 million, or 1.7%, to $200.1 million.

OshKosh B'gosh Segments

OshKosh retail segment sales increased $11.1 million, or 19.7%, to $67.5 million. The increase was driven by incremental sales of $5.2 million generated by new store openings, a comparable retail stores sales increase of $3.4 million, and an eCommerce sales increase of $3.0 million. This growth was partially offset by $0.6 million in lower sales due to retail store closings. OshKosh direct-to-consumer comparable sales increased 11.6%, comprised of a comparable retail stores sales increase of 7.0% and eCommerce comparable sales growth of 43.2%.

In the second quarter of fiscal 2014, the Company opened four OshKosh retail stores in the United States and closed three. The Company operated 187 OshKosh retail stores in the United States as of June 28, 2014.

OshKosh wholesale segment sales increased $0.3 million, or 3.1%, to $11.6 million.

International Segment

International segment sales increased $7.1 million, or 13.1%, to $61.2 million, reflecting growth in the Company's wholesale, Canadian retail store, and eCommerce businesses. Changes in foreign currency exchange rates in the second quarter of fiscal 2014 as compared to the second quarter of fiscal 2013 negatively impacted international segment net sales in the second quarter of fiscal 2014 by $2.9 million. On a constant currency basis, international segment net sales increased 18.4%. The Company's former retail operations in Japan, which the Company substantially exited earlier in fiscal 2014, were not material to segment sales in the second quarter of fiscal 2014 and contributed $4.7 million to segment sales in the second quarter of fiscal 2013.

Canadian comparable retail stores sales increased 3.3%. In the second quarter of fiscal 2014, the Company opened seven retail stores in Canada. The Company operated 110 retail stores in Canada as of June 28, 2014.

First Two Quarters of Fiscal 2014 compared to First Two Quarters of Fiscal 2013

Consolidated net sales increased $116.8 million, or 10.5% to $1,225.7 million. Net domestic sales of the Company's Carter's brands increased $83.0 million, or 9.7%, to $935.7 million. Net domestic sales of the Company's OshKosh B'gosh brand increased $17.1 million, or 12.1%, to $158.3 million. Net international sales increased $16.8 million, or 14.6%, to $131.7 million. Changes in foreign currency exchange rates in the first two quarters of fiscal 2014 as compared to the first two quarters of fiscal 2013 negatively impacted consolidated net sales in the first two quarters of fiscal 2014 by $6.8 million. On a constant currency basis, consolidated net sales increased 11.2% in the first two quarters of fiscal 2014.

Operating income in the first two quarters of fiscal 2014 increased $9.2 million, or 9.2%, to $108.9 million, compared to $99.7 million in the first two quarters of fiscal 2013.

Operating income in the first two quarters of fiscal 2014 includes net expenses totaling $20.0 million related to the following: the amortization of acquired tradenames; the office consolidation; the Hogansville distribution center closure; the revaluation of the Bonnie Togs contingent consideration; and the exit of retail operations in Japan. Operating income in the first two quarters of fiscal 2013 included expenses totaling $21.6 million related to the following: the office consolidation; the revaluation of the Bonnie Togs contingent consideration; the amortization of acquired tradenames; and the Hogansville distribution center closure.

Excluding the net expenses noted above in both periods, adjusted operating income in the first two quarters of fiscal 2014 increased $7.7 million, or 6.3%, to $128.9 million, compared to $121.3 million in the first two quarters of fiscal 2013. The increase in adjusted operating income reflects the growth in sales and expense leverage that were partially offset by higher product costs.

Net income in the first two quarters of fiscal 2014 decreased $0.9 million, or 1.5%, to $60.2 million, or $1.11 per diluted share, compared to $61.1 million, or $1.02 per diluted share, in the first two quarters of fiscal 2013. Excluding the net expenses noted above in both periods, adjusted net income in the first two quarters of fiscal 2014 decreased $2.4 million, or 3.2%, to $73.0 million, compared to $75.4 million in the first two quarters of fiscal 2013. Adjusted earnings per diluted share in the first two quarters of fiscal 2014 increased 7.1% to $1.35, compared to $1.26 per diluted share in the first two quarters of fiscal 2013.

Cash flow from operations in the first two quarters of fiscal 2014 was $33.1 million compared to $69.8 million in the first two quarters of fiscal 2013. The decrease principally reflects increased working capital requirements, to include planned inventory increases, higher product costs, and the timing of inventory purchases and payments.

Business Segment Results

(First Two Quarters of Fiscal 2014 compared to First Two Quarters of Fiscal 2013)

Carter's Segments

Carter's retail segment sales increased $56.2 million, or 13.8%, to $464.0 million. The increase was driven by incremental sales of $39.5 million generated by new retail store openings and an eCommerce sales increase of $20.5 million. This growth was partially offset by a comparable retail stores sales decrease of $3.2 million and $0.6 million in lower sales due to retail store closings. Carter's direct-to-consumer comparable sales increased 4.3%, comprised of eCommerce comparable sales growth of 32.0% and a comparable retail stores sales decline of 0.9%. In the first two fiscal quarters of fiscal 2014, the Company opened 36 Carter's retail stores and closed three stores.

Carter's wholesale segment sales increased $26.8 million, or 6.0%, to $471.7 million, reflecting growth in all segment brands.

OshKosh B'gosh Segments

OshKosh retail segment sales increased $19.3 million, or 17.3%, to $131.1 million. The increase was driven by incremental sales of $9.8 million generated by new store openings, an eCommerce sales increase of $5.9 million, and a comparable retail stores sales increase of $4.8 million. This growth was partially offset by $1.1 million in lower sales due to retail store closings. OshKosh direct-to-consumer comparable sales increased 9.7%, comprised of eCommerce comparable sales growth of 36.8% and a comparable retail stores sales increase of 5.0%. In the first two fiscal quarters of fiscal 2014, the Company opened ten OshKosh retail stores and closed four stores.

OshKosh wholesale segment sales decreased $2.3 million, or 7.6%, to $27.2 million.

International Segment

International segment sales increased $16.8 million, or 14.6%, to $131.7 million, reflecting growth in the Company's wholesale, Canadian retail store, and eCommerce businesses. Changes in foreign currency exchange rates in the first two quarters of fiscal 2014 as compared to the first two quarters of fiscal 2013 negatively impacted international segment net sales in the first two quarters of fiscal 2014 by $6.8 million. On a constant currency basis, international segment net sales increased 20.5%. The Company's former retail operations in Japan contributed $4.4 million in net sales in the first two quarters of fiscal 2014, compared to $8.2 million in the first two quarters of fiscal 2013.

Canadian comparable retail store sales declined 3.2%. In the first two fiscal quarters of fiscal 2014, the Company opened nine retail stores in Canada and closed one store.

Dividends

During the second quarter of fiscal 2014, the Company paid a cash dividend of $0.19 per share totaling $10.2 million. During the first two quarters of fiscal 2014, the Company paid cash dividends totaling $20.4 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.

Share Repurchase Activity

During the second quarter of fiscal 2014, the Company repurchased and retired 477,551 shares of its common stock for $34.4 million at an average price of $72.10 per share in open market transactions. During the first two quarters of fiscal 2014, the Company repurchased and retired 499,151 shares for $36.1 million at an average price of $72.28 per share in open market transactions. Year-to-date through July 23, 2014, the Company repurchased and retired a total of 711,599 shares for $50.8 million at an average price of $71.35 per share in the open market.

As of July 23, 2014, the total remaining capacity under the Company's previously-announced repurchase authorizations was $216 million.

2014 Business Outlook

In the third quarter of fiscal 2014, the Company projects net sales to increase approximately 4% to 6% over the third quarter of fiscal 2013 and adjusted diluted earnings per share to increase approximately 7% to 10% compared to adjusted diluted earnings per share of $1.12 in the third quarter of fiscal 2013. This forecast for third quarter fiscal 2014 adjusted earnings per share excludes the following anticipated expenses: approximately $2 million related to the amortization of the acquired tradenames; approximately $0.5 million related to the corporate office consolidation; approximately $0.3 million related to the revaluation of the Bonnie Togs contingent consideration; and approximately $0.3 million related to exit costs associated with retail operations in Japan.

In fiscal 2014, the Company projects net sales to increase approximately 8% to 10% over fiscal 2013 and adjusted diluted earnings per share to increase approximately 14% to 16%, up from the Company's prior growth estimate of approximately 12% to 15%, compared to adjusted diluted earnings per share of $3.37 in fiscal 2013. This forecast for fiscal 2014 adjusted earnings per share excludes the following anticipated expenses: approximately $16 million related to the amortization of the acquired tradenames; approximately $7 million related to the corporate office consolidation; approximately $1 million related to the revaluation of the Bonnie Togs contingent consideration; and approximately $1 million related to net exit costs associated with retail operations in Japan.

Conference Call

The Company will hold a conference call with investors to discuss second quarter fiscal 2014 results and its business outlook on July 24, 2014 at 8:30 a.m. Eastern Time. To participate in the call, please dial 913-312-0658. To listen to a live broadcast of the call on the internet, please log on to www.carters.com and select the 'Second Quarter 2014 Earnings Conference Call' link under the 'Investor Relations' tab. Presentation materials for the call can be accessed under the same 'Investor Relations' tab by selecting the 'Webcasts & Presentations' link under the 'News & Events' tab. A replay of the call will be available shortly after the broadcast through August 2, 2014, at 888-203-1112 (U.S. / Canada) or 719-457-0820 (international), passcode 6995638. The replay will also be archived on the Company's website.

About Carter's, Inc.

Carter's, Inc. is the largest branded marketer in the United States 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 800 Company-operated stores in the United States and Canada and on-line at www.carters.com and www.oshkoshbgosh.com. 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 third quarter of fiscal 2014 and fiscal year 2014, or any other future period, assessment 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 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 the risks of: losing one or more major customers or vendors or financial difficulties for one or more of our major customers or vendors; the Company's products not being accepted in the marketplace; changes in consumer preference and fashion trends; negative publicity; the Company failing to protect its intellectual property; the breach of the Company's consumer databases, systems or processes; incurring costs in connection with cooperating with regulatory investigations and proceedings; increased leverage, not being able to repay its indebtedness and being subject to restrictions on operations by the Company's debt agreements; increased production costs; deflationary pricing pressures; decreases in the overall level of consumer spending; disruptions resulting from the Company's dependence on foreign supply sources; the Company's foreign supply sources not meeting the Company's quality standards or regulatory requirements; disruptions in the Company's supply chain, including distribution centers or in-sourcing capabilities or otherwise, and the risk of slow-downs, disruptions or strikes in the event that a new agreement between the port through which we source substantially all of our products and International Longshore and Warehouse Union is not reached in a timely manner; the loss of the Company's principal product sourcing agent; increased competition in the baby and young children's apparel market; the Company being unable to identify new retail store locations or negotiate appropriate lease terms for the retail stores; the Company not adequately forecasting demand, which could, among other things, create significant levels of excess inventory; failure to achieve sales growth plans, cost savings, and other assumptions that support the carrying value of the Company's intangible assets; not attracting and retaining key individuals within the organization; failure to implement needed upgrades to the Company's information technology systems; disruptions resulting from the Company's transition of distribution functions to its new Braselton facility and not achieving planned efficiencies; being unsuccessful in expanding into international markets and failing to successfully manage legal, regulatory, political and economic risks of international operations, including maintaining compliance with worldwide anti-bribery laws; incurring substantial costs as a result of various claims or pending or threatened lawsuits; and the failure to declare future quarterly dividends. Many of these risks are further described in the most recently filed Quarterly Report on Form 10-Q and other reports filed with the Securities and Exchange Commission under the headings 'Risk Factors' and '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.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

: See Full Press Release at:

http://ir.carters.com/phoenix.zhtml?c=135392&p=irol-newsArticle&ID=1950733&highlight=


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Source: ENP Newswire


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