CRI Carters Inc

• Net sales $792 million vs. $819 million in Q3 2022
• Operating margin 11.8% vs. 11.2% in Q3 2022; adjusted operating margin 12.2% vs. 11.2% in Q3 2022
• Diluted EPS $1.78 vs. $1.67 in Q3 2022; adjusted diluted EPS $1.84 vs. $1.67 in Q3 2022
• Year-to-date operating cash flow $206 million
• $152 million returned to shareholders year-to-date through share repurchases and dividends
• Full year fiscal 2023 outlook1:
  • Net sales of $2.950 billion to $2.965 billion
  • Adjusted operating income of $325 million to $335 million
  • Adjusted diluted EPS of $5.95 to $6.15
  • Operating cash flow of over $350 million

Carter’s, Inc. (NYSE:CRI), the largest branded marketer in North America of apparel exclusively for babies and young children, today reported its third quarter fiscal 2023 results.

“We achieved our sales and earnings objectives in the third quarter,” said Michael D. Casey, Chairman and Chief Executive Officer.

“In our U.S. Wholesale segment, demand for our fall and holiday product offerings was higher than planned. Our wholesale customers entered this year leaner on inventories and they planned consumer demand cautiously for 2023. For the fourth consecutive quarter, we saw higher than planned wholesale demand for our brands which provides fresh product offerings for consumers and better sell-throughs for our wholesale customers.

“In our U.S. Retail segment, our sales trend began to slow in September due largely, we believe, to unseasonably warm weather. This September was the warmest on record, and the higher temperatures weighed on demand for cooler weather product offerings in our stores and online.

“Sales in our International segment were also affected in the latter part of September due to unseasonably warm weather that weighed on demand for cool-weather apparel in Canada.

“Warmer weather continued to weigh on the demand for our brands in the early weeks of the fourth quarter. Where weather is cooler, sales trends have improved. With colder weather on the way, we expect sales trends will improve in the weeks ahead.

“We continued to make good progress reducing our inventories that grew following the historic peak in inflation and related slow-down in consumer demand that began in the first half last year. Inventories at the end of September this year were down over 30% and are expected to be lower in the balance of the year.

“Our progress reducing inventories has significantly improved our free cash flow this year and supported the continued return of excess capital to our shareholders.

“Year-over-year comparability has been distorted in recent years by pandemic-related disruptions, unprecedented government stimulus and historic inflation. Our second half forecasts this year reflect a meaningful improvement in the trend in our sales and earnings relative to last year and the first half of this year.

“We believe this planned improvement reflects the strength of our product offerings, on-time deliveries from Asia, lower product and ocean freight costs and the right-sizing of inventories enabling better sell-throughs and price realization.

“Inflation, generational high interest rates, and the suspension of pandemic-related stimulus payments to child-care centers have weighed on families with young children and their demand for our brands. Thankfully, birth trends in the United States have stabilized after a 14-year decline that began with the Great Recession. With a near 40-year high in weddings last year, continued strength in the labor market, and moderation in inflation, we believe market conditions will improve.

“Carter’s is the best-selling brand in young children’s apparel. We believe our unparalleled market distribution capabilities, and brand reputation for quality and value, will enable Carter’s to continue leading the market and be well-positioned to gain market share in the years ahead.”

_________________

1 Refer to “Business Outlook” section of this release for additional information regarding reconciliations of forward-looking non-GAAP financial measures.

Adjustments to Reported GAAP Results

In addition to the results presented in this earnings release in accordance with GAAP, the Company has provided adjusted, non-GAAP financial measurements, as presented below. The Company believes these non-GAAP financial measurements provide a meaningful comparison of the Company’s results and afford investors a view of what management considers to be the Company’s underlying performance. These measurements are presented for informational purposes only. See “Reconciliation of Adjusted Results to GAAP” section of this release for additional disclosures and reconciliations regarding these non-GAAP financial measures.

Adjustments made to the third quarter and first three quarters of fiscal 2023 results reflect costs related to organizational restructuring. In the first three quarters of fiscal 2022, a pre-tax adjustment of approximately $19.9 million ($15.2 million net of tax, or $0.38 per diluted share) was made related to a loss on early extinguishment of debt.

 

Third Fiscal Quarter

 

2023

 

 

2022

(In millions, except earnings per share)

Operating Income

 

% Net Sales

 

Net Income

 

Diluted EPS

 

 

Operating Income

 

% Net Sales

 

Net Income

 

Diluted EPS

As reported (GAAP)

$

93.4

 

11.8

%

 

$

66.1

 

$

1.78

 

 

$

91.6

 

11.2

%

 

$

65.0

 

$

1.67

Organizational restructuring

 

2.9

 

 

 

 

2.2

 

 

0.06

 

 

 

—

 

 

 

 

—

 

 

—

As adjusted

$

96.3

 

12.2

%

 

$

68.4

 

$

1.84

 

 

$

91.6

 

11.2

%

 

$

65.0

 

$

1.67

 

First Three Fiscal Quarters

 

2023

 

 

2022

(In millions, except earnings per share)

Operating Income

 

% Net Sales

 

Net Income

 

Diluted EPS

 

 

Operating Income

 

% Net Sales

 

Net Income

 

Diluted EPS

As reported (GAAP)

$

187.3

 

9.0

%

 

$

126.0

 

$

3.36

 

 

$

269.6

 

11.7

%

 

$

169.9

 

$

4.26

Organizational restructuring

 

4.4

 

 

 

 

3.4

 

 

0.09

 

 

 

—

 

 

 

 

—

 

 

—

Loss on extinguishment of debt

 

—

 

 

 

 

—

 

 

—

 

 

 

—

 

 

 

 

15.2

 

 

0.38

As adjusted

$

191.8

 

9.2

%

 

$

129.4

 

$

3.45

 

 

$

269.6

 

11.7

%

 

$

185.0

 

$

4.64

Note: Results may not be additive due to rounding.

Consolidated Results

The discussion of results below is presented on an adjusted (non-GAAP) basis where noted.

Third Quarter of Fiscal 2023 compared to Third Quarter of Fiscal 2022

Net sales decreased $27.0 million, or 3.3%, to $791.7 million, compared to $818.6 million in the third quarter of fiscal 2022. Macroeconomic factors, including inflation, higher interest rates, higher consumer debt levels, and risk of recession negatively affected demand from consumers and wholesale customers. Unseasonably warm weather began to adversely affect demand for our fall and holiday product offerings in September. Our third quarter 2023 performance reflected declines in U.S. Retail and International segment net sales, partially offset by growth in U.S. Wholesale. U.S. Retail and International segment net sales declined 8.2% and 4.5%, respectively. U.S. Wholesale net sales grew 4.1%. U.S. Retail comparable net sales declined 9.9%. Changes in foreign currency exchange rates in the third quarter of fiscal 2023, as compared to the third quarter of fiscal 2022, had a favorable effect on consolidated net sales of approximately $1.2 million, or 0.1%. The decline in third quarter sales of 3.3% reflects an improvement in trend in the business and compares to a 12.5% decline in net sales in the first half of fiscal 2023.

Operating income increased $1.8 million, or 2.0% to $93.4 million, compared to $91.6 million in the third quarter of fiscal 2022. Operating margin increased to 11.8%, compared to 11.2% in the prior-year period, reflecting favorable ocean freight rates, lower inventory provisions, and decreased distribution and freight costs, partially offset by fixed cost deleverage on lower sales, higher performance-based compensation provisions, and increased professional fees. The growth in third quarter operating income of 2.0% reflects an improvement in trend in the business and compares to a 47.3% decline in operating income in the first half of fiscal 2023.

Adjusted operating income (a non-GAAP measure) increased $4.7 million, or 5.2% to $96.3 million, compared to $91.6 million in the third quarter of fiscal 2022. Adjusted operating margin increased to 12.2%, compared to 11.2% in the prior year period, principally due to the factors noted above. The growth in third quarter adjusted operating income of 5.2% reflects an improvement in trend in the business and compares to a 46.4% decline in adjusted operating income in the first half of fiscal 2023.

Net income was $66.1 million, or $1.78 per diluted share, compared to $65.0 million, or $1.67 per diluted share, in the third quarter of fiscal 2022.

Adjusted net income (a non-GAAP measure) was $68.4 million, compared to $65.0 million in the third quarter of fiscal 2022. Adjusted earnings per diluted share (a non-GAAP measure) was $1.84, compared to $1.67 in the prior-year quarter.

First Three Quarters of Fiscal 2023 compared to First Three Quarters of Fiscal 2022

Net sales decreased $212.9 million, or 9.3%, to $2.09 billion, compared to $2.30 billion in the first three quarters of fiscal 2022. Macroeconomic factors, as noted in the discussion of third quarter results above, negatively affected demand from consumers and wholesale customers. U.S. Retail, U.S. Wholesale, and International net sales declined 11.4%, 6.4%, and 8.7%, respectively. U.S. Retail comparable net sales declined 12.8%. Changes in foreign currency exchange rates in the first three quarters of fiscal 2023, as compared to the first three quarters of fiscal 2022, had an unfavorable effect on consolidated net sales of approximately $2.2 million, or 0.1%.

Operating income decreased $82.3 million, or 30.5% to $187.3 million, compared to $269.6 million in the first three quarters of fiscal 2022. Operating margin declined to 9.0%, compared to 11.7% in the prior year period, reflecting fixed cost deleverage on lower sales, higher performance-based compensation provisions, and increased professional fees, partially offset by lower inventory provisions, favorable ocean freight rates, and lower air freight costs.

Adjusted operating income (a non-GAAP measure) decreased $77.8 million, or 28.9% to $191.8 million, compared to $269.6 million in the first three quarters of fiscal 2022. Adjusted operating margin declined to 9.2%, compared to 11.7% in the prior year period, principally due to the factors noted above.

Net income was $126.0 million, or $3.36 per diluted share, compared to $169.9 million, or $4.26 per diluted share, in the first three quarters of fiscal 2022.

Adjusted net income (a non-GAAP measure) was $129.4 million, compared to $185.0 million in the first three quarters of fiscal 2022. Adjusted earnings per diluted share (a non-GAAP measure) was $3.45, compared to adjusted earnings per diluted share of $4.64 in the first three quarters of fiscal 2022.

Net cash provided by operations in the first three quarters of fiscal 2023 was $205.8 million, compared to net cash used in operations of $217.5 million in the first three quarters of fiscal 2022. The improved operating cash flow principally reflected favorable changes in working capital, primarily lower inventories.

See the “Business Segment Results” and “Reconciliation of GAAP to Adjusted Results” sections of this release for additional disclosures regarding business segment performance and non-GAAP measures.

Organizational Restructuring and Corporate Office Lease Amendment

Since the global pandemic, the Company has undertaken several organizational restructurings which have collectively reduced corporate offices headcount by approximately 15%. Actions taken in the first three quarters of fiscal 2023 resulted in a pre-tax charge of $6.2 million related to severance and other termination benefits and are expected to yield ongoing savings of approximately $18 million on an annualized basis.

During the first quarter of fiscal 2023, the Company executed an amendment to the lease of its corporate headquarters in Atlanta, Georgia. As a result of the related reduction in leased office space, the Company recorded a net gain of approximately $1.8 million related to the partial termination of the lease in the first quarter of fiscal 2023. This action is expected to result in approximately $1 million in annualized savings.

Liquidity and Financial Position

The Company’s total liquidity at the end of the third quarter of fiscal 2023 was $945 million, comprised of cash and cash equivalents of $169 million and $776 million in unused borrowing capacity on the Company’s $850 million secured revolving credit facility.

Return of Capital

In the third quarter and first three quarters of fiscal 2023, the Company returned to shareholders a total of $55.4 million and $152.0 million, respectively, through share repurchases and cash dividends as described below.

• Share repurchases: During the third quarter of fiscal 2023, the Company repurchased and retired approximately 0.4 million shares of its common stock for $27.6 million at an average price of $70.69 per share. In the first three quarters of fiscal 2023, the Company repurchased and retired approximately 1.0 million shares of its common stock for $67.5 million at an average price of $69.20 per share. Fiscal year-to-date through October 26, 2023, the Company has repurchased and retired approximately 1.2 million shares for $79.4 million at an average price of $68.82 per share. All shares were repurchased in open market transactions pursuant to applicable regulations for such transactions. As of October 26, 2023, the total remaining capacity under the Company’s previously announced repurchase authorizations was approximately $670 million.
• Dividends: In the third quarter of fiscal 2023, the Company paid a cash dividend of $0.75 per common share totaling $27.9 million. In the first three quarters of fiscal 2023, the Company paid cash dividends totaling $84.5 million. Future payments of quarterly dividends 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.

2023 Business Outlook

We do not reconcile forward-looking adjusted operating income or adjusted diluted earnings per share to their most directly comparable GAAP measures because we cannot predict with reasonable certainty the ultimate outcome of certain components of such reconciliations that are not within our control due to factors described below, or others that may arise, without unreasonable effort. For these reasons, we are unable to assess the probable significance of the unavailable information, which could materially impact the amount of future operating income or diluted EPS, the most directly comparable GAAP metrics to adjusted operating income and adjusted diluted earnings per share, respectively.

For fiscal year 2023, the Company expects approximately:

• $2.950 billion to $2.965 billion in net sales ($3.21 billion in fiscal 2022);
• $325 million to $335 million in adjusted operating income ($388 million in fiscal 2022);
• $5.95 to $6.15 in adjusted diluted earnings per share ($6.90 in fiscal 2022);
• Operating cash flow of over $350 million ($88 million in fiscal 2022); and
• Capital expenditures of approximately $65 million ($40 million in fiscal 2022).

For the fourth quarter of fiscal 2023, the Company expects approximately:

• $862 million to $877 million in net sales ($912 million in Q4 fiscal 2022);
• $133 million to $143 million in adjusted operating income ($119 million in Q4 fiscal 2022); and
• $2.50 to $2.72 in adjusted diluted earnings per share ($2.29 in Q4 fiscal 2022).

Our forecast for the fourth quarter of fiscal 2023 assumes:

• Improved consumer demand trend relative to the third quarter;
• Cautious inventory commitments by wholesale customers;
• Gross margin expansion, reflecting improved pricing and lower ocean freight rates;
• Lower SG&A expense;
• Higher effective tax rate; and
• Lower average number of shares outstanding.

Unless otherwise noted, the forecast assumptions above for the fourth quarter of fiscal 2023 are relative to the prior-year period. Our adjusted operating income and diluted earnings per share forecasts for fiscal year 2023 exclude pre-tax net charges totaling $4.4 million related to organizational restructuring, which were recorded in the first three quarters of the year.

Conference Call

The Company will hold a conference call with investors to discuss third quarter fiscal 2023 results and its business outlook on October 27, 2023 at 8:30 a.m. Eastern Daylight Time. To listen to a live webcast and view the accompanying presentation materials, please visit ir.carters.com and select links for “News & Events” followed by “Webcasts & Presentations.”

To access the call by phone, please preregister via the following link to receive your dial-in number and unique passcode: https://register.vevent.com/register/BI301b7272d1354e46acb9387786e04584

A webcast replay will be available shortly after the conclusion of the call at ir.carters.com.

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 through over 1,000 Company-operated stores in the United States, Canada, and Mexico and online at www.carters.com, www.oshkosh.com, www.cartersoshkosh.ca, and www.carters.com.mx. They are also sold in leading department stores, national chains, and specialty retailers domestically and internationally. The Company’s Child of Mine brand is available at Walmart, its Just One You brand is available at Target, and its Simple Joys brand is available on Amazon. The Company also owns Little Planet, a brand focused on organic fabrics and sustainable materials, and 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

Statements contained in this press release that are not historical fact and use predictive words such as “estimates”, “outlook”, “guidance”, “expect”, “believe”, “intend”, “designed”, “target”, “plans”, “may”, “will”, “are confident” and similar words are forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). These forward-looking statements and related assumptions involve risks and uncertainties that could cause actual results and outcomes to differ materially from any forward-looking statements or views expressed in this press release. These risks and uncertainties include, but are not limited to, the factors disclosed in Part I, Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and otherwise in our reports and filings with the Securities and Exchange Commission, as well as the following factors: the continuing effects of the novel coronavirus (COVID-19) pandemic; changes in global economic and financial conditions, and the resulting impact on consumer confidence and consumer spending, as well as other changes in consumer discretionary spending habits; continued inflationary pressures with respect to labor and raw materials and global supply chain constraints that have, and could continue, to affect freight, transit, and other costs; risks related to geopolitical conflict, including ongoing geopolitical challenges between the United States and China, the ongoing hostilities in Ukraine and Israel, acts of terrorism, mass casualty events, social unrest, civil disturbance or disobedience; risks related to a shutdown of the U.S. government; financial difficulties for one or more of our major customers; an overall decrease in consumer spending, including, but not limited to, decreases in birth rates; our products not being accepted in the marketplace and our failure to manage our inventory; increased competition in the market place; diminished value of our brands; the failure to protect our intellectual property; the failure to comply with applicable quality standards or regulations; unseasonable or extreme weather conditions; pending and threatened lawsuits; a breach of our information technology systems and the loss of personal data; increased margin pressures, including increased cost of materials and labor and our inability to successfully increase prices to offset these increased costs; our foreign sourcing arrangements; disruptions in our supply chain, including increased transportation and freight costs; the management and expansion of our business domestically and internationally; the acquisition and integration of other brands and businesses; changes in our tax obligations, including additional customs, duties or tariffs; fluctuations in foreign currency exchange rates; risks associated with corporate responsibility issues; our ability to achieve our forecasted financial results for the fiscal year; our continued ability to declare and pay a dividend and conduct share repurchases in future periods; our planned opening and closing of stores during the fiscal year; and other risks detailed in the Company’s periodic reports as filed in accordance with the Securities Exchange Act of 1934, as amended. 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.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except per share data)

(unaudited)

 

 

Fiscal Quarter Ended

 

Three Fiscal Quarters Ended

 

September 30, 2023

 

October 1, 2022

 

September 30, 2023

 

October 1, 2022

Net sales

$

791,651

 

 

$

818,624

 

 

$

2,087,730

 

 

$

2,300,603

 

Cost of goods sold

 

415,254

 

 

 

448,096

 

 

 

1,109,970

 

 

 

1,243,794

 

Gross profit

 

376,397

 

 

 

370,528

 

 

 

977,760

 

 

 

1,056,809

 

Royalty income, net

 

5,713

 

 

 

7,273

 

 

 

16,573

 

 

 

20,349

 

Selling, general, and administrative expenses

 

288,680

 

 

 

286,218

 

 

 

806,988

 

 

 

807,533

 

Operating income

 

93,430

 

 

 

91,583

 

 

 

187,345

 

 

 

269,625

 

Interest expense

 

8,615

 

 

 

9,712

 

 

 

26,342

 

 

 

33,496

 

Interest income

 

(1,064

)

 

 

(257

)

 

 

(2,769

)

 

 

(867

)

Other expense (income), net

 

507

 

 

 

1,270

 

 

 

(518

)

 

 

776

 

Loss on extinguishment of debt

 

—

 

 

 

—

 

 

 

—

 

 

 

19,940

 

Income before income taxes

 

85,372

 

 

 

80,858

 

 

 

164,290

 

 

 

216,280

 

Income tax provision

 

19,245

 

 

 

15,901

 

 

 

38,300

 

 

 

46,421

 

Net income

$

66,127

 

 

$

64,957

 

 

$

125,990

 

 

$

169,859

 

 

 

 

 

 

 

 

 

Basic net income per common share

$

1.78

 

 

$

1.67

 

 

$

3.36

 

 

$

4.26

 

Diluted net income per common share

$

1.78

 

 

$

1.67

 

 

$

3.36

 

 

$

4.26

 

Dividend declared and paid per common share

$

0.75

 

 

$

0.75

 

 

$

2.25

 

 

$

2.25

 

CARTER’S, INC.

BUSINESS SEGMENT RESULTS

(dollars in thousands)

(unaudited)

 

 

Fiscal Quarter Ended

 

 

Three Fiscal Quarters Ended

 

September 30, 2023

 

% of

Total Net Sales

 

October 1, 2022

 

% of

Total Net Sales

 

 

September 30, 2023

 

% of

Total Net Sales

 

October 1, 2022

 

% of

Total Net Sales

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Retail

$

374,796

 

 

47.3

%

 

$

408,209

 

 

49.9

%

 

 

$

1,021,983

 

 

49.0

%

 

$

1,153,664

 

 

50.1

%

U.S. Wholesale

 

300,338

 

 

38.0

%

 

 

288,454

 

 

35.2

%

 

 

 

767,194

 

 

36.7

%

 

 

819,772

 

 

35.6

%

International

 

116,517

 

 

14.7

%

 

 

121,961

 

 

14.9

%

 

 

 

298,553

 

 

14.3

%

 

 

327,167

 

 

14.3

%

Consolidated net sales

$

791,651

 

 

100.0

%

 

$

818,624

 

 

100.0

%

 

 

$

2,087,730

 

 

100.0

%

 

$

2,300,603

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income:

 

 

% of

Segment

Net Sales

 

 

 

% of

Segment

Net Sales

 

 

 

 

% of

Segment

Net Sales

 

 

 

% of

Segment

Net Sales

U.S. Retail

$

47,983

 

 

12.8

%

 

$

57,723

 

 

14.1

%

 

 

$

103,132

 

 

10.1

%

 

$

163,257

 

 

14.2

%

U.S. Wholesale

 

65,702

 

 

21.9

%

 

 

39,989

 

 

13.9

%

 

 

 

147,003

 

 

19.2

%

 

 

134,088

 

 

16.4

%

International

 

13,379

 

 

11.5

%

 

 

17,113

 

 

14.0

%

 

 

 

23,193

 

 

7.8

%

 

 

39,665

 

 

12.1

%

Corporate expenses (*)

 

(33,634

)

 

n/a

 

 

 

(23,242

)

 

n/a

 

 

 

 

(85,983

)

 

n/a

 

 

 

(67,385

)

 

n/a

 

Consolidated operating income

$

93,430

 

 

11.8

%

 

$

91,583

 

 

11.2

%

 

 

$

187,345

 

 

9.0

%

 

$

269,625

 

 

11.7

%

(*)

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

(dollars in millions)

Fiscal Quarter Ended September 30, 2023

 

 

Three Fiscal Quarters Ended September 30, 2023

Charges:

U.S. Retail

 

U.S. Wholesale

 

International

 

 

U.S. Retail

 

U.S. Wholesale

 

International

Organizational restructuring(*)

$

0.6

 

$

0.4

 

$

0.3

 

 

$

—

 

$

0.1

 

$

0.3

(*)

Relates to organizational restructuring and related corporate office lease amendment actions. Additionally, the third fiscal quarter and first three fiscal quarters ended September 30, 2023 includes a corporate charge of $1.5 million and $4.1 million, respectively, related to organizational restructuring and related corporate office lease amendment actions.

Note: Results may not be additive due to rounding.

CARTER’S, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

(unaudited)

 

 

September 30, 2023

 

December 31, 2022

 

October 1, 2022

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

169,106

 

 

$

211,748

 

 

$

121,649

 

Accounts receivable, net of allowance for credit losses of $6,741, $7,189, and $6,290, respectively

 

240,507

 

 

 

198,587

 

 

 

265,593

 

Finished goods inventories, net of inventory reserves of $19,014, $19,268, and $25,628, respectively

 

620,669

 

 

 

744,573

 

 

 

899,326

 

Prepaid expenses and other current assets (*)

 

37,604

 

 

 

33,812

 

 

 

59,964

 

Total current assets

 

1,067,886

 

 

 

1,188,720

 

 

 

1,346,532

 

Property, plant, and equipment, net of accumulated depreciation of $605,857, $569,528, and $559,085, respectively

 

180,888

 

 

 

189,822

 

 

 

181,575

 

Operating lease assets

 

506,010

 

 

 

492,335

 

 

 

491,863

 

Tradenames, net

 

298,230

 

 

 

298,393

 

 

 

307,456

 

Goodwill

 

209,494

 

 

 

209,333

 

 

 

208,454

 

Customer relationships, net

 

28,087

 

 

 

30,564

 

 

 

31,386

 

Other assets

 

29,211

 

 

 

30,548

 

 

 

30,687

 

Total assets

$

2,319,806

 

 

$

2,439,715

 

 

$

2,597,953

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

222,210

 

 

$

264,078

 

 

$

318,026

 

Current operating lease liabilities (*)

 

135,865

 

 

 

142,432

 

 

 

141,585

 

Other current liabilities

 

106,122

 

 

 

122,439

 

 

 

92,394

 

Total current liabilities

 

464,197

 

 

 

528,949

 

 

 

552,005

 

 

 

 

 

 

 

Long-term debt, net

 

567,168

 

 

 

616,624

 

 

 

736,448

 

Deferred income taxes

 

41,217

 

 

 

41,235

 

 

 

48,930

 

Long-term operating lease liabilities

 

427,280

 

 

 

421,741

 

 

 

430,479

 

Other long-term liabilities

 

34,633

 

 

 

34,757

 

 

 

41,889

 

Total liabilities

$

1,534,495

 

 

$

1,643,306

 

 

$

1,809,751

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

Preferred stock; par value $0.01 per share; 100,000 shares authorized; none issued or outstanding

$

—

 

 

$

—

 

 

$

—

 

Common stock, voting; par value $0.01 per share; 150,000,000 shares authorized; 36,969,967, 37,692,132, and 38,456,219 shares issued and outstanding, respectively

 

370

 

 

 

377

 

 

 

385

 

Additional paid-in capital

 

—

 

 

 

—

 

 

 

—

 

Accumulated other comprehensive loss

 

(29,142

)

 

 

(34,338

)

 

 

(40,575

)

Retained earnings

 

814,083

 

 

 

830,370

 

 

 

828,392

 

Total stockholders' equity

 

785,311

 

 

 

796,409

 

 

 

788,202

 

Total liabilities and stockholders' equity

$

2,319,806

 

 

$

2,439,715

 

 

$

2,597,953

 

(*)

Prepaid expenses and other current assets and Current operating lease liabilities as of October 1, 2022 were revised to reflect the presentation for payments of rent before payment due date of $13.6 million.

CARTER’S, INC.

 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

 

 

Three Fiscal Quarters Ended

 

September 30, 2023

 

October 1, 2022

Cash flows from operating activities:

 

 

 

Net income

$

125,990

 

 

$

169,859

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

Depreciation of property, plant, and equipment

 

45,764

 

 

 

46,011

 

Amortization of intangible assets

 

2,805

 

 

 

2,798

 

(Recoveries of) provisions for excess and obsolete inventory, net

 

(324

)

 

 

11,488

 

Gain on partial termination of corporate lease

 

(4,366

)

 

 

—

 

Other asset impairments and loss on disposal of property, plant and equipment, net of recoveries

 

2,807

 

 

 

251

 

Amortization of debt issuance costs

 

1,186

 

 

 

1,560

 

Stock-based compensation expense

 

14,912

 

 

 

17,221

 

Unrealized foreign currency exchange (gain) loss, net

 

(201

)

 

 

268

 

Provisions for (recoveries of) doubtful accounts receivable from customers

 

2,402

 

 

 

(987

)

Unrealized (gain) loss on investments

 

(1,391

)

 

 

2,414

 

Loss on extinguishment of debt

 

—

 

 

 

19,940

 

Deferred income taxes (benefit) expense

 

(949

)

 

 

8,220

 

Other

 

—

 

 

 

919

 

Effect of changes in operating assets and liabilities:

 

 

 

Accounts receivable

 

(43,623

)

 

 

(33,697

)

Finished goods inventories

 

127,190

 

 

 

(270,696

)

Prepaid expenses and other assets(*)

 

(3,965

)

 

 

(11,359

)

Accounts payable and other liabilities(*)

 

(62,447

)

 

 

(181,690

)

Net cash provided by (used in) operating activities

$

205,790

 

 

$

(217,480

)

 

 

 

 

Cash flows from investing activities:

 

 

 

Capital expenditures

$

(42,470

)

 

$

(26,862

)

Net cash used in investing activities

$

(42,470

)

 

$

(26,862

)

 

 

 

 

Cash flows from financing activities:

 

 

 

Payment of senior notes due 2025

$

—

 

 

$

(500,000

)

Premiums paid to extinguish debt

 

—

 

 

 

(15,678

)

Payment of debt issuance costs

 

—

 

 

 

(2,420

)

Borrowings under secured revolving credit facility

 

70,000

 

 

 

240,000

 

Payments on secured revolving credit facility

 

(120,000

)

 

 

—

 

Repurchases of common stock

 

(67,492

)

 

 

(241,751

)

Dividends paid

 

(84,503

)

 

 

(89,562

)

Withholdings from vesting of restricted stock

 

(5,007

)

 

 

(6,850

)

Proceeds from exercises of stock options

 

384

 

 

 

776

 

Other

 

—

 

 

 

(919

)

Net cash used in financing activities

$

(206,618

)

 

$

(616,404

)

 

 

 

 

Net effect of exchange rate changes on cash and cash equivalents

 

656

 

 

 

(1,899

)

Net decrease in cash and cash equivalents

$

(42,642

)

 

$

(862,645

)

Cash and cash equivalents, beginning of period

 

211,748

 

 

 

984,294

 

Cash and cash equivalents, end of period

$

169,106

 

 

$

121,649

 

(*)

Cash flows for the three fiscal quarters ended October 1, 2022 were revised to reflect the presentation for payments of rent before payment due date of $13.6 million.

CARTER’S, INC.

RECONCILIATION OF GAAP TO ADJUSTED RESULTS

(dollars in millions, except earnings per share)

(unaudited)

 

 

Fiscal Quarter Ended September 30, 2023

 

Gross Profit

 

% Net Sales

 

SG&A

 

% Net Sales

 

Operating Income

 

% Net Sales

 

Income Taxes

 

Net Income

 

Diluted EPS

As reported (GAAP)

$

376.4

 

47.5

%

 

$

288.7

 

 

36.5

%

 

$

93.4

 

11.8

%

 

$

19.2

 

$

66.1

 

$

1.78

Organizational restructuring (b)

 

—

 

 

 

 

(2.9

)

 

 

 

 

2.9

 

 

 

 

0.7

 

 

2.2

 

 

0.06

As adjusted (a)

$

376.4

 

47.5

%

 

$

285.8

 

 

36.1

%

 

$

96.3

 

12.2

%

 

$

19.9

 

$

68.4

 

$

1.84

 

Two Fiscal Quarters Ended July 1, 2023

 

Gross Profit

 

% Net Sales

 

SG&A

 

% Net Sales

 

Operating Income

 

% Net Sales

 

Income Taxes

 

Net Income

 

Diluted EPS

As reported (GAAP)

$

601.4

 

46.4

%

 

$

518.3

 

 

40.0

%

 

$

93.9

 

7.2

%

 

$

19.1

 

$

59.9

 

$

1.59

Organizational restructuring (b)

 

—

 

 

 

 

(1.5

)

 

 

 

 

1.5

 

 

 

 

0.4

 

 

1.2

 

 

0.03

As adjusted (a)

$

601.4

 

46.4

%

 

$

516.8

 

 

39.9

%

 

$

95.5

 

7.4

%

 

$

19.4

 

$

61.0

 

$

1.62

 

Three Fiscal Quarters Ended September 30, 2023

 

Gross Profit

 

% Net Sales

 

SG&A

 

% Net Sales

 

Operating Income

 

% Net Sales

 

Income Taxes

 

Net Income

 

Diluted EPS

As reported (GAAP)

$

977.8

 

46.8

%

 

$

807.0

 

 

38.7

%

 

$

187.3

 

9.0

%

 

$

38.3

 

$

126.0

 

$

3.36

Organizational restructuring (b)

 

—

 

 

 

 

(4.4

)

 

 

 

 

4.4

 

 

 

 

1.0

 

 

3.4

 

 

0.09

As adjusted (a)

$

977.8

 

46.8

%

 

$

802.6

 

 

38.4

%

 

$

191.8

 

9.2

%

 

$

39.3

 

$

129.4

 

$

3.45

 

Three Fiscal Quarters Ended October 1, 2022

 

Gross Profit

 

% Net Sales

 

SG&A

 

% Net Sales

 

Operating Income

 

% Net Sales

 

Income Taxes

 

Net Income

 

Diluted EPS

As reported (GAAP)

$

1,056.8

 

45.9

%

 

$

807.5

 

35.1

%

 

$

269.6

 

11.7

%

 

$

46.4

 

$

169.9

 

$

4.26

Loss on extinguishment of debt (c)

 

—

 

 

 

 

—

 

 

 

 

—

 

 

 

 

4.8

 

 

15.2

 

 

0.38

As adjusted (a)

$

1,056.8

 

45.9

%

 

$

807.5

 

35.1

%

 

$

269.6

 

11.7

%

 

$

51.2

 

$

185.0

 

$

4.64

 

Fiscal Quarter Ended December 31, 2022

 

Gross Profit

 

% Net Sales

 

SG&A

 

% Net Sales

 

Operating Income

 

% Net Sales

 

Income Taxes

 

Net Income

 

Diluted EPS

As reported (GAAP)

$

415.5

 

45.6

%

 

$

302.5

 

33.2

%

 

$

109.5

 

12.0

%

 

$

20.3

 

$

80.2

 

$

2.11

Intangible asset impairment (d)

 

—

 

 

 

 

—

 

 

 

 

9.0

 

 

 

 

2.1

 

 

6.9

 

 

0.18

As adjusted (a)

$

415.5

 

45.6

%

 

$

302.5

 

33.2

%

 

$

118.5

 

13.0

%

 

$

22.4

 

$

87.0

 

$

2.29

 

Fiscal Year Ended December 31, 2022

 

Gross Profit

 

% Net Sales

 

SG&A

 

% Net Sales

 

Operating Income

 

% Net Sales

 

Income Taxes

 

Net Income

 

Diluted EPS

As reported (GAAP)

$

1,472.4

 

45.8

%

 

$

1,110.0

 

34.6

%

 

$

379.2

 

11.8

%

 

$

66.7

 

$

250.0

 

$

6.34

Loss on extinguishment of debt (c)

 

—

 

 

 

 

—

 

 

 

 

—

 

 

 

 

4.8

 

 

15.2

 

 

0.38

Intangible asset impairment (d)

 

—

 

 

 

 

—

 

 

 

 

9.0

 

 

 

 

2.1

 

 

6.9

 

 

0.17

As adjusted (a)

$

1,472.4

 

45.8

%

 

$

1,110.0

 

34.6

%

 

$

388.2

 

12.1

%

 

$

73.6

 

$

272.0

 

$

6.90

(a)

In addition to the results provided in this earnings release in accordance with GAAP, the Company has provided adjusted, non-GAAP financial measurements that present gross profit, SG&A, operating income, income tax, net income, and net income on a diluted share basis excluding the adjustments discussed above. The Company believes these adjustments provide a meaningful comparison of the Company’s results and afford investors a view of what management considers to be the Company's core performance. The adjusted, 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 adjusted, non-GAAP financial measurements are presented for informational purposes only and are not necessarily indicative of the Company’s future condition or results of operations.

(b)

Net expenses related to organizational restructuring and related corporate office lease amendment actions.

(c)

Related to the redemption of the $500 million aggregate principal amount of senior notes due 2025 in April 2022 that were previously issued by a wholly-owned subsidiary of the Company.

(d)

Related to the write-down of the Skip Hop tradename asset.

Note: No adjustments were made to GAAP results in the third quarter of fiscal 2022. Results may not be additive due to rounding.

CARTER’S, INC.

RECONCILIATION OF NET INCOME ALLOCABLE TO COMMON SHAREHOLDERS

(unaudited)

 

 

Fiscal Quarter Ended

 

Three Fiscal Quarters Ended

 

September 30, 2023

 

October 1, 2022

 

September 30, 2023

 

October 1, 2022

Weighted-average number of common and common equivalent shares outstanding:

 

 

 

 

 

 

 

Basic number of common shares outstanding

 

36,438,403

 

 

 

38,222,151

 

 

 

36,789,140

 

 

 

39,279,293

 

Dilutive effect of equity awards

 

3,881

 

 

 

23,222

 

 

 

3,781

 

 

 

34,835

 

Diluted number of common and common equivalent shares outstanding

 

36,442,284

 

 

 

38,245,373

 

 

 

36,792,921

 

 

 

39,314,128

 

As reported on a GAAP Basis:

 

 

 

 

 

 

 

(dollars in thousands, except per share data)

 

 

 

 

 

 

 

Basic net income per common share:

 

 

 

 

 

 

 

Net income

$

66,127

 

 

$

64,957

 

 

$

125,990

 

 

$

169,859

 

Income allocated to participating securities

 

(1,267

)

 

 

(1,013

)

 

 

(2,254

)

 

 

(2,478

)

Net income available to common shareholders

$

64,860

 

 

$

63,944

 

 

$

123,736

 

 

$

167,381

 

Basic net income per common share

$

1.78

 

 

$

1.67

 

 

$

3.36

 

 

$

4.26

 

Diluted net income per common share:

 

 

 

 

 

 

 

Net income

$

66,127

 

 

$

64,957

 

 

$

125,990

 

 

$

169,859

 

Income allocated to participating securities

 

(1,267

)

 

 

(1,012

)

 

 

(2,254

)

 

 

(2,477

)

Net income available to common shareholders

$

64,860

 

 

$

63,945

 

 

$

123,736

 

 

$

167,382

 

Diluted net income per common share

$

1.78

 

 

$

1.67

 

 

$

3.36

 

 

$

4.26

 

As adjusted (a):

 

 

 

 

 

 

 

Basic net income per common share:

 

 

 

 

 

 

 

Net income

$

68,362

 

 

$

64,957

 

 

$

129,406

 

 

$

185,010

 

Income allocated to participating securities

 

(1,311

)

 

 

(1,013

)

 

 

(2,319

)

 

 

(2,711

)

Net income available to common shareholders

$

67,051

 

 

$

63,944

 

 

$

127,087

 

 

$

182,299

 

Basic net income per common share

$

1.84

 

 

$

1.67

 

 

$

3.45

 

 

$

4.64

 

Diluted net income per common share:

 

 

 

 

 

 

 

Net income

$

68,362

 

 

$

64,957

 

 

$

129,406

 

 

$

185,010

 

Income allocated to participating securities

 

(1,311

)

 

 

(1,012

)

 

 

(2,318

)

 

 

(2,710

)

Net income available to common shareholders

$

67,051

 

 

$

63,945

 

 

$

127,088

 

 

$

182,300

 

Diluted net income per common share

$

1.84

 

 

$

1.67

 

 

$

3.45

 

 

$

4.64

 

(a)

In addition to the results provided in this earnings release in accordance with GAAP, the Company has provided adjusted, non-GAAP financial measurements that present per share data excluding the adjustments discussed above. The Company has excluded $2.2 million and $3.4 million in after-tax expenses from these results for the fiscal quarter and three fiscal quarters ended September 30, 2023, respectively. The Company has excluded $15.2 million in after-tax expenses from these results for the three fiscal quarters ended October 1, 2022.

Note: Results may not be additive due to rounding.

RECONCILIATION OF U.S. GAAP AND NON-GAAP INFORMATION

(dollars in millions)

(unaudited)

 

The following table provides a reconciliation of net income to EBITDA and Adjusted EBITDA for the periods indicated:

 

 

 

Fiscal Quarter Ended

 

Three Fiscal Quarters Ended

 

Four Fiscal Quarters Ended

 

 

September 30, 2023

 

October 1, 2022

 

September 30, 2023

 

October 1, 2022

 

September 30, 2023

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

66.1

 

 

$

65.0

 

 

$

126.0

 

 

$

169.9

 

 

$

206.2

 

Interest expense

 

 

8.6

 

 

 

9.7

 

 

 

26.3

 

 

 

33.5

 

 

 

35.6

 

Interest income

 

 

(1.1

)

 

 

(0.3

)

 

 

(2.8

)

 

 

(0.9

)

 

 

(3.2

)

Income tax expense

 

 

19.2

 

 

 

15.9

 

 

 

38.3

 

 

 

46.4

 

 

 

58.6

 

Depreciation and amortization

 

 

16.0

 

 

 

17.1

 

 

 

48.6

 

 

 

48.8

 

 

 

65.0

 

EBITDA

 

$

109.0

 

 

$

107.4

 

 

$

236.4

 

 

$

297.7

 

 

$

362.2

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments to EBITDA

 

 

 

 

 

 

 

 

 

 

Organizational restructuring (a)

 

$

2.9

 

 

$

—

 

 

$

4.4

 

 

$

—

 

 

$

4.4

 

Loss on extinguishment of debt (b)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

19.9

 

 

 

—

 

Intangible asset impairment (c)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

9.0

 

Total adjustments

 

 

2.9

 

 

 

—

 

 

 

4.4

 

 

 

19.9

 

 

 

13.4

 

Adjusted EBITDA

 

$

111.8

 

 

$

107.4

 

 

$

240.9

 

 

$

317.7

 

 

$

375.7

 

a.

Net expenses related to organizational restructuring and related corporate office lease amendment actions.

b.

Related to the redemption of the $500 million aggregate principal amount of senior notes due 2025 in April 2022 that were previously issued by a wholly-owned subsidiary of the Company.

c.

Related to the write-down of the Skip Hop tradename asset.

Note: Results may not be additive due to rounding.

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) - (c) 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.

RECONCILIATION OF U.S. GAAP AND NON-GAAP INFORMATION

(dollars in millions)

(unaudited)

 

The table below reflects the calculation of constant currency net sales on a consolidated and International segment basis for the fiscal quarter and three fiscal quarters ended September 30, 2023:

 

Fiscal Quarter Ended

 

Reported Net Sales September 30, 2023

 

Impact of Foreign Currency Translation

 

Constant-Currency Net Sales September 30, 2023

 

Reported Net Sales October 1, 2022

 

Reported Net Sales % Change

 

Constant-Currency Net Sales % Change

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated net sales

$

791.7

 

$

1.2

 

$

790.5

 

$

818.6

 

(3.3

)%

 

(3.4

)%

International segment net sales

$

116.5

 

$

1.2

 

$

115.4

 

$

122.0

 

(4.5

)%

 

(5.4

)%

 

Three Fiscal Quarters Ended

 

Reported Net Sales September 30, 2023

 

Impact of Foreign Currency Translation

 

Constant-Currency Net Sales September 30, 2023

 

Reported Net Sales October 1, 2022

 

Reported Net Sales % Change

 

Constant-Currency Net Sales % Change

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated net sales

$

2,087.7

 

$

(2.2

)

 

$

2,089.9

 

$

2,300.6

 

(9.3

)%

 

(9.2

)%

International segment net sales

$

298.6

 

$

(2.2

)

 

$

300.7

 

$

327.2

 

(8.7

)%

 

(8.1

)%

Note: Results may not be additive due to rounding.

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.

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