Carter’s, Inc. Reports Fourth Quarter and Fiscal 2018 Results

  • Fourth quarter fiscal 2018 results

    • Net sales $1.1 billion, growth of 6%
    • Diluted EPS $2.83; adjusted diluted EPS $2.84, growth of 22%
  • Full year fiscal 2018 results

    • Net sales $3.5 billion, growth of 2%
    • Diluted EPS $6.00; adjusted diluted EPS $6.29, growth of 9%
  • Returned $277 million to shareholders through share repurchases and
    dividends in fiscal 2018
  • Board of Directors authorizes 11% increase in quarterly dividend to
    $0.50 per share
  • Full year fiscal 2019 outlook: net sales growth of 1% to 2%;
    adjusted diluted EPS growth of 4% to 6%

ATLANTA–(BUSINESS WIRE)–Carter’s, Inc. (NYSE:CRI), the largest branded marketer in North America
of apparel exclusively for babies and young children, today reported its
fourth quarter and fiscal 2018 results.

We saw good demand for our brands in the final months of 2018, with
growth driven by our retail and wholesale businesses,” said Michael D.
Casey, Chairman and Chief Executive Officer. “In the fourth quarter, our
retail sales in the United States grew 7% reflecting, we believe, the
strength of our brands and less discretionary nature of young children’s
apparel purchases.

For the year, Carter’s achieved its 30th consecutive year of sales
growth, and a record level of profitability enabled by the significant
benefits from the Tax Cuts and Jobs Act of 2017.

We believe Carter’s is well-positioned to achieve good growth in sales
and earnings in the years ahead. Carter’s is the market leader in young
children’s apparel in North America, and we are extending the reach of
our brands throughout the world through eCommerce capabilities and
strategic relationships.

Given our strong balance sheet and cash flow, we plan to continue
investing in strategies which we believe will enable us to outperform
market trends and deliver attractive returns to shareholders.”

Consolidated Results

Fourth Quarter of Fiscal 2018 compared to Fourth Quarter of Fiscal
2017

Consolidated net sales increased $58.5 million, or 5.7%, to $1.1
billion, principally driven by growth in the Company’s U.S. Retail and
U.S. Wholesale segments. Changes in foreign currency exchange rates in
the fourth quarter of fiscal 2018 compared to the fourth quarter of
fiscal 2017 adversely affected consolidated net sales in the fourth
quarter of fiscal 2017 by $3.9 million. On a constant currency basis (a
non-GAAP measure), consolidated net sales increased 6.1% in the fourth
quarter of fiscal 2018.

Operating income in the fourth quarter of fiscal 2018 increased $24.2
million, or 16.5%, to $170.6 million, compared to $146.4 million in the
fourth quarter of fiscal 2017. Fourth quarter fiscal 2017 results
include pre-tax expense of $21.2 million for special compensation and
related payroll taxes awarded as a result of the Tax Cuts and Jobs Act
of 2017 (“TCJA”). Operating margin in the fourth quarter of fiscal 2018
increased 150 basis points to 15.7%, compared to 14.2% in the fourth
quarter of fiscal 2017.

Adjusted operating income (a non-GAAP measure) increased $2.5 million,
or 1.5%, to $170.5 million, compared to $168.0 million in the fourth
quarter of fiscal 2017. Adjusted operating margin (a non-GAAP measure)
decreased 60 basis points to 15.7%, compared to 16.3% in the fourth
quarter of fiscal 2017, reflecting higher eCommerce shipping costs and
promotions, the adverse impact of the Toys “R” Us bankruptcy, and an
increase in the mix of lower margin new businesses.

Net income in the fourth quarter of fiscal 2018 decreased $5.6 million,
or 4.1%, to $130.6 million, or $2.83 per diluted share, compared to
$136.1 million, or $2.85 per diluted share, in the fourth quarter of
fiscal 2017. Fourth quarter fiscal 2017 results include a net tax
benefit of $40.0 million related to TCJA and after-tax expense of $15.1
million for special compensation and related payroll taxes awarded as a
result of this tax reform legislation.

Adjusted net income (a non-GAAP measure) increased $19.5 million, or
17.5%, to $130.9 million, compared to $111.4 million in the fourth
quarter of fiscal 2017, reflecting the benefit of lower tax provisions
resulting from TCJA. Adjusted earnings per diluted share (a non-GAAP
measure) increased 21.8% to $2.84, compared to $2.33 in the fourth
quarter of fiscal 2017.

Fiscal 2018 compared to Fiscal 2017

Consolidated net sales increased $61.8 million, or 1.8%, to $3.5
billion, reflecting growth in the Company’s U.S. Retail and
International segments, partially offset by a decline in the U.S.
Wholesale segment. The decline in U.S. Wholesale sales was largely
attributable to the closures of Toys “R” Us and Bon-Ton. Changes in
foreign currency exchange rates in fiscal 2018 compared to fiscal 2017
adversely affected consolidated net sales in fiscal 2017 by $2.6
million. On a constant currency basis, consolidated net sales increased
1.9% in fiscal 2018.

Operating income in fiscal 2018 decreased $28.2 million, or 6.7%, to
$391.4 million, compared to $419.6 million in fiscal 2017. Fiscal 2018
results include pre-tax expenses totaling $16.2 million related to
wholesale customer bankruptcy charges and the Company’s business model
transition in China. Fiscal 2017 results include pre-tax expense of
$21.2 million for special compensation and related payroll taxes awarded
as a result of TCJA. Operating margin in fiscal 2018 decreased 100 basis
points to 11.3%, compared to 12.3% in fiscal 2017.

Adjusted operating income decreased $37.6 million, or 8.4%, to $407.3
million, compared to $444.8 million in fiscal 2017. Adjusted operating
margin decreased 130 basis points to 11.8%, compared to 13.1% in fiscal
2017, reflecting increased investments in marketing and eCommerce
fulfillment capabilities, higher distribution expenses, the adverse
impact of the Toys “R” Us and Bon-Ton bankruptcies, and an increase in
the mix of lower margin new businesses.

Net income in fiscal 2018 decreased $20.8 million, or 6.9%, to $282.1
million, or $6.00 per diluted share, compared to $302.8 million, or
$6.24 per diluted share, in fiscal 2017. Fiscal 2018 results include
after-tax expenses totaling $13.6 million related to wholesale customer
bankruptcy charges and the Company’s business model transition in China.
Fiscal 2017 results include a net tax benefit of $40.0 million related
to TCJA and after-tax expense of $15.1 million for special compensation
and related payroll taxes awarded as a result of this tax reform
legislation.

Adjusted net income increased $15.6 million, or 5.6%, to $295.4 million,
compared to $279.8 million in fiscal 2017, reflecting the benefit of
lower tax provisions resulting from TCJA. Adjusted earnings per diluted
share increased 9.0%, to $6.29, compared to $5.77 in fiscal 2017.

Cash flow from operations in fiscal 2018 was $356.2 million compared to
$329.6 million in fiscal 2017. The increase primarily reflected a
reduction in federal income taxes, partially offset by unfavorable
changes in net working capital.

See the “Reconciliation of GAAP to Adjusted Results” section of this
release for additional disclosures and reconciliations regarding
non-GAAP measures.

U.S. Retail Segment

Fourth Quarter of Fiscal 2018 compared to Fourth Quarter of Fiscal
2017

U.S. Retail segment sales increased $40.1 million, or 7.1%, to $606.3
million. U.S. Retail comparable sales increased 5.7%, reflecting growth
in both eCommerce and retail store sales.

In the fourth quarter of fiscal 2018, the Company opened 19 stores and
closed five stores in the United States.

Fiscal 2018 compared to Fiscal 2017

U.S. Retail segment sales increased $75.8 million, or 4.3%, to $1.9
billion. U.S. Retail comparable sales increased 2.8%, driven by growth
in eCommerce sales.

In fiscal 2018, the Company opened 55 stores and closed 41 stores in the
United States.

As of the end of the fourth quarter of fiscal 2018, the Company operated
844 retail stores1 in the United States.

1 Excludes five temporary Skip Hop stores that were
closed in January 2019.

U.S. Wholesale Segment

Fourth Quarter of Fiscal 2018 compared to Fourth Quarter of Fiscal
2017

U.S. Wholesale segment sales increased $21.6 million, or 6.5%, to $351.4
million, reflecting increased shipments of Carter’s products,
partially offset by the loss of sales to Toys “R” Us and Bon-Ton. Toys
“R” Us and Bon-Ton contributed $32 million to net sales in the fourth
quarter of fiscal 2017.

Fiscal 2018 compared to Fiscal 2017

U.S. Wholesale segment sales decreased $29.0 million, or 2.4%, to $1.2
billion, reflecting lower shipments principally due to a decline in
sales to Toys “R” Us and Bon-Ton. Toys “R” Us and Bon-Ton contributed
$13 million and $107 million to net sales in fiscal years 2018 and 2017,
respectively.

International Segment

Fourth Quarter of Fiscal 2018 compared to Fourth Quarter of Fiscal
2017

International segment sales decreased $3.2 million, or 2.4%, to $128.6
million. This decrease was principally driven by lower demand in China
and unfavorable movements in foreign currency exchange rates, partially
offset by increased demand in Mexico.

Changes in foreign currency exchange rates in the fourth quarter of
fiscal 2018 as compared to the fourth quarter of fiscal 2017 adversely
affected International segment net sales in the fourth quarter of fiscal
2018 by $3.9 million. On a constant currency basis, International
segment net sales increased 0.6%.

Fiscal 2018 compared to Fiscal 2017

International segment sales increased $14.9 million, or 3.6%, to $430.4
million, driven by growth in Mexico, Canada, and various other markets
outside of North America, partially offset by lower demand in China.

Changes in foreign currency exchange rates in fiscal 2018 as compared to
fiscal 2017 adversely affected International segment net sales in fiscal
2018 by $2.6 million. On a constant currency basis, International
segment net sales increased 4.2%.

As of the end of fiscal 2018, the Company operated 188 retail stores in
Canada and 42 retail stores in Mexico.

Return of Capital

In the fourth quarter and fiscal year 2018, the Company returned to
shareholders a total of $68.1 million and $276.7 million, respectively,
through share repurchases and cash dividends as described below.

From the beginning of fiscal 2007 through fiscal 2018, the Company has
returned a total of $1.8 billion to shareholders through share
repurchases and dividends, and retired approximately 38% of its
outstanding shares.

Stock Repurchase Activity

During the fourth quarter of fiscal 2018, the Company repurchased and
retired 515,109 shares of its common stock for $47.5 million at an
average price of $92.28 per share.

During fiscal 2018, the Company repurchased and retired 1,879,529 shares
for $193.0 million at an average price of $102.70 per share.

Fiscal 2019 year-to-date through February 22, 2019, the Company has
repurchased and retired a total of 303,611 shares for $25.0 million at
an average price of $82.34 per share.

All shares were repurchased in open market transactions pursuant to
applicable regulations for open market share repurchases. As of February
22, 2019, the total remaining capacity under the Company’s
previously-announced repurchase authorizations was approximately $368
million.

Dividends

During the fourth quarter of fiscal 2018, the Company paid a cash
dividend of $0.45 per share totaling $20.6 million.

In fiscal 2018, the Company paid quarterly cash dividends of $0.45 per
share each quarter totaling $83.7 million.

On February 14, 2019, the Company’s Board of Directors authorized an 11%
increase ($0.05 per share) to its quarterly cash dividend, to $0.50 per
share, for payment on March 22, 2019, to shareholders of record at the
close of business on March 12, 2019.

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.

2019 Business Outlook

For fiscal 2019, the Company projects net sales will increase
approximately 1% to 2% and adjusted diluted earnings per share will
increase approximately 4% to 6% compared to adjusted diluted earnings
per share of $6.29 in fiscal 2018. This forecast for fiscal 2019
adjusted diluted earnings per share excludes anticipated expenses of
approximately $2.5 million related to organizational restructuring.

Net sales and adjusted earnings growth in the first quarter of fiscal
2019 are expected to be affected by comparisons to discontinued sales to
Toys “R” Us and Bon-Ton in the prior year and a later Easter holiday in
2019 than in 2018. As a result, the Company projects first quarter
fiscal 2019 net sales will decline approximately 4% to 5% and adjusted
diluted earnings per share to be approximately $0.65 to $0.70 compared
to adjusted diluted earnings per share of $1.09 in the first quarter of
fiscal 2018. This forecast for first quarter fiscal 2019 adjusted
diluted earnings per share excludes anticipated expenses of
approximately $2.5 million related to organizational restructuring.

The Company believes these non-GAAP measurements provide investors with
a meaningful view of the Company’s core operating results, and are the
same measurements used by the Company’s executive management to assess
the Company’s performance. See the “Reconciliation of GAAP to Adjusted
Results” section of this release for additional disclosures and
reconciliations regarding non-GAAP measures.

Adoption of New Accounting Standards

Beginning in fiscal 2018, the Company adopted the Financial Accounting
Standards Board’s Accounting Standards Codification No. 606, Revenue
from Contracts with Customers
, and related amendments (“ASC 606”)
using the full retrospective adoption method. All periods in fiscal 2017
and fiscal 2016 were amended to reflect these provisions, and retained
earnings at January 2, 2016 (beginning of fiscal 2016) were adjusted for
the cumulative effect of periods prior to fiscal 2016. The adoption of
ASC 606 had no material effect on the Company’s consolidated financial
position, results of operations, or cash flows.

In fiscal 2019, the Company will adopt the Financial Accounting
Standards Board’s Accounting Standards Codification No. 842, Leases (“ASC
842”), which will require substantially all leases to be recorded on the
balance sheet as a right-of-use asset (“ROU asset”) and lease liability.
The Company expects to recognize lease liabilities for its operating
leases totaling between $800 million to $900 million and ROU assets
totaling between $650 million to $750 million, upon adoption. The
adoption of ASC 842 will not have a material effect on the Company’s
consolidated results of operations or cash flows.

Conference Call

The Company will hold a conference call with investors to discuss fourth
quarter and fiscal 2018 results and its business outlook on February 25,
2019 at 8:30 a.m. Eastern Standard Time. To participate in the call,
please dial 323-794-2423. To listen to a live broadcast of the call on
the internet, please visit ir.carters.com and select the “Fourth Quarter
2018 Earnings Conference Call” link in the “Upcoming Events” section.
Presentation materials for the call can be accessed from the same page
by selecting links for “News & Events” followed by “Webcasts &
Presentations”. A replay of the call will be available shortly after the
broadcast through March 6, 2019, at 888-203-1112 (U.S. / Canada) or
719-457-0820 (international), passcode 3216835. 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 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 in leading department stores,
national chains, and specialty retailers domestically and
internationally. They are also sold through more than 1,000
Company-operated stores in the United States, Canada, and Mexico and
online at www.carters.com,
www.oshkosh.com,
and www.cartersoshkosh.ca.
The Company’s Just One You and Genuine Kids brands are
available at Target, its Child of Mine brand is available at
Walmart, and its Simple Joys brand is available on Amazon. The
Company also owns 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.

Cautionary Language

This press release contains forward-looking statements within the
meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 relating to the Company’s future
performance, including, without limitation, statements with respect to
the Company’s anticipated financial results for the first quarter of
fiscal 2019 and fiscal year 2019, or any other future period,
assessments of the Company’s performance and financial position, and
drivers of the Company’s sales and earnings growth. Such statements are
based on current expectations only, and are subject to certain risks,
uncertainties, and assumptions. Should one or more of these risks or
uncertainties materialize or not materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated, or projected. Certain of the risks and
uncertainties that could cause actual results and performance to differ
materially are described in the Company’s most recently filed Annual
Report on Form 10-K and other reports filed with the Securities and
Exchange Commission from time to time under the headings “Risk Factors”.
Included among the risks and uncertainties that may impact future
results are the risks of: financial difficulties for one or more of the
Company’s 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; losing one or more major customers, vendors, or
licensees due to competition, inadequate quality of the Company’s
products, or otherwise; negative publicity, including as a result of
product recalls or otherwise; a failure to protect the Company’s
intellectual property; a failure to meet regulatory requirements,
including those relating to product quality and safety; extreme or
unseasonable weather conditions; various types of litigation, including
class action litigation brought under various consumer protection,
employment, and privacy and information security laws; a breach of the
Company’s consumer databases, systems, or processes; deflationary
pressures on our selling price and increases in production costs;
unsuccessful expansion into international markets or failure to
successfully manage legal, regulatory, political and economic risks of
the Company’s existing operations, including unexpected changes in
regulatory requirements and maintaining compliance with worldwide
anti-bribery laws; disruptions, slow-downs, or strikes in the Company’s
supply chain, including disruptions resulting from increases in the cost
of raw materials or labor, foreign supply sources, the Company’s
distribution centers, or in-sourcing capabilities; failure to
successfully integrate acquired businesses; fluctuations in foreign
currency exchange rates; the imposition of new regulations relating to
imports, tariffs, duties, or taxes; and an inability to obtain
additional financing on favorable terms. The Company does not undertake
any obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events, or
otherwise.

   

CARTER’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except for share data)

(unaudited)

 
For the fiscal quarter ended For the fiscal year ended
December 29,
2018
  December 30,
2017
December 29,
2018
  December 30,
2017
Net sales $ 1,086,379 $ 1,027,880 $ 3,462,269 $ 3,400,504
Cost of goods sold 618,781   567,043   1,964,786   1,917,150  
Gross profit 467,598 460,837 1,497,483 1,483,354
Royalty income, net 10,357 11,063 38,930 43,181
Selling, general, and administrative expenses 307,358   325,508   1,144,980   1,106,928  
Operating income 170,597 146,392 391,433 419,607
Interest expense 8,779 7,685 34,569 30,044
Interest income (53 ) (86 ) (527 ) (345 )
Other expense (income), net 888   416   1,416   (1,164 )
Income before income taxes 160,983 138,377 355,975 391,072
Provision for income taxes 30,422   2,233   73,907   88,224  
Net income $ 130,561   $ 136,144   $ 282,068   $ 302,848  
 
Basic net income per common share $ 2.85 $ 2.88 $ 6.06 $ 6.31
Diluted net income per common share $ 2.83 $ 2.85 $ 6.00 $ 6.24
Dividend declared and paid per common share $ 0.45 $ 0.37 $ 1.80 $ 1.48
 
     

CARTER’S, INC.

CONDENSED BUSINESS SEGMENT RESULTS

(dollars in thousands)

(unaudited)

 
For the fiscal quarter ended For the fiscal year ended
December 29,
2018
  % of
total sales
  December 30,
2017
  % of
total sales
December 29,
2018
  % of
total sales
  December 30,
2017
  % of
total sales

Net sales:

U.S. Retail (a) $606,330 55.8 % $566,236 55.1 % $ 1,851,193 53.5 % $ 1,775,378 52.2 %
U.S. Wholesale 351,415 32.3 % 329,821 32.1 % 1,180,687 34.1 % 1,209,663 35.6 %
International (b) 128,634   11.9 % 131,822   12.8 % 430,389   12.4 % 415,463   12.2 %
Total net sales $1,086,379   100.0 % $1,027,879   100.0 % $ 3,462,269   100.0 % $ 3,400,504   100.0 %
 

Operating income:

Operating
margin

Operating

margin

Operating
margin

Operating
margin

U.S. Retail (c) (d) (j) $102,698 16.9 % $88,200 15.6 % $ 224,784 12.1 % $ 215,640 12.1 %
U.S. Wholesale (e) (f) (j) 75,799 21.6 % 68,017 20.6 % 224,194 19.0 % 252,090 20.8 %
International (g) (h) (i) (j) 18,746   14.6 % 18,418   14.0 % 39,253   9.1 % 46,426   11.2 %
Corporate expenses (k) (l) (26,646 ) (28,243 ) (96,798 ) (94,549 )
Total operating income $170,597   15.7 % $146,392   14.2 % $ 391,433   11.3 % $ 419,607   12.3 %
 
(a) Includes retail stores and eCommerce results.
(b) Includes international retail, eCommerce, and wholesale sales.
(c) Fiscal 2018 includes insurance recovery of approximately $0.4
million associated with unusual storm-related store closures in 2017.
(d) Fiscal 2017 includes approximately $2.7 million of expenses related
to store restructuring and approximately $12.7 million for a
provision for special employee compensation.
(e) Fiscal quarter ended December 29, 2018 includes a $1.9 million
recovery related to a customer bankruptcy claim settlement. Fiscal
year ended December 29, 2018 includes $10.9 million of net charges
related to a customer bankruptcy recorded in the first quarter of
fiscal 2018.
(f) Fiscal 2017 includes approximately $3.3 million for a provision for
special employee compensation.
(g) Includes international licensing royalty income.
(h) Includes costs associated with changes to the Company’s business
model in China of approximately $1.8 million and $5.3 million in the
fiscal quarter and fiscal year ended December 29, 2018, respectively.
(i) Fiscal 2017 includes approximately $2.3 million for a provision for
special employee compensation.
(j) $1.2 million of certain costs related to inventory acquired from
Skip Hop are included in the operating income of U.S. Wholesale,
U.S. Retail, and International for fiscal 2017.
(k) Includes expenses related to incentive compensation, stock-based
compensation, executive management, severance and relocation,
finance, building occupancy, information technology, and certain
legal, consulting, and audit fees.
(l) Corporate expenses (not allocated to segments) include the following
charges:

Contacts

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

Read full story here

error: Content is protected !!