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Press release from Business Wire

Carter's, Inc. Reports First Quarter 2012 Results

<ul> <li class='bwlistitemmargb'> <b>Net Sales $552 Million, Up 18%</b> </li> <li class='bwlistitemmargb'> <b>Net Income $32 Million; Earnings Per Share $0.54, Comparable to Prior Year</b> </li> </ul>

Thursday, April 26, 2012

Carter's, Inc. Reports First Quarter 2012 Results06:30 EDT Thursday, April 26, 2012 ATLANTA (Business Wire) -- Carter's, Inc. (NYSE:CRI), the largest branded marketer in the United States of apparel exclusively for babies and young children, today reported its first quarter 2012 results. “We continue to see strong demand for our products in all channels of distribution,” said Michael D. Casey, Chairman and Chief Executive Officer. “The strength of our product offerings and effectiveness of our pricing, marketing, and supply chain initiatives are driving better results. We are forecasting good growth in sales and earnings this year, with more meaningful earnings growth expected in the second half driven by lower product costs.” First Quarter of Fiscal 2012 compared to First Quarter of Fiscal 2011 Consolidated net sales increased $82.7 million, or 17.6%, to $551.7 million. Net domestic sales of the Company's Carter's brands increased $47.2 million, or 12.4%, to $426.7 million. Net domestic sales of the Company's OshKosh B'gosh brand increased $4.2 million, or 5.7%, to $78.3 million. Net international sales to customers outside the United States increased $31.3 million to $46.7 million. Operating income in the first quarter of 2012 was $53.8 million, an increase of $0.2 million, or 0.3%, from $53.6 million in the first quarter of 2011. First quarter 2012 pre-tax income includes expenses of approximately $1.8 million related to the planned closure of the Company's Hogansville, Georgia distribution center in 2013 and the revaluation of contingent consideration associated with the June 2011 acquisition of Bonnie Togs, a retailer of children's apparel in Canada. First quarter 2011 pre-tax income included approximately $1.0 million of expenses related to the acquisition of Bonnie Togs. Excluding the facility closure-related costs and the acquisition-related expenses noted above and detailed at the end of this release, adjusted operating income in the first quarter of 2012 was $55.6 million, an increase of $0.9 million, or 1.7%, compared to $54.7 million in the first quarter of 2011. Net income increased $0.2 million, or 0.5%, to $32.3 million, or $0.54 per diluted share, compared to $32.1 million, or $0.55 per diluted share, in the first quarter of 2011. Excluding the facility closure-related costs and the acquisition-related expenses noted above and detailed at the end of this release, adjusted net income in the first quarter of 2012 increased $0.9 million, or 2.7%, to $33.7 million, or $0.56 per diluted share. This compares to adjusted net income of $32.8 million, or $0.56 per diluted share, in the first quarter of 2011. A reconciliation of income as reported under accounting principles generally accepted in the United States of America (“GAAP”) to adjusted income is provided at the end of this release. Cash flow from operations in the first quarter of 2012 was $82.4 million, an increase of $73.1 million from the first quarter of 2011, principally due to favorable changes in net working capital. Business Segment Results As result of the Bonnie Togs acquisition in June 2011, the Company realigned its reportable segments. Effective October 1, 2011, the Company's reportable segments include Carter's retail, Carter's wholesale, OshKosh retail, OshKosh wholesale, and international. Results for previous periods have been recast to conform to the realigned segment presentation. Carter's Segments Carter's retail segment sales increased $39.3 million, or 28.5%, to $177.2 million. The increase was driven by incremental sales of $17.8 million from new store openings, incremental sales of $14.1 million from eCommerce sales, and a comparable store sales increase of $8.5 million, or 6.7%. This growth was partially offset by a sales decrease of $1.0 million attributed to store closings. In the first quarter of 2012, the Company opened 16 Carter's retail stores and closed three. As of the end of the first quarter, the Company operated 372 Carter's retail stores in the United States. Carter's wholesale segment sales grew $7.9 million, or 3.3%, to $249.5 million reflecting increased demand for the Company's Carter's, Child of Mine, and Just One You brands, partially offset by lower off-price sales. OshKosh B'gosh Segments OshKosh retail segment sales increased $4.0 million, or 7.4%, to $58.0 million. The increase reflects incremental sales of $3.5 million from eCommerce sales, a comparable store sales increase of $2.3 million, or 4.7%, and incremental sales of $0.5 million from new store openings. This growth was partially offset by a sales decrease of $2.2 million attributed to store closings. During the first quarter of 2012, the Company closed two OshKosh retail stores. As of the end of the first quarter, the Company operated 168 OshKosh retail stores in the United States. OshKosh wholesale segment sales increased $0.2 million, or 1.0%, to $20.3 million. International Segment International segment sales increased $31.3 million to $46.7 million, reflecting a benefit from the Bonnie Togs acquisition and higher wholesale sales. In the first quarter of 2012, the Company opened four stores in Canada. As of the end of the first quarter, the Company operated 69 stores in Canada. 2012 Business Outlook For the second quarter of fiscal 2012, the Company expects net sales to increase approximately 20% over the second quarter of fiscal 2011. The Company expects adjusted diluted earnings per share, excluding expenses totaling approximately $2 million related to the Bonnie Togs acquisition and the announced distribution center closure, or other items the Company believes to be nonrepresentative of underlying business performance, to be approximately $0.26 to $0.30, compared to adjusted diluted earnings per share of $0.23 in the second quarter of fiscal 2011. For fiscal 2012, the Company expects net sales will increase approximately 9% to 11% over fiscal 2011. The Company expects adjusted diluted earnings per share, excluding approximately $4 million to $5 million in expenses related to the Bonnie Togs acquisition, $3 million to $4 million in expenses related to the announced distribution center closure, or other items the Company believes to be nonrepresentative of underlying business performance, to increase approximately 20% to 25% compared to adjusted diluted earnings per share of $2.09 in fiscal 2011. Conference Call The Company will hold a conference call with investors to discuss first quarter 2012 results and its business outlook on April 26, 2012 at 8:30 a.m. Eastern Time. To participate in the call, please dial 913-312-0683. To listen to a live broadcast of the call on the internet, please log on to www.carters.com and select the “First Quarter 2012 Earnings Conference Call” link under the “Investor Relations” tab. Presentation materials for the call can be accessed at www.carters.com by selecting the “Conference Calls & Webcasts” link under the “Investor Relations” tab. A replay of the call will be available shortly after the broadcast through May 4, 2012, at 719-457-0820, passcode 6974692. 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 600 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 the 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 second quarter of 2012 and fiscal year 2012, 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 acceptance of the Company's products in the marketplace; changes in consumer preference and fashion trends; seasonal fluctuations in the children's apparel business; negative publicity; the breach of the Company's consumer databases; increased production costs; deflationary pricing pressures and customer acceptance of higher selling prices; a continued decrease in the overall level of consumer spending; the Company's dependence on its foreign supply sources; failure of its foreign supply sources to meet the Company's quality standards or regulatory requirements; the impact of governmental regulations and environmental risks applicable to the Company's business; disruption to our eCommerce business, distribution facilities, or in-sourcing capabilities; the loss of a product sourcing agent; increased competition in the baby and young children's apparel market; the ability of the Company to identify new retail store locations, and negotiate appropriate lease terms for the retail stores; the ability of the Company to adequately forecast demand, which could create significant levels of excess inventory; failure to successfully integrate Bonnie Togs into our existing business and realize growth opportunities and other benefits from the acquisition; failure to achieve sales growth plans, cost savings, and other assumptions that support the carrying value of the Company's intangible assets; and the ability to attract and retain key individuals within the organization. Many of these risks are further described in the most recently filed Annual Report on Form 10-K 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.CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except for share data) (unaudited)   Three-month periods endedMarch 31,2012   April 2,2011   Net sales $ 551,662 $ 469,000 Cost of goods sold   356,923     310,915   Gross profit 194,739 158,085 Selling, general, and administrative expenses 149,705 113,780 Royalty income   (8,766 )   (9,329) Operating income 53,800 53,634 Interest expense, net 1,957 1,850 Foreign currency loss   306     --   Income before income taxes 51,537 51,784 Provision for income taxes   19,262     19,661   Net income $32,275   $32,123     Basic net income per common share $ 0.55 $ 0.56   Diluted net income per common share $ 0.54 $ 0.55     CARTER'S, INC.BUSINESS SEGMENT RESULTS (unaudited)   For the three-month periods ended (dollars in thousands) March 31, 2012   % ofTotal   April 2,2011   % ofTotalNet sales:   Carter's Wholesale $ 249,485 45.2 % $ 241,619 51.5 % Carter's Retail (a)   177,204   32.1%   137,862   29.4% Total Carter's   426,689   77.3%   379,481   80.9%   OshKosh Retail (a) 57,988 10.5 % 53,994 11.5 % OshKosh Wholesale   20,274   3.7%   20,076   4.3% Total OshKosh   78,262   14.2%   74,070   15.8%   International (b)   46,711   8.5%   15,449   3.3%   Total net sales $551,662   100%$469,000   100%   Operating income (loss):% ofsegmentnet sales% ofsegmentnet sales   Carter's Wholesale $ 40,271 16.1 % $ 37,142 15.4 % Carter's Retail (a)   30,534   17.2 %   26,664   19.3 %   Total Carter's   70,805   16.6 %   63,806   16.8 %   OshKosh Retail (a) (7,459 ) (12.9 %) (5,402 ) (10.0 %) OshKosh Wholesale   120   0.6 %   1,563   7.8 %   Total OshKosh   (7,339) (9.4 %)   (3,839) (5.2 %)   International (b)   7,467   (c) 16.0 %   4,978   32.2 %   Total segment operating income 70,933 12.9 % 64,945 13.8 %   Corporate expenses (d)   (17,133) (e) (3.1 %)   (11,311) (f) (2.4 %)   Total operating income $53,800   9.8 % $53,634   11.4 %   (a) Includes eCommerce results. (b) Net sales include international retail and wholesale sales. Operating income includes international licensing income. (c) Includes a $0.7 million charge associated with the revaluation of the Company's contingent consideration for the three-month period ended March 31, 2012. (d) Corporate expenses generally include expenses related to incentive compensation, stock-based compensation, executive management, severance and relocation, finance, building occupancy, information technology, certain legal fees, consulting, and audit fees. (e) Includes $1.1 million in facility closure-related costs related to closure of a distribution facility located in Hogansville, Georgia. These costs include approximately $1.0 million of severance-related charges and $0.1 million of accelerated depreciation (recorded in selling, general, and administrative expenses). (f) Includes $1.0 million of professional service fees associated with the acquisition of Bonnie Togs for the three-month period ended April 2, 2011.       CARTER'S, INC.CONSOLIDATED BALANCE SHEETS (dollars in thousands, except for share data) (unaudited)   March 31, 2012December 31, 2011April 2, 2011ASSETS Current assets: Cash and cash equivalents $ 300,535 $ 233,494 $ 248,871 Accounts receivable, net 178,668 157,754 160,057 Finished goods inventories, net 265,691 347,215 217,458 Prepaid expenses and other current assets 16,425 18,519 19,650 Deferred income taxes   24,114     25,165     26,667     Total current assets 785,433 782,147 672,703 Property, plant, and equipment, net 127,736 122,346 92,553 Tradenames 306,109 306,176 305,733 Goodwill 189,696 188,679 136,570 Deferred debt issuance costs, net 2,447 2,624 3,155 Other intangible assets, net 244 258 -- Other assets   399     479     322   Total assets $1,412,064   $1,402,709   $1,211,036   LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ -- $ -- $ -- Accounts payable 67,610 102,804 53,077 Other current liabilities   51,484     49,949     49,640     Total current liabilities 119,094 152,753 102,717 Long-term debt 236,000 236,000 236,000 Deferred income taxes 113,773 114,421 112,453 Other long-term liabilities   100,555     93,826     46,873   Total liabilities   569,422     597,000     498,043     Commitments and contingencies Stockholders' equity: Preferred stock; par value $.01 per share; 100,000 shares authorized; none issued or outstanding at March 31, 2012, December 31, 2011, and April 2, 2011 -- -- -- Common stock, voting; par value $.01 per share; 150,000,000 shares authorized; 58,938,891, 58,595,421, and 57,761,103 shares issued and outstanding at March 31, 2012, December 31, 2011, and April 2, 2011, respectively 589 586 578 Additional paid-in capital 235,198 231,738 211,531 Accumulated other comprehensive loss (10,087 ) (11,282 ) (1,890 ) Retained earnings   616,942     584,667     502,774     Total stockholders' equity   842,642     805,709     712,993     Total liabilities and stockholders' equity $1,412,064   $1,402,709   $1,211,036       CARTER'S, INC.CONSOLIDATED STATEMENTS OF CASH FLOW (dollars in thousands) (unaudited)   For the three-month periods endedMarch 31, 2012   April 2,2011 Cash flows from operating activities: Net income $ 32,275 $ 32,123 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,495 8,130 Non-cash revaluation of contingent consideration 692 -- Amortization of Bonnie Togs tradename and non-compete agreements 94 -- Amortization of debt issuance costs 177 177 Non-cash stock-based compensation expense 2,868 2,151 Income tax benefit from stock-based compensation (1,535 ) (407 ) Loss on disposal / sale of property, plant, and equipment 391 100 Deferred income taxes 201 3,353 Effect of changes in operating assets and liabilities: Accounts receivable (20,807 ) (38,604 ) Inventories 82,000 81,051 Prepaid expenses and other assets 2,215 (2,284 ) Accounts payable and other liabilities   (24,624)   (76,496) Net cash provided by operating activities   82,442     9,294     Cash flows from investing activities: Capital expenditures (16,381 ) (6,813 ) Proceeds from sale of property, plant and equipment   6     --   Net cash used in investing activities   (16,375)   (6,813 )   Cash flows from financing activities: Payments on revolving credit facility (2,500 ) -- Proceeds from revolving credit facility 2,500 -- Income tax benefit from stock-based compensation 1,535 407 Withholdings from vesting of restricted stock (2,247 ) (1,406 ) Proceeds from exercise of stock options   1,682     7   Net cash provided by (used in) financing activities   970     (992 )   Effect of exchange rate changes on cash 4 -- Net increase in cash and cash equivalents 67,041 1,489 Cash and cash equivalents, beginning of period   233,494     247,382     Cash and cash equivalents, end of period $300,535   $248,871     CARTER'S INC.RECONCILIATION OF GAAP TO ADJUSTED RESULTS   Three-month period ended March 31, 2012 (dollars in millions, except earnings per share) SG&A   OperatingIncome   NetIncome   DilutedEPS   As reported (GAAP) $ 149.7 $ 53.8 $ 32.3 $ 0.54   Revaluation of contingent consideration (a) (0.7 ) 0.7 0.7 0.01   Facility closure-related costs (b)   (1.1)   1.1   0.7   0.01   As adjusted (d) $147.9   $55.6$33.7$0.56   Three-month period ended April 2, 2011 (dollars in millions, except earnings per share) SG&AOperatingIncomeNetIncomeDilutedEPS   As reported (GAAP) $ 113.8 $ 53.6 $ 32.1 $ 0.55   Professional fees / other expenses (c)   (1.0)   1.0   0.7   0.01   As adjusted (d) $112.7   $54.7$32.8$0.56 (a) Revaluation of the contingent consideration liability associated with the Company's June 2011 acquisition of Bonnie Togs. (b) Costs related to closure of a distribution facility located in Hogansville, Georgia, including severance and related benefits of $1.0 million and $0.1 million in accelerated depreciation. (c) Professional service fees associated with the acquisition of Bonnie Togs. (d) 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 SG&A, operating income, 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. 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. Note: Results may not be additive due to rounding.CARTER'S INC.RECONCILIATION OF GAAP TO ADJUSTED RESULTS   Three-month period ended July 2, 2011       SG&AOperatingIncomeNetIncomeDilutedEPS (dollars in millions, except earnings per share)   As reported (GAAP) $ 121.3 $ 22.0 $ 12.7 $ 0.22   Acquisition-related costs (a)   (1.2)   1.2   0.7   0.01   As adjusted (c) $120.1   $23.2$13.4$0.23   CARTER'S INC.RECONCILIATION OF GAAP TO ADJUSTED RESULTS   Twelve-month period ended December 31, 2011 (dollars in millions, except earnings per share) Gross Margin   SG&A   OperatingIncome   NetIncome   DilutedEPS   As reported (GAAP) $ 692.3 $ 542.1 $ 187.5 $ 114.0 $ 1.94 Acquisition-related expenses: Amortization of fair value step-up of inventory (b) 6.7 -- 6.7 4.8 0.08 Revaluation of contingent consideration -- (2.5 ) 2.5 2.5 0.04 Professional fees / other expenses (a)   --   (3.0)   3.0   1.9   0.03 Total acquisition-related expenses   6.7   (5.5)   12.2   9.2   0.15   As adjusted (c) $698.9$536.6   $199.7$123.2$2.09   (a) Professional service fees associated with the acquisition of Bonnie Togs. (b) Expense related to the amortization of the fair value step-up for Bonnie Togs inventory acquired. (c) 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 margin, SG&A, operating income, 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. 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. Note: Results may not be additive due to rounding.   CARTER'S, INC.RECONCILIATION OF NET INCOME ALLOCABLE TO COMMON SHAREHOLDERS   For the first quarter endedMarch 31, 2012   April 2, 2011 Weighted-average number of common and common equivalent shares outstanding: Basic number of common shares outstanding 58,057,275 57,049,228 Dilutive effect of unvested restricted stock 178,708 141,851 Dilutive effect of stock options   604,735     694,932   Diluted number of common and common equivalent shares outstanding   58,840,718     57,886,011     As reported on a GAAP Basis: Basic net income per common share: Net income $ 32,275,000 $ 32,123,000 Income allocated to participating securities   (442,525)   (364,477) Net income available to common shareholders $31,832,475   $31,758,523     Basic net income per common share $ 0.55 $ 0.56   Diluted net income per common share: Net income $ 32,275,000 $ 32,123,000 Income allocated to participating securities   (438,025)   (360,140) Net income available to common shareholders $31,836,975   $31,762,860     Diluted net income per common share $ 0.54 $ 0.55   As adjusted (a): Basic net income per common share: Net income $ 33,668,000 $ 32,777,000 Income allocated to participating securities   (461,625)   (371,897) Net income available to common shareholders $33,206,375   $32,405,103     Basic net income per common share $ 0.57 $ 0.57   Diluted net income per common share: Net income $ 33,668,000 $ 32,777,000 Income allocated to participating securities   (456,930)   (367,472) Net income available to common shareholders $33,211,070   $32,409,528     Diluted net income per common share $ 0.56 $ 0.56   (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 $1.4 million and $0.7 million in after-tax non-recurring expenses from these results for the three-month periods ended March 31, 2012 and April 2, 2011, respectively. Carter?s, Inc.Sean McHugh, 404-745-2889Vice PresidentInvestor Relations & Treasury