- Net sales $948 million, growth of
5%
- Diluted EPS $1.71, growth of 7%;
adjusted diluted EPS $1.70, growth of 6%
- Returned $204 million to
shareholders through share repurchases and dividends in the first
three quarters of fiscal 2017
- Company acquires licensee in
Mexico
- Q4 fiscal 2017 outlook: net sales
growth of 10%; adjusted diluted EPS growth of 21%
- Full year fiscal 2017 outlook: net
sales growth of 6%; adjusted diluted EPS growth of 9%
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 2017 results.
“We achieved our third quarter sales and earnings objectives,
despite the significant impact of hurricanes in Texas, Florida, and
Puerto Rico,” said Michael D. Casey, Chairman and Chief Executive
Officer. “Our growth was led by our U.S. retail and international
businesses, including the contribution of our Skip Hop brand which
we acquired earlier this year. We also announced today the
acquisition of our licensee in Mexico, an investment which we
believe will strengthen our leading market position in North
America. Given the strength of our fall and holiday product
offerings, together with the contribution of our new opportunities
with Skip Hop, Amazon, China, and Mexico, we believe we are on
track to achieve our growth objectives this year, our 29th
consecutive year of sales growth.”
Acquisition of Licensee in Mexico
On August 1, 2017, the Company acquired its licensee in Mexico.
The licensee’s 2016 net sales, from wholesale and retail store
operations, were approximately $525 million Mexican Pesos, or
approximately $28 million U.S. Dollars at the current exchange
rate.
Consolidated Results
Third Quarter of Fiscal 2017 compared to Third Quarter of Fiscal
2016
Net sales increased $46.8 million, or 5.2%, to $948.2 million,
principally driven by growth in the Company’s U.S. Retail segment
and the benefit of Skip Hop, which was acquired by the Company in
February 2017. Skip Hop, a global lifestyle brand for families with
young children, and the recently-acquired business in Mexico
contributed $27.9 million and $4.5 million, respectively, to
consolidated net sales growth in the third quarter of fiscal 2017.
Changes in foreign currency exchange rates in the third quarter of
fiscal 2017 compared to the third quarter of fiscal 2016 favorably
affected consolidated net sales in the third quarter of fiscal 2017
by $3.3 million, or 0.4%. On a constant currency basis (a non-GAAP
measure), consolidated net sales increased 4.8% in the third
quarter of fiscal 2017.
Operating income in the third quarter of fiscal 2017 decreased
$0.2 million, or 0.1%, to $130.7 million, compared to $130.9
million in the third quarter of fiscal 2016. Operating margin
decreased 70 basis points to 13.8%, compared to 14.5% in the third
quarter of fiscal 2016.
Adjusted operating income (a non-GAAP measure) decreased $0.2
million, or 0.2%, to $131.2 million, compared to $131.4 million in
the third quarter of fiscal 2016. Adjusted operating margin (a
non-GAAP measure) decreased 80 basis points to 13.8%, compared to
14.6% in the third quarter of fiscal 2016, which principally
reflects increased investments in retail operations, marketing, and
technology, partially offset by favorable product costs.
Net income in the third quarter of fiscal 2017 increased $1.7
million, or 2.1%, to $82.5 million, or $1.71 per diluted share,
compared to $80.8 million, or $1.60 per diluted share, in the third
quarter of fiscal 2016.
Adjusted net income (a non-GAAP measure) increased $1.0 million,
or 1.3%, to $82.2 million, compared to $81.1 million in the third
quarter of fiscal 2016. Adjusted earnings per diluted share (a
non-GAAP measure) in the third quarter of fiscal 2017 increased
5.8% to $1.70, compared to $1.61 in the third quarter of fiscal
2016.
First Three Quarters of Fiscal 2017 compared to First Three
Quarters of Fiscal 2016
Net sales increased $108.1 million, or 4.8%, to $2.37 billion,
principally driven by growth in the Company’s U.S. Retail segment
and the benefit of the Skip Hop acquisition. The Skip Hop and
Mexico acquisitions contributed $63.3 million and $4.5 million,
respectively, to consolidated net sales growth in the first three
quarters of fiscal 2017. Changes in foreign currency exchange rates
in the first three quarters of fiscal 2017 compared to the first
three quarters of fiscal 2016 favorably affected consolidated net
sales in the third quarter of fiscal 2017 by $2.1 million, or 0.1%.
On a constant currency basis (a non-GAAP measure), consolidated net
sales increased 4.7% in the first three quarters of fiscal
2017.
Operating income in the first three quarters of fiscal 2017
decreased $13.3 million, or 4.6%, to $273.8 million, compared to
$287.1 million in the first three quarters of fiscal 2016.
Operating margin decreased 120 basis points to 11.5%, compared to
12.7% in the first three quarters of fiscal 2016.
Adjusted operating income (a non-GAAP measure) decreased $12.0
million, or 4.1%, to $277.4 million, compared to $289.4 million in
the first three quarters of fiscal 2016. Adjusted operating margin
(a non-GAAP measure) decreased 110 basis points to 11.7%, compared
to 12.8% in the first three quarters of fiscal 2016, which
principally reflects increased investments in retail operations,
marketing, and technology, partially offset by favorable product
costs.
Net income in the first three quarters of fiscal 2017 decreased
$3.9 million, or 2.3%, to $167.1 million, or $3.43 per diluted
share, compared to $171.0 million, or $3.34 per diluted share, in
the first three quarters of fiscal 2016.
Adjusted net income (a non-GAAP measure) decreased $3.7 million,
or 2.1%, to $168.7 million, compared to $172.4 million in the first
three quarters of fiscal 2016. Adjusted earnings per diluted share
(a non-GAAP measure) in the first three quarters of fiscal 2017
increased 2.7% to $3.46, compared to $3.37 in the first three
quarters of fiscal 2016.
Cash flow from operations in the first three quarters of fiscal
2017 was $117.5 million compared to $116.6 million in the first
three quarters of fiscal 2016.
See the “Reconciliation of GAAP to Adjusted Results” section of
this release for additional disclosures and reconciliations
regarding non-GAAP measures.
Business Segment Results
At the beginning of fiscal 2017, the Company combined its
Carter’s Retail and OshKosh Retail segments into a single U.S.
Retail operating segment, and its Carter’s Wholesale and OshKosh
Wholesale segments into a single U.S. Wholesale operating segment,
to reflect the sales-channel approach executive management now uses
to evaluate business performance and manage operations in the U.S.
The International segment was not affected by these changes. The
Company’s reportable segments are now U.S. Retail, U.S. Wholesale,
and International. Prior periods have been conformed to reflect
this current segment structure.
U.S. Retail Segment
In the third quarter and the first three fiscal quarters of
fiscal 2017, the Company believes that U.S. Retail segment
comparable sales were negatively affected by hurricanes in Texas,
the Southeast, and Puerto Rico, as well as abnormally warm weather
throughout much of the United States during the third quarter of
fiscal 2017.
Third Quarter of Fiscal 2017 compared to Third Quarter of Fiscal
2016
U.S. Retail segment sales increased $32.3 million, or 7.7%, to
$454.0 million. U.S. Retail comparable sales increased 2.6%,
comprised of comparable eCommerce sales growth of 20.9%, partially
offset by a comparable stores sales decline of 3.2%. Skip Hop
contributed $1.8 million to segment net sales in the third quarter
of fiscal 2017.
In the third quarter of fiscal 2017, the Company opened 12
stores and closed one store in the United States.
First Three Quarters of Fiscal 2017 compared to First Three
Quarters of Fiscal 2016
U.S. Retail segment sales increased $81.1 million, or 7.2%, to
$1.21 billion. U.S. Retail comparable sales increased 1.7%,
comprised of comparable eCommerce sales growth of 22.5%, partially
offset by a comparable stores sales decline of 4.3%. Skip Hop
contributed $3.0 million to segment net sales in the first three
quarters of fiscal 2017.
In the first three quarters of fiscal 2017, the Company opened
38 stores and closed nine stores in the United States.
As of the end of the third quarter of fiscal 2017, the Company
operated 821 retail stores in the United States, comprised of 608
single brand and 213 dual-brand stores.
U.S. Wholesale Segment
Third Quarter of Fiscal 2017 compared to Third Quarter of Fiscal
2016
U.S. wholesale segment net sales decreased $4.2 million, or
1.1%, to $369.6 million, reflecting a decrease in demand for
Carter’s and OshKosh products, partially offset by the benefit of
the Skip Hop acquisition. Skip Hop contributed $16.3 million to
segment net sales in the third quarter of fiscal 2017.
First Three Quarters of Fiscal 2017 compared to First Three
Quarters of Fiscal 2016
U.S. wholesale segment net sales decreased $1.1 million, or
0.1%, to $879.8 million, reflecting a decrease in demand for
Carter’s and OshKosh products, partially offset by the benefit of
the Skip Hop acquisition. Skip Hop contributed $38.1 million to
segment net sales in the first three quarters of fiscal 2017.
International Segment
Third Quarter of Fiscal 2017 compared to Third Quarter of Fiscal
2016
International segment net sales increased $18.6 million, or
17.6%, to $124.6 million, reflecting the benefits of the Skip Hop
and Mexico acquisitions and growth in Canada and China, partially
offset by decreased wholesale demand in other markets outside of
the U.S. The Skip Hop and Mexico acquisitions contributed $9.9
million and $4.5 million, respectively, to segment net sales growth
in the third quarter of fiscal 2017.
Changes in foreign currency exchange rates in the third quarter
of fiscal 2017 compared to the third quarter of fiscal 2016
favorably affected international segment net sales in the third
quarter of fiscal 2017 by $3.3 million, or 3.1%. On a constant
currency basis (a non-GAAP measure), international segment net
sales increased 14.5%.
For the third quarter of fiscal 2017, Canada retail comparable
sales increased 0.7%, comprised of comparable eCommerce sales
growth of 60.7%, mostly offset by a comparable stores sales decline
of 3.9%. In the third quarter of fiscal 2017, the Company opened
four stores in Canada.
First Three Quarters of Fiscal 2017 compared to First Three
Quarters of Fiscal 2016
International segment net sales increased $28.1 million, or
11.0%, to $283.6 million, reflecting the benefits of the Skip Hop
and Mexico acquisitions and growth in Canada and China, partially
offset by decreased wholesale demand in other markets outside of
the U.S. The Skip Hop and Mexico acquisitions contributed $22.2
million and $4.5 million, respectively, to segment net sales growth
in the first three quarters of fiscal 2017.
Changes in foreign currency exchange rates in the first three
quarters of fiscal 2017 compared to the first three quarters of
fiscal 2016 favorably affected international segment net sales in
the first three quarters of fiscal 2017 by $2.1 million, or 0.8%.
On a constant currency basis (a non-GAAP measure), international
segment net sales increased 10.2%.
For the first three quarters of fiscal 2017, Canada retail
comparable sales increased 0.3%, comprised of comparable eCommerce
sales growth of 50.4%, offset by a comparable stores sales decline
of 3.3%.
In the first three quarters of fiscal 2017, the Company opened
10 stores and closed two stores in Canada. As of the end of the
third quarter of fiscal 2017, the Company operated 172 retail
stores in Canada and 40 retail stores in Mexico.
Return of Capital
In the third quarter and first three quarters of fiscal 2017,
the Company returned to shareholders, through share repurchases and
cash dividends, a total of $70.4 million and $204.4 million,
respectively, as described below.
During the third quarter of fiscal 2017, the Company repurchased
and retired 596,178 shares of its common stock for $52.7 million at
an average price of $88.47 per share. In the first three quarters
of fiscal 2017, the Company repurchased and retired 1,727,587
shares of its common stock for $151.0 million at an average price
of $87.39 per share. Fiscal year-to-date through October 25, 2017,
the Company repurchased and retired a total of 1,850,762 shares for
$162.6 million at an average price of $87.83 per share. All shares
were repurchased in open market transactions pursuant to applicable
regulations for such transactions. As of October 25, 2017, the
total remaining capacity under the Company’s previously announced
repurchase authorizations was approximately $112 million.
During the third quarter of fiscal 2017, the Company paid a cash
dividend of $0.37 per share totaling $17.6 million. In the first
three quarters of fiscal 2017, the Company paid cash dividends
totaling $1.11 per share, or $53.4 million. Future declarations of
quarterly dividends and the establishment of related record and
payment dates will be at the discretion of the Company’s Board of
Directors based on a number of factors, including the Company’s
future financial performance and other considerations.
2017 Business Outlook
For fiscal 2017, the Company projects net sales to increase
approximately 6% compared to fiscal 2016 and adjusted earnings per
diluted share to increase approximately 9% compared to adjusted
earnings per diluted share of $5.14 in fiscal 2016. This forecast
for fiscal 2017 adjusted earnings per diluted share excludes: (1)
anticipated expenses of approximately $4.6 million related to
acquisitions, $2.7 million related to retail store restructuring,
and $0.3 million related to the Company's direct sourcing
initiative, which includes severance and relocation costs, and (2)
a benefit of approximately $3.6 million related to an acquisition
contingency fair value adjustment.
For the fourth quarter of fiscal 2017, the Company projects net
sales to increase approximately 10% compared to the fourth quarter
of fiscal 2016 and adjusted earnings per diluted share to increase
approximately 21% compared to adjusted earnings per diluted share
of $1.79 in the fourth quarter of fiscal 2016. This forecast for
the fourth quarter of fiscal 2017 adjusted earnings per diluted
share excludes anticipated expenses of approximately $0.5 million
related to acquisitions
The Company believes non-GAAP measurements, including adjusted
earnings per diluted share, 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.
Conference Call
The Company will hold a conference call with investors to
discuss third quarter fiscal 2017 results and its business outlook
on October 26, 2017 at 8:30 a.m. Eastern Daylight Time. To
participate in the call, please dial 719-457-2602. To listen to a
live broadcast via the internet, please visit www.carters.com and
select the “Q3 2017 Earnings Conference Call” link under the
“Investor Relations” tab. Presentation materials for the call can
be accessed under the same tab by selecting the link for “News
& Events” followed by “Webcasts & Presentations”. A replay
of the call will be available shortly after the broadcast through
November 4, 2017, at 888-203-1112 (U.S. / Canada) or 719-457-0820
(international), passcode 2017321. 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 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 1,000 Company-operated stores in the United
States, Canada, and Mexico and on-line at www.carters.com,
www.oshkosh.com, and www.cartersoshkosh.ca. The Company’s Just One
You, Precious Firsts, 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 fourth
quarter of fiscal 2017 and fiscal year 2017, 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: losing one or more
major customers, vendors, or licensees, due to competition,
inadequate quality of the Company’s products, or otherwise;
financial difficulties for one or more of the Company’s major
customers, vendors, or licensees, or an overall decrease in
consumer spending; fluctuations in foreign currency exchange rates;
our products not being accepted in the marketplace, due to quality
concerns, changes in consumer preference and fashion trends, or
otherwise; negative publicity, including as a result of product
recalls or otherwise; failure to protect the Company’s intellectual
property; 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; the risk of
slow-downs, disruptions, or strikes along the Company’s supply
chain, including disruptions resulting from foreign supply sources,
the Company’s distribution centers, or in-sourcing capabilities;
unsuccessful expansion into international markets or failure to
successfully manage legal, regulatory, political and economic risks
of the Company’s existing international operations, including
maintaining compliance with worldwide anti-bribery laws; 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 per share
data)
(unaudited)
Fiscal Quarter Ended Three Fiscal Quarters
Ended September 30, September 30,
2017 October 1, 2016 2017 October 1,
2016 Net sales $ 948,232 $ 901,425 $ 2,373,104 $ 2,264,981 Cost
of goods sold 544,384 525,879 1,349,997
1,296,324 Gross profit 403,848 375,546 1,023,107 968,657
Selling, general, and administrative expenses 283,480 255,322
781,420 712,782 Royalty income (10,350 ) (10,670 ) (32,118 )
(31,270 ) Operating income 130,718 130,894 273,805 287,145 Interest
expense 8,061 6,779 22,359 20,321 Interest income (41 ) (68 ) (259
) (453 ) Other (income) expense, net (815 ) (36 ) (1,580 ) 3,673
Income before income taxes 123,513 124,219 253,285 263,604
Provision for income taxes 41,027 43,408 86,210
92,615 Net income $ 82,486 $ 80,811 $
167,075 $ 170,989 Basic net income per common
share $ 1.73 $ 1.62 $ 3.47 $ 3.37 Diluted net income per common
share $ 1.71 $ 1.60 $ 3.43 $ 3.34 Dividend declared and paid per
common share $ 0.37 $ 0.33 $ 1.11 $ 0.99
CARTER’S, INC. BUSINESS SEGMENT RESULTS
(dollars in thousands)
(unaudited)
Fiscal Quarter Ended Three Fiscal Quarters
Ended September % of %
of
September
% of % of 30, Total
Net October 1, Total Net
30,
Total Net October 1, Total Net 2017
Sales 2016 Sales 2017 Sales
2016 Sales Net sales: U.S.
Wholesale $ 369,577 39.0 % $ 373,732 41.4 % $ 879,842 37.1 % $
880,908 38.9 % U.S. Retail (a) 454,032 47.9 % 421,698 46.8 %
1,209,625 50.9 % 1,128,569 49.8 % International (b) 124,623
13.1 % 105,995 11.8 % 283,637 12.0 % 255,504
11.3 % Total net sales $ 948,232 100.0 % $ 901,425
100.0 % $ 2,373,104 100.0 % $ 2,264,981 100.0 %
% of % of % of % of
Segment Segment Segment Segment
Operating income (loss): Net Sales Net Sales
Net Sales Net Sales U.S. Wholesale (i) $ 78,572 21.3
% $ 86,001 23.0 % $ 184,073 20.9 % $ 195,921 22.2 % U.S. Retail (a)
(h) (i) 55,789 12.3 % 50,703 12.0 % 128,031 10.6 % 127,124 11.3 %
International (b) (i) 16,726 13.4 % 19,645 18.5 % 28,008 9.9 %
37,191 14.6 %
Corporate expenses (c) (d) (e) (f) (g)
(20,369 ) (25,455 ) (66,307 ) (73,091 ) Total operating income $
130,718 13.8 % $ 130,894 14.5 % $ 273,805 11.5
% $ 287,145 12.7 % (a) Includes retail store
and eCommerce results. (b) Net sales includes international retail,
eCommerce, and wholesale sales. (c) Corporate expenses include
expenses related to incentive compensation, stock-based
compensation, executive management, severance and relocation,
finance, office occupancy, information technology, legal,
consulting, and audit fees. (d) Includes charges related to the
amortization of the H.W. Carter and Sons tradenames of
approximately $1.7 million for the three fiscal quarters ended
October 1, 2016. (e) Includes acquisition-related costs of
approximately $0.8 million and $3.3 million for the fiscal quarter
and three fiscal quarters ended 30, 2017, respectively. The $3.3
million for the three fiscal quarters ended September 30, 2017
includes approximately $0.7 million of costs incurred during the
first and second quarters of fiscal 2017 that were not originally
reported as acquisition-related costs. (f) Includes an expense
credit of $3.6 million for the fiscal quarter and three fiscal
quarters ended September 30, 2017 due to an acquisition contingency
fair value adjustment. (g) Includes charges related to the
Company's direct sourcing initiative of approximately $0.1 million
and $0.3 million for the fiscal quarter and three fiscal quarters
ended September 30, 2017, respectively, and $0.5 million for the
fiscal quarter and three fiscal quarters ended October 1, 2016. (h)
Includes approximately $2.7 million of expenses recognized during
the third quarter and first three quarters of fiscal 2017 related
to store restructuring costs. (i) $0.4 million and $0.8 million of
certain costs related to inventory acquired from Skip Hop is
included in operating income of U.S. Wholesale, U.S. Retail, and
International for the fiscal quarter and three fiscal quarters
ended September 30, 2017, respectively.
CARTER’S, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share
data)
(unaudited)
September 30, December 31, 2017
2016 October 1, 2016 ASSETS Current assets:
Cash and cash equivalents $ 105,370 $ 299,358 $ 140,626 Accounts
receivable, net 285,651 202,471 271,207 Finished goods inventories
609,996 487,591 552,726 Prepaid expenses and other current assets
48,083 32,180 43,155 Deferred income taxes — 35,486
37,600 Total current assets 1,049,100 1,057,086 1,045,314
Property, plant, and equipment, net of accumulated depreciation of
$387,041, $345,907, and $333,660, respectively 382,014 385,874
388,440 Tradenames and other intangible assets, net 412,217 308,928
308,973 Goodwill 234,193 176,009 176,956 Other assets 26,539
18,700 18,022 Total assets $ 2,104,063 $
1,946,597 $ 1,937,705
LIABILITIES AND
STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $
193,878 $ 158,432 $ 155,223 Other current liabilities 134,031
119,177 126,922 Total current liabilities
327,909 277,609 282,145 Long-term debt, net 687,074 580,376
580,613 Deferred income taxes 138,239 130,656 129,278 Other
long-term liabilities 178,878 169,832 169,535
Total liabilities 1,332,100 1,158,473 1,161,571 Commitments
and contingencies Stockholders' equity: Preferred stock; par
value $.01 per share; 100,000 shares authorized; none issued or
outstanding at September 30, 2017, December 31, 2016, and October
1, 2016 — — — Common stock, voting; par value $.01 per share;
150,000,000 shares authorized; 47,419,316, 48,948,670 and
49,625,609 shares issued and outstanding at September 30, 2017,
December 31, 2016 and October 1, 2016, respectively 474 489 496
Accumulated other comprehensive loss (26,496 ) (34,740 ) (31,889 )
Retained earnings 797,985 822,375 807,527
Total stockholders' equity 771,963 788,124 776,134
Total liabilities and stockholders' equity $ 2,104,063
$ 1,946,597 $ 1,937,705
CARTER’S, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(dollars in thousands)
(unaudited)
Three Fiscal Quarters Ended September
30, 2017 October 1, 2016 Cash flows from
operating activities: Net income $ 167,075 $ 170,989 Adjustments to
reconcile net income to net cash provided by operating activities:
Depreciation and amortization 60,455 52,384 Amortization of
intangible assets 1,687 1,875 Adjustment to earn-out liability
(3,600 ) — Amortization of debt issuance costs 1,143 1,092 Non-cash
stock-based compensation expense 13,451 13,026 Foreign currency
(gain) loss, net (1,154 ) 2,361 Income tax benefit from stock-based
compensation — (4,067 ) Loss on disposal of property, plant, and
equipment 602 821 Deferred income taxes (841 ) (2,333 ) Effect of
changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net (62,298 ) (63,436 ) Finished goods
inventories (81,285 ) (81,011 ) Prepaid expenses and other assets
(17,754 ) (10,138 ) Accounts payable and other liabilities 40,025
35,011 Net cash provided by operating activities
117,506 116,574 Cash flows from investing
activities: Capital expenditures (51,656 ) (71,190 ) Acquisitions
of businesses, net of cash acquired (159,365 ) — Proceeds from sale
of property, plant, and equipment — 216 Net cash used
in investing activities (211,021 ) (70,974 ) Cash flows from
financing activities: Payment of debt issuance costs (2,138 ) —
Borrowings under secured revolving credit facility 200,000 —
Payments on secured revolving credit facility (93,965 ) —
Repurchases of common stock (150,974 ) (239,138 ) Dividends paid
(53,443 ) (50,131 ) Income tax benefit from stock-based
compensation — 4,067 Withholdings from vestings of restricted stock
(5,654 ) (8,594 ) Proceeds from exercises of stock options 5,140
6,386 Net cash used in financing activities (101,034
) (287,410 ) Effect of exchange rate changes on cash and
cash equivalents 561 1,227 Net decrease in cash and
cash equivalents (193,988 ) (240,583 ) Cash and cash equivalents,
beginning of period 299,358 381,209 Cash and cash
equivalents, end of period $ 105,370 $ 140,626
CARTER’S, INC. RECONCILIATION OF GAAP TO ADJUSTED
RESULTS
(dollars in millions, except earnings per
share)
(unaudited)
Fiscal Quarter Ended September 30, 2017 Gross
% Net % Net
Operating % Net Net
Diluted Margin Sales SG&A
Sales Income Sales Income EPS
As reported (GAAP) $ 403.8 42.6 % $ 283.5 29.9 % $ 130.7
13.8 % $ 82.5 $ 1.71 Store restructuring costs (b) — (2.7 ) 2.7 2.0
0.04 Acquisition-related costs (b) 0.4 (0.8 ) 1.2 1.2 0.02 Direct
sourcing initiative (b) (c) — (0.1 ) 0.1 0.1 — Acquisition
contingency fair value adjustment — 3.6 (3.6 ) (3.6 )
(0.07 )
As adjusted (a) $ 404.2 42.6 % $ 283.4
29.9 % $ 131.2 13.8 % $ 82.2 $ 1.70
Three Fiscal Quarters Ended September 30, 2017
Gross % Net % Net Operating %
Net Net Diluted Margin Sales
SG&A Sales Income Sales
Income EPS As reported (GAAP) $ 1,023.1 43.1 %
$ 781.4 32.9 % $ 273.8 11.5 % $ 167.1 $ 3.43 Acquisition-related
costs (b) (d) 0.8 (3.3 ) 4.1 3.3 0.07 Store restructuring costs (b)
— (2.7 ) 2.7 1.7 0.04 Direct sourcing initiative (b) (c) — (0.3 )
0.3 0.2 — Acquisition contingency fair value adjustment —
3.6 (3.6 ) (3.6 ) (0.07 )
As adjusted (a) $ 1,023.9
43.1 % $ 778.6 32.8 % $ 277.4 11.7 % $ 168.7
$ 3.46
Fiscal Quarter Ended October
1, 2016 Gross % Net % Net Operating
% Net Net Diluted Margin Sales
SG&A Sales Income Sales
Income EPS As reported (GAAP) $ 375.5 41.7 % $
255.3 28.3 % $ 130.9 14.5 % $ 80.8 $ 1.60 Direct sourcing
initiative (b) (c) — (0.5 ) 0.5 0.3 0.01
As adjusted (a) $ 375.5 41.7 % $ 254.8
28.3 % $ 131.4 14.6 % $ 81.1 $ 1.61
Three Fiscal Quarters Ended October 1, 2016
Gross % Net % Net Operating %
Net Net Diluted Margin Sales
SG&A Sales Income Sales
Income EPS As reported (GAAP) $ 968.7 42.8 % $
712.8 31.5 % $ 287.1 12.7 % $ 171.0 $ 3.34 Amortization of
tradename (b) — (1.7 ) 1.7 1.1 0.02 Direct sourcing initiative (b)
(c) — (0.5 ) 0.5 0.3 0.01
As
adjusted (a) $ 968.7 43.5 % $ 710.5 31.4 % $
289.4 12.8 % $ 172.4 $ 3.37 (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 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 and affords 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) The
difference between the impacts on Operating Income and Net Income
represents the income taxes related to the adjustment item
(calculated using the applicable tax rate of the underlying
jurisdiction). (c) Costs associated with the Company's direct
sourcing initiative, which includes severance and relocation. (d)
SG&A and operating income include approximately $0.7 million of
costs incurred during the first and second quarters of fiscal 2017
that were not originally reported as acquisition-related costs.
Note: Results may not be additive due to
rounding.
CARTER’S, INC. RECONCILIATION OF GAAP TO
ADJUSTED RESULTS
(dollars in millions, except earnings per
share)
(unaudited)
Fiscal Quarter Ended December 31, 2016 Gross
Operating Margin
SG&A Income Net Income Diluted EPS
As reported (GAAP) $ 410.5 $ 282.6 $ 139.4 $ 87.1 $ 1.76
Acquisition-related costs (b) — (2.4 ) 2.4 1.5 0.03 Direct sourcing
initiative (b) (c) — (0.2 ) 0.2 0.1 —
As
adjusted (a) $ 410.5 $ 280.0 $ 142.0 $
88.7 $ 1.79
Fiscal Year Ended December 31,
2016 Gross Operating Margin
SG&A Income Net Income Diluted EPS
As reported (GAAP) $ 1,379.1 $ 995.4 $ 426.6 $ 258.1 $ 5.08
Acquisition-related costs (b) — (2.4 ) 2.4 1.5 0.03 Amortization of
tradename (b) — (1.7 ) 1.7 1.1 0.02 Direct sourcing initiative (b)
(c) — (0.7 ) 0.7 0.5 0.01
As adjusted
(a) $ 1,379.1 $ 990.6 $ 431.4 $ 261.1
$ 5.14 (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
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 and affords 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) The
difference between the impacts on Operating Income and Net Income
represents the income taxes related to the adjustment item
(calculated using the applicable tax rate of the underlying
jurisdiction). (c) Costs associated with the Company's direct
sourcing initiative, which include severance and relocation.
Note: 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, October 1,
September 30, October 1, 2017
2016 2017 2016 Weighted-average number of
common and common equivalent shares outstanding: Basic number of
common shares outstanding 47,303,074 49,526,480 47,829,794
50,282,345 Dilutive effect of equity awards 541,325 460,271
549,213 470,050 Diluted number of common and
common equivalent shares outstanding 47,844,399 49,986,751
48,379,007 50,752,395
As reported on a
GAAP Basis:
(dollars in thousands, except per share data) Basic net income per
common share: Net income $ 82,486 $ 80,811 $ 167,075 $ 170,989
Income allocated to participating securities (653 ) (632 ) (1,314 )
(1,359 ) Net income available to common shareholders $ 81,833
$ 80,179 $ 165,761 $ 169,630 Basic net
income per common share $ 1.73 $ 1.62 $ 3.47 $ 3.37 Diluted net
income per common share: Net income $ 82,486 $ 80,811 $ 167,075 $
170,989 Income allocated to participating securities (647 ) (627 )
(1,304 ) (1,350 ) Net income available to common shareholders $
81,839 $ 80,184 $ 165,771 $ 169,639
Diluted net income per common share $ 1.71 $
1.60
$ 3.43 $ 3.34
As adjusted
(a):
Basic net income per common share: Net income $ 82,170 $ 81,135 $
168,739 $ 172,411 Income allocated to participating securities (650
) (634 ) (1,328 ) (1,371 ) Net income available to common
shareholders $ 81,520 $ 80,501 $ 167,411 $
171,040 Basic net income per common share $ 1.72 $ 1.63 $
3.50 $ 3.40 Diluted net income per common share: Net income $
82,170 $ 81,135 $ 168,739 $ 172,411 Income allocated to
participating securities (645 ) (629 ) (1,317 ) (1,362 ) Net income
available to common shareholders $ 81,525 $ 80,506 $
167,422 $ 171,049 Diluted net income per common share
$ 1.70 $ 1.61 $ 3.46 $ 3.37 (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 $0.3 million in after-tax net
credits and $1.7 million in after-tax expenses from these results
for the fiscal quarter and three fiscal quarters ended September
30, 2017, respectively. The Company has excluded $0.3 million and
$1.4 million in after-tax expenses from these results for the
fiscal quarter and three fiscal quarters ended October 1, 2016,
respectively.
Note: Results may not be additive due to
rounding.
RECONCILIATION OF U.S. GAAP AND NON-GAAP
INFORMATION(unaudited)
The following table provides a reconciliation of net income to
EBITDA and Adjusted EBITDA for the periods indicated:
Four Fiscal Fiscal Quarter Ended
Three Fiscal Quarters Ended Quarters Ended
September 30,
October 1,
September 30,
October 1,
September 30, 2017
2016
2017
2016
2017 (dollars in millions) Net income $ 82.5 $ 80.8 $ 167.1
$ 171.0 $ 254.2 Interest expense 8.1 6.8 22.4 20.3 29.1 Interest
income — (0.1 ) (0.3 ) (0.4 ) (0.4 ) Income tax expense 41.0 43.4
86.2 92.6 131.6 Depreciation and amortization (a) 21.5 17.5
62.1 54.3 81.3 EBITDA $ 153.1 $
148.4 $ 337.5 $ 337.7 $ 495.8
Adjustments to EBITDA Acquisition-related costs $ 1.2 $ — $
4.1 $ — $ 6.5 Store restructuring costs 2.7 — 2.7 — 2.7 Direct
sourcing initiative (b) 0.1 0.5 0.3 0.5 0.5 Acquisition contingency
fair value adjustment (3.6 ) — (3.6 ) — (3.6 )
Adjusted EBITDA $ 153.5 $ 148.9 $ 341.1
$ 338.2 $ 501.9 (a) Includes
amortization of acquired tradename. (b) Pre-tax costs associated
with the Company's direct sourcing initiative, which includes
severance and relocation.
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 listed in 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 tables below reflect the calculation of constant currency
for total net sales of the International segment and consolidated
net sales for the fiscal quarter and three fiscal quarters ended
September 30, 2017:
Fiscal Quarter Ended
Reported
Net Sales
September
30, 2017
Impact of
Foreign
Currency
Translation
Constant-
Currency
Net Sales
September
30, 2017
Reported
Net Sales
October 1,
2016
Reported
Net Sales
% Change
Constant-
Currency
Net Sales
% Change
Consolidated net sales $ 948.2 $ 3.3 $ 944.9 $ 901.4 5.2 %
4.8 % International segment net sales $ 124.6 $ 3.3 $ 121.3 $ 106.0
17.6 % 14.5 %
Three Fiscal Quarters Ended
Reported
Net Sales
September
30, 2017
Impact of
Foreign
Currency
Translation
Constant-
Currency
Net Sales
September
30, 2017
Reported
Net Sales
October 1,
2016
Reported
Net Sales
% Change
Constant-
Currency Net Sales
% Change
Consolidated net sales $ 2,373.1 $ 2.1 $ 2,371.0 $ 2,265.0
4.8 % 4.7 % International segment net sales $ 283.6 $ 2.1 $ 281.5 $
255.5 11.0 % 10.2 %
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.
Note: Results may not be additive due to rounding.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171026005673/en/
Carter’s, Inc.Sean McHugh, 678-791-7615Vice President &
Treasurer
Carters (NYSE:CRI)
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