Carter's Q1 Earnings Decline YoY, Beat Ests - Analyst Blog
April 29 2014 - 10:50AM
Zacks
Impacted by soaring product and
investment costs, Carter's, Inc.'s (CRI) first
quarter 2014 adjusted earnings declined 7.5% year over year to 73
cents a share, but surpassed the Zacks Consensus Estimate by a
couple of cents. The GAAP earnings for the quarter slumped 8.7% to
63 cents a share.
Carter’s reported record first quarter net sales of $651.6 million
that surged 10.3% year over year, propelled by the robust demand
for its brands and array of Spring products. However, sales fell
short of the Zacks Consensus Estimate of $653.0 million.
Sales were also boosted by the company’s Japanese retail business,
which it exited by the end of the reporting quarter. However, sales
were adversely affected by currency translations in the first
quarter, as compared to the comparable prior-year period.
Delving Deeper
Carter’s gross profit for the quarter improved 7.7% to $261.7
million, whereas gross margin contracted to 90 basis points (bps)
from the prior-year quarter to 40.2%. Adjusted operating income
descended 8.3% to $70.1 million, with the margin shriveling 210 bps
to 10.8% during the quarter.
The fall in adjusted operating income can be attributed to mounting
distribution, retail and technological expenditures incurred in
order to facilitate Carter’s growth strategies and the rising
product expenses, partly compensated by better pricing
efforts.
Segment Details
Sales at Carter’s retail segment went up by 10.5%
to $230.3 million, on the back of additional sales from new stores
and the company’s eCommerce channels, partly offset by loss of
sales from store closures and a fall in retail comparable store
sales (comps).
Carter’s direct to consumer sales, comprising both retail and
ecommerce comps inched up by 1%. Wholesale sales witnessed an
increase of 9.4% to $271.6 million, benefitting from the growth of
the Carter’s brand.
OshKosh B’gosh retail sales reached $63.6 million,
reflecting a year-over-year rise of 14.8%. Sales were augmented by
store openings, increased eCommerce revenues and rise in retail
comps, partly hindered by sales lost due to store closures. The
direct-to-consumer sales, constituting retail comps and ecommerce
comps, advanced 7.7%. Sales at the wholesale segment declined 14.3%
to $15.6 million.
The company’s International segment sales soared
15.9% to $70.5 million, primarily benefitted by Carter’s wholesale
operations. However, sales were negatively affected by foreign
currency translations.
Retail comps in all segments were hit by the harsh winter, which
led to store closures during the quarter. Also, the shift of Easter
week into April led to dismal sales in the first quarter.
Store Count
During the first quarter, the company introduced 16 Carter’s retail
outlets and 6 OshKosh retail outlets in the U.S., and closed one of
each, taking their respective store counts in the country to 491
and 186 by the quarter end. Also, the company added 2 outlets in
Canada, and shuttered 1, taking its Canadian store count to 103 as
of Mar 29, 2014.
Balance Sheet and Cash Flows
The leading American marketers of babies and kids apparel ended the
year with cash and cash equivalents of $277.2 million, long-term
debt of $586.0 million and total shareholders equity of $729.2
million.
Owing to a fall in earnings and unfavorable changes in the net
working capital, Carter’s cash flow from operating activities
plunged 42.4% year over year to $30.6 million.
Dividend Update
Carter’s began the year with a 19% hike in the quarterly cash
dividend to 19 cents per share, which were paid on Mar 20,
2014.
Share Repurchases
During the first quarter, the company retired 1 million shares from
the Accelerated Stock Repurchase (ASR) agreement, which was
authorized in the third quarter of fiscal 2013. Moreover, the
company bought back 30.2 million shares worth $2.3 million during
the quarter.
Including 83.8 million shares, which Carter’s repurchased after the
first quarter, the company has bought back nearly 113,951 shares
year to date, leaving shares worth $258.7 million remaining under
its previous authorization.
Going Forward
For the second quarter of fiscal 2014, Carter’s envisions adjusted
earnings per share to be near the second-quarter fiscal 2013
earnings of 46 cents a share. However, the current Zacks Consensus
Estimate for the quarter stands at 48 cents a share, indicating a
prospective downward revision.
For fiscal 2014, Carter’s forecasts a 12–15% year-over-year
increase in adjusted earnings per share. The current Zacks
Consensus Estimate for earnings in fiscal 2014 is pegged at $3.89
per share.
Net sales for both the quarter and fiscal 2014 are expected to
surge by 8–10% year over year.
Other Stocks to Consider
Carter’s currently carries a Zacks Rank #3 (Hold). Other
better-ranked stocks in the shoe and related apparel industry
include Skechers USA Inc. (SKX), with a Zacks Rank
#1 (Strong Buy), along with Brown Shoe Co. Inc.
(BWS) and Rocky Brands, Inc. (RCKY), both holding
a Zacks Rank #2 (Buy).
BROWN SHOE CO (BWS): Free Stock Analysis Report
CARTERS INC (CRI): Free Stock Analysis Report
ROCKY BRANDS (RCKY): Free Stock Analysis Report
SKECHERS USA-A (SKX): Free Stock Analysis Report
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