- Net Sales $850 Million, Up
6%
- Operating Profit $130 Million, Up
18%; Adjusted Operating Profit $131 Million, Up 16%
- Diluted EPS $1.51, Up 22%; Adjusted
Diluted EPS $1.52, Up 20%
- Company Reaffirms Fiscal 2015
Adjusted Diluted EPS Growth Outlook of 13% - 15%
Carter’s, Inc. (NYSE:CRI), the largest branded marketer in the
United States and Canada of apparel exclusively for babies and
young children, today reported its third quarter fiscal 2015
results.
“We continued to outperform the market, with good growth in
sales and earnings in the third quarter,” said Michael D. Casey,
Chairman and Chief Executive Officer. “The strength of our brands,
broad market distribution, and expense discipline enabled us to
achieve our profit objectives and mitigate the effects of foreign
currency fluctuations. Given the progress with our growth
initiatives this year and current business trends, we are
reaffirming our profit objectives for fiscal 2015.”
Consolidated Results
Third Quarter of Fiscal 2015 compared to Third Quarter of Fiscal
2014Net sales increased $50.9 million, or 6.4%, to $849.8 million,
principally driven by growth in the Company's Carter’s wholesale
and U.S. Carter’s and OshKosh direct-to-consumer (“DTC”)
businesses. Changes in foreign currency exchange rates in the third
quarter of fiscal 2015 as compared to the third quarter of fiscal
2014 negatively impacted consolidated net sales in the third
quarter of fiscal 2015 by $12.7 million, or 1.6%. On a constant
currency basis, consolidated net sales increased 8.0% in the third
quarter of fiscal 2015.
Operating income in the third quarter of fiscal 2015 increased
$19.8 million, or 17.9%, to $130.2 million, compared to $110.5
million in the third quarter of fiscal 2014. Operating margin in
the third quarter of fiscal 2015 increased 150 basis points to
15.3%, compared to 13.8% in the third quarter of fiscal 2014.
Adjusted operating income (a non-GAAP measure) in the third quarter
of fiscal 2015 increased $17.7 million, or 15.6%, to $131.2
million, compared to $113.4 million in the third quarter of fiscal
2014. Adjusted operating margin (a non-GAAP measure) in the third
quarter of fiscal 2015 increased 120 basis points to 15.4%,
compared to 14.2% in the third quarter of fiscal 2014, principally
driven by improved gross margin and expense leverage.
Net income in the third quarter of fiscal 2015 increased $13.4
million, or 20.4%, to $79.3 million, or $1.51 per diluted share,
compared to $65.9 million, or $1.23 per diluted share, in the third
quarter of fiscal 2014. Adjusted net income (a non-GAAP measure) in
the third quarter of fiscal 2015 increased $12.0 million, or 17.7%,
to $79.9 million, compared to $67.9 million in the third quarter of
fiscal 2014. Adjusted earnings per diluted share (a non-GAAP
measure) in the third quarter of fiscal 2015 increased 19.5% to
$1.52, compared to $1.27 in the third quarter of fiscal 2014.
First Three Quarters of Fiscal 2015 compared to First Three
Quarters of Fiscal 2014Net sales increased $122.7 million, or 6.1%,
to $2.1 billion, principally driven by growth in the Company’s U.S.
Carter’s and OshKosh DTC and Carter’s wholesale businesses. Changes
in foreign currency exchange rates in the first three quarters of
fiscal 2015 as compared to the first three quarters of fiscal 2014
negatively impacted consolidated net sales in the first three
quarters of fiscal 2015 by $23.9 million, or 1.2%. On a constant
currency basis, consolidated net sales increased 7.2% in the first
three quarters of fiscal 2015.
Operating income in the first three quarters of fiscal 2015
increased $57.3 million, or 26.1%, to $276.7 million, compared to
$219.3 million in the first three quarters of fiscal 2014.
Operating margin in the first three quarters of fiscal 2015
increased 210 basis points to 12.9%, compared to 10.8% in the first
three quarters of fiscal 2014. Adjusted operating income in the
first three quarters of fiscal 2015 increased $41.5 million, or
17.1%, to $283.9 million, compared to $242.4 million in the first
three quarters of fiscal 2014. Adjusted operating margin in the
first three quarters of fiscal 2015 increased 120 basis points to
13.2%, compared to 12.0% in the first three quarters of fiscal
2014, reflecting improved gross margin and expense leverage.
Net income in the first three quarters of fiscal 2015 increased
$39.1 million, or 31.0%, to $165.2 million, or $3.12 per diluted
share, compared to $126.1 million, or $2.34 per diluted share, in
the first three quarters of fiscal 2014. Adjusted net income in the
first three quarters of fiscal 2015 increased $29.5 million, or
21.0%, to $170.4 million, compared to $140.9 million in the first
three quarters of fiscal 2014. Adjusted earnings per diluted share
in the first three quarters of fiscal 2015 increased 23.3% to
$3.22, compared to $2.61 in the first three quarters of fiscal
2014.
Cash flow from operations in the first three quarters of fiscal
2015 was $146.0 million compared to $24.9 million in the first
three quarters of fiscal 2014. The increase reflects higher
earnings and favorable movements 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.
Note on Net Sales vs. Comparable Sales (52 vs. 53 Week
Calendars)
The Company's fiscal 2015 results will include 52 weeks compared
to 53 weeks in fiscal 2014 (a 13 week fourth quarter in 2015 versus
a 14 week fourth quarter in 2014). This change in weeks will impact
the comparability of results for the fourth quarter and fiscal year
2015 compared to fiscal 2014. In the following segment discussions
the net sales amounts and related comparisons are based on the
Company's reported fiscal 2015 and 2014 calendars. However, DTC,
retail store, and eCommerce comparable sales are based on adjusted
2014 periods that have been aligned to the corresponding 13 and 39
week periods in fiscal 2015.
Carter’s Retail Segment Results
Third Quarter of Fiscal 2015 compared to Third Quarter of Fiscal
2014Carter’s retail segment sales increased $13.5 million, or 4.8%,
to $294.9 million. Carter’s DTC comparable sales decreased 3.2%,
comprised of a retail stores comparable sales decline of 5.6%,
partially offset by eCommerce comparable sales growth of 6.2%.
During the third quarter of fiscal 2015, the Company believes,
based on analysis of credit card transactions and other data, that
Carter’s DTC comparable sales were negatively impacted by lower
demand from international tourists shopping in its U.S. stores and
websites, driven by the strength of the U.S. dollar.
In the third quarter of fiscal 2015, the Company opened 15
Carter’s retail stores in the United States. The Company operated
577 Carter’s retail stores in the United States as of
October 3, 2015.
First Three Quarters of Fiscal 2015 compared to First Three
Quarters of Fiscal 2014Carter’s retail segment sales increased
$54.2 million, or 7.3%, to $799.6 million. Carter’s DTC comparable
sales decreased 0.7%, comprised of a retail stores comparable sales
decline of 3.7%, partially offset by eCommerce comparable sales
growth of 12.0%. During the first three quarters of fiscal 2015,
the Company believes that Carter’s DTC comparable sales were
negatively impacted by lower demand from international tourists
shopping in its U.S. stores and websites, driven by the strength of
the U.S. dollar.
In the first three quarters of fiscal 2015, the Company opened
48 Carter’s retail stores in the United States and closed two
stores.
Carter’s Wholesale Segment Results
Third Quarter of Fiscal 2015 compared to Third Quarter of Fiscal
2014Carter’s wholesale segment sales increased $33.8 million, or
10.9%, to $343.6 million, reflecting increased product demand, in
part due to timing, and a new playwear initiative.
First Three Quarters of Fiscal 2015 compared to First Three
Quarters of Fiscal 2014Carter’s wholesale segment sales increased
$43.1 million, or 5.5%, to $824.6 million, reflecting increased
product demand, in part due to timing, and a new playwear
initiative.
OshKosh Retail Segment Results
Third Quarter of Fiscal 2015 compared to Third Quarter of Fiscal
2014OshKosh retail segment sales increased $6.9 million, or 7.5%,
to $98.3 million. OshKosh DTC comparable sales decreased 2.0%,
comprised of a retail stores comparable sales decline of 5.4%,
partially offset by eCommerce comparable sales growth of 14.1%.
During the third quarter of fiscal 2015, the Company believes that
OshKosh DTC comparable sales were negatively impacted by lower
demand from international tourists shopping in its U.S. stores and
websites, driven by the strength of the U.S. dollar.
In the third quarter of fiscal 2015, the Company opened 12
OshKosh retail stores in the United States and closed one store.
The Company operated 232 OshKosh retail stores in the United States
as of October 3, 2015.
First Three Quarters of Fiscal 2015 compared to First Three
Quarters of Fiscal 2014OshKosh retail segment sales increased $22.3
million, or 10.0%, to $244.8 million. OshKosh DTC comparable sales
increased 1.7%, comprised of eCommerce comparable sales growth of
21.9%, partially offset by a retail stores comparable sales decline
of 2.6%. During the first three quarters of fiscal 2015, the
Company believes that OshKosh DTC comparable sales were negatively
impacted by lower demand from international tourists shopping in
its U.S. stores and websites, driven by the strength of the U.S.
dollar.
In the first three quarters of fiscal 2015, the Company opened
36 OshKosh retail stores in the United States and closed four
stores.
OshKosh Wholesale Segment Results
Third Quarter of Fiscal 2015 compared to Third Quarter of Fiscal
2014OshKosh wholesale segment sales decreased $6.3 million, or
25.1%, to $18.8 million, reflecting lower seasonal bookings and a
decline in sales to the off-price channel.
First Three Quarters of Fiscal 2015 compared to First Three
Quarters of Fiscal 2014OshKosh wholesale segment sales decreased
$3.2 million, or 6.1%, to $49.2 million, reflecting a decline in
sales to the off-price channel and lower seasonal bookings.
International Segment Results
Third Quarter of Fiscal 2015 compared to Third Quarter of Fiscal
2014International segment sales increased $3.1 million, or 3.4%, to
$94.2 million, driven by growth in the Company’s DTC business in
Canada and new eCommerce sales in China. This growth was partially
offset by unfavorable foreign currency exchange rates and the
impact of the Target Canada bankruptcy in early 2015.
Changes in foreign currency exchange rates in the third quarter
of fiscal 2015 as compared to the third quarter of fiscal 2014
negatively impacted international segment net sales in the third
quarter of fiscal 2015 by $12.7 million, or 14.0%. On a constant
currency basis, international segment net sales increased
17.3%.
Canadian comparable retail stores sales increased 4.8%. In the
third quarter of fiscal 2015, the Company opened 7 retail stores in
Canada. The Company operated 140 retail stores in Canada as of
October 3, 2015.
First Three Quarters of Fiscal 2015 compared to First Three
Quarters of Fiscal 2014International segment sales increased $6.3
million, or 2.8%, to $229.2 million. This increase reflects growth
in the Company’s DTC business in Canada, increased wholesale demand
in other international markets, and new eCommerce sales in China.
This growth was partially offset by unfavorable foreign currency
exchange rates, the impact of the Target Canada bankruptcy in early
2015, and the Company’s exit of retail operations in Japan in
fiscal 2014. The Company’s former retail operations in Japan
contributed $4.4 million to segment sales in the first three
quarters of fiscal 2014.
Changes in foreign currency exchange rates in the first three
quarters of fiscal 2015 as compared to the first three quarters of
fiscal 2014 negatively impacted international segment net sales in
the first three quarters of fiscal 2015 by $23.9 million, or 10.7%.
On a constant currency basis, international segment net sales
increased 13.5%.
Canadian comparable retail stores sales increased 3.9% in the
first three quarters of fiscal 2015. In the first three quarters of
fiscal 2015, the Company opened 16 retail stores in Canada.
Return of Capital
During the third quarter of fiscal 2015, the Company paid a cash
dividend of $0.22 per share totaling $11.5 million. The Company
paid cash dividends totaling $34.6 million in the first three
quarters of fiscal 2015. 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.
During the third quarter of fiscal 2015, the Company repurchased
and retired 290,800 shares of its common stock for $29.4 million at
an average price of $101.26 per share. In the first three quarters
of fiscal 2015, the Company repurchased and retired 795,025 shares
for $78.3 million at an average price of $98.54 per share.
Year-to-date through October 28, 2015, the Company repurchased and
retired a total of 908,188 shares for $88.5 million at an average
price of $97.49 per share. All shares were repurchased in open
market transactions pursuant to applicable regulations for such
transactions. As of October 28, 2015, the total remaining capacity
under the Company’s previously-announced repurchase authorizations
was $97 million.
In the first three quarters of fiscal 2015, the Company returned
a total of $113.0 million to shareholders through dividends and
share repurchases.
2015 Business Outlook
As noted above, the Company’s fiscal 2015 results will include
52 weeks, compared to 53 weeks in fiscal 2014. The Company’s fourth
quarter fiscal 2015 results will include 13 weeks, compared to 14
weeks in the fourth quarter of fiscal 2014. The Company estimates
that the additional week in fiscal 2014 contributed approximately
$44.1 million in consolidated net sales and approximately $0.05 in
adjusted diluted earnings per share.
For the fourth quarter of fiscal 2015, the Company projects net
sales to decline approximately 2% compared to the fourth quarter of
fiscal 2014 and adjusted diluted earnings per share in the range of
$1.22 to $1.30 compared to adjusted diluted earnings per share of
$1.32 in the fourth quarter of fiscal 2014. The adjusted diluted
earnings per share forecast excludes anticipated expenses of
approximately $1 million related to the amortization of acquired
tradenames and other items the Company believes to be
non-representative of underlying business performance.
For fiscal 2015, the Company projects net sales to increase
approximately 4% over fiscal 2014 and adjusted diluted earnings per
share to increase approximately 13% to 15% compared to adjusted
diluted earnings per share of $3.93 in fiscal 2014. This forecast
for fiscal 2015 adjusted diluted earnings per share excludes
anticipated expenses of approximately $6 million related to the
amortization of acquired tradenames, approximately $2 million
related to the revaluation of the Bonnie Togs contingent
consideration, and other items the Company believes to be
non-representative of underlying business performance.
Conference Call
The Company will hold a conference call with investors to
discuss third quarter fiscal 2015 results and its business outlook
on October 29, 2015 at 8:30 a.m. Eastern Daylight Time. To
participate in the call, please dial 913-312-6677. To listen via
the internet, please visit www.carters.com and select links for
“Investor Relations” followed by “Third Quarter 2015 Earnings
Conference Call”. Presentation materials for the call can be
accessed under the same “Investor Relations” section by selecting
links for “News & Events” followed by “Webcasts &
Presentations”. A replay of the call will be available shortly
after the broadcast through November 6, 2015, at 888-203-1112 (U.S.
/ Canada) or 719-457-0820 (international), passcode 585850. 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 the United
States and Canada 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 900
Company-operated stores in the United States and Canada and on-line
at www.carters.com, www.oshkoshbgosh.com, and
www.cartersoshkosh.ca. 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
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 our future performance,
including, without limitation, statements with respect to our
anticipated financial results for the fourth quarter of fiscal 2015
and fiscal year 2015, or any other future period, assessment of our
performance and financial position, and drivers of our 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 our 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” and “Forward-Looking Statements.” 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 our products, or otherwise;
financial difficulties for one or more of our 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; negative publicity, including as a result of product
recalls or otherwise; failing to protect our intellectual property;
a breach of our consumer databases, systems or processes; the risk
of slow-downs, disruptions or strikes along our supply chain,
including disruptions resulting from foreign supply sources, our
distribution centers or in-sourcing capabilities; and unsuccessful
expansion into international markets or failure to successfully
manage legal, regulatory, political and economic risks of our
existing international operations, including maintaining compliance
with worldwide anti-bribery laws. We undertake 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.CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS(dollars in thousands,
except for share data)(unaudited)
Fiscal quarter ended
Three fiscal quarters ended
October 3,
2015
September 27,
2014
October 3,
2015
September 27,
2014
Net sales $ 849,806 $ 798,936 $ 2,147,335 $ 2,024,645 Cost of goods
sold 502,267 477,730 1,252,849 1,196,237
Gross profit 347,539 321,206 894,486 828,408 Selling,
general, and administrative expenses 230,017 221,939 650,496
638,349 Royalty income (12,699 ) (11,190 ) (32,688 ) (29,276 )
Operating income 130,221 110,457 276,678 219,335 Interest expense
6,907 6,843 20,534 20,623 Interest income (91 ) (45 ) (385 ) (317 )
Other (income) expense, net (622 ) 1,311 (560 ) 1,718
Income before income taxes 124,027 102,348 257,089 197,311
Provision for income taxes 44,701 36,462 91,866
71,232 Net income $ 79,326 $ 65,886 $
165,223 $ 126,079 Basic net income per common
share $ 1.52 $ 1.24 $ 3.15 $ 2.36 Diluted net income per common
share $ 1.51 $ 1.23 $ 3.12 $ 2.34 Dividend declared and paid per
common share $ 0.22 $ 0.19 $ 0.66 $ 0.57
CARTER’S, INC.BUSINESS SEGMENT
RESULTS(dollars in thousands)(unaudited)
Fiscal quarter ended
Three fiscal quarters ended October 3, 2015
% ofTotal Net
Sales
September
27,
2014
% ofTotal Net
Sales
October 3, 2015
% ofTotal Net
Sales
September
27,
2014
% ofTotal Net
Sales
Net sales: Carter’s Wholesale $ 343,555 40.4 %
$ 309,772 38.8 % $ 824,600 38.4 % $ 781,460 38.6 % Carter’s Retail
(a) 294,928 34.7 % 281,455 35.2 % 799,635 37.2
% 745,473 36.8 % Total Carter’s 638,483 75.1 %
591,227 74.0 % 1,624,235 75.6 % 1,526,933 75.4
% OshKosh Retail (a) 98,292 11.6 % 91,427 11.4 % 244,787 11.4 %
222,500 11.0 % OshKosh Wholesale 18,794 2.2 % 25,107
3.1 % 49,151 2.3 % 52,342 2.6 % Total OshKosh 117,086
13.8 % 116,534 14.5 % 293,938 13.7 % 274,842
13.6 % International (b) 94,237 11.1 % 91,175
11.5 % 229,162 10.7 % 222,870 11.0 % Total net sales
$ 849,806 100.0 % $ 798,936 100.0 % $ 2,147,335
100.0 % $ 2,024,645 100.0 %
Operating
income: % ofSegment Net Sales %
ofSegment Net Sales % ofSegment
Net Sales % ofSegment Net Sales
Carter’s Wholesale $ 74,347 21.6 % $ 55,762 18.0 % $ 172,485 20.9 %
$ 133,489 17.1 % Carter’s Retail (a) 51,733 17.5 % 54,501
19.4 % 134,557 16.8 % 137,659 18.5 % Total
Carter’s 126,080 19.7 % 110,263 18.6 % 307,042
18.9 % 271,148 17.8 % OshKosh Retail (a) 6,171 6.3 % 5,300
5.8 % 3,396 1.4 % (883 ) (0.4 )% OshKosh Wholesale 4,487
23.9 % 2,240 8.9 % 9,715 19.8 % 5,125 9.8 %
Total OshKosh 10,658 9.1 % 7,540 6.5 % 13,111
4.5 % 4,242 1.5 %
International (b)(c)
18,220 19.3 % 15,896 17.4 % 30,967 13.5 %
27,039 12.1 %
Corporate expenses (d)(e)
(24,737 ) (23,242 ) (74,442 ) (83,094 ) Total operating income $
130,221 15.3 % $ 110,457 13.8 % $ 276,678 12.9
% $ 219,335 10.8 %
(a) Includes eCommerce results.
(b) Net sales includes international
retail, eCommerce, and wholesale sales. Operating income includes
international licensing income.
(c) Includes charges associated with the
revaluation of the Company’s contingent consideration related to
the Company’s 2011 acquisition of Bonnie Togs of approximately $1.9
million for the three-fiscal-quarter period ended October 3,
2015, and $0.4 million and $0.9 million for the fiscal quarter and
the three-fiscal-quarter period ended September 27, 2014,
respectively. Also includes expenses of approximately $0.5 million
for the three quarters of fiscal 2014, related to the Company's
exit from Japan retail operations.
(d) Corporate expenses include expenses
related to incentive compensation, stock-based compensation,
executive management, severance and relocation, finance, building
occupancy, information technology, legal, consulting and audit
fees.
(e) Includes the following charges:
Fiscal quarter ended
Three fiscal quarters ended (dollars in millions)
October
3, 2015 September 27, 2014
October 3, 2015 September 27,
2014 Closure of distribution facility in Hogansville, GA (1)
$ — $ 0.2 $ — $ 0.9 Office consolidation costs $ — $ — $ — $ 6.6
Amortization of tradenames $ 1.0 $ 2.3 $ 5.4 $ 14.2
(1) Continuing operating costs associated
with the closure of the Company’s distribution facility in
Hogansville, Georgia. This facility was sold in December 2014.
CARTER’S, INC.CONDENSED
CONSOLIDATED BALANCE SHEETS(dollars in thousands, except for
share data)(unaudited)
October 3,
2015
January 3,
2015
September 27,
2014
ASSETS Current assets: Cash and cash equivalents $ 288,260 $
340,638 $ 133,646 Accounts receivable, net 246,565 184,563 232,478
Finished goods inventories 511,520 444,844 519,416 Prepaid expenses
and other current assets 37,260 34,788 31,258 Deferred income taxes
34,895 36,625 38,569 Total current assets
1,118,500 1,041,458 955,367 Property, plant, and equipment, net of
accumulated depreciation of $276,230, $245,011, and $245,778
361,305 333,097 332,875 Tradenames and other intangibles, net
311,842 317,297 316,046 Goodwill 176,633 181,975 184,196 Deferred
debt issuance costs, net 7,235 6,677 7,043 Other assets 12,525
12,592 11,214 Total assets $ 1,988,040
$ 1,893,096 $ 1,806,741
LIABILITIES AND
STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $
173,594 $ 150,243 $ 117,329 Other current liabilities 105,199
97,728 100,473 Total current liabilities
278,793 247,971 217,802 Long-term debt 585,278 586,000
586,000 Deferred income taxes 119,499 121,536 113,173 Other
long-term liabilities 161,527 150,905 138,185
Total liabilities 1,145,097 1,106,412 1,055,160 Commitments
and contingencies Stockholders' equity: Preferred stock; par
value $.01 per share; 100,000 shares authorized; none issued or
outstanding at October 3, 2015, January 3, 2015, and September 27,
2014 — — — Common stock, voting; par value $.01 per share;
150,000,000 shares authorized; 52,076,784, 52,712,193, and
52,977,519 shares issued and outstanding at October 3, 2015,
January 3, 2015 and September 27, 2014, respectively 521 527 530
Additional paid-in capital — — — Accumulated other comprehensive
loss (33,480 ) (23,037 ) (13,627 ) Retained earnings 875,902
809,194 764,678 Total stockholders' equity 842,943
786,684 751,581 Total liabilities and
stockholders' equity $ 1,988,040 $ 1,893,096 $
1,806,741
CARTER’S, INC.CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOW(dollars in
thousands)(unaudited)
Three fiscal quarters ended
October 3,
2015
September 27,
2014
Cash flows from operating activities: Net income $ 165,223 $
126,079 Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization 44,187 42,831
Amortization of tradenames 5,422 14,157 Accretion of contingent
consideration 809 900 Amortization of debt issuance costs 1,246
1,144 Non-cash stock-based compensation expense 13,304 13,883
Unrealized foreign currency exchange loss, net 221 — Income tax
benefit from stock-based compensation (7,963 ) (4,356 ) Loss on
disposal of property, plant, and equipment 80 541 Deferred income
taxes (1,801 ) (8,963 ) Effect of changes in operating assets and
liabilities: Accounts receivable (61,108 ) (39,133 ) Finished goods
inventories (73,724 ) (104,143 ) Prepaid expenses and other assets
(3,144 ) 2,373 Accounts payable and other liabilities 63,282
(20,386 ) Net cash provided by operating activities 146,034
24,927 Cash flows from investing activities: Capital
expenditures (76,987 ) (83,634 ) Proceeds from sale of property,
plant, and equipment 66 143 Net cash used in
investing activities (76,921 ) (83,491 ) Cash flows from
financing activities: Payments of debt issuance costs (1,495 ) (145
) Borrowings under secured revolving credit facility 205,586 —
Payments on secured revolving credit facility (205,237 ) —
Repurchase of common stock (78,339 ) (62,769 ) Payment of
contingent consideration (7,572 ) (8,901 ) Dividends paid (34,617 )
(30,453 ) Income tax benefit from stock-based compensation 7,963
4,356 Withholdings from vesting of restricted stock (12,575 )
(4,472 ) Proceeds from exercise of stock options 5,743 7,771
Net cash used in financing activities (120,543 ) (94,613 )
Effect of exchange rate changes on cash (948 ) 277
Net decrease in cash and cash equivalents (52,378 ) (152,900 ) Cash
and cash equivalents, beginning of period 340,638 286,546
Cash and cash equivalents, end of period $ 288,260 $
133,646
CARTER’S, INC.RECONCILIATION OF
GAAP TO ADJUSTED RESULTS(dollars in millions, except earnings
per share)(unaudited)
Fiscal Quarter Ended October 3, 2015
Gross
Margin
% Net
Sales
SG&A
% Net
Sales
Operating
Income
% Net
Sales
Net
Income
Diluted
EPS
As reported (GAAP) $ 347.5 40.9 % $ 230.0 27.1 % $ 130.2
15.3 % $ 79.3 $ 1.51 Amortization of tradenames (a) —
(1.0 ) 1.0 0.6 0.01
As adjusted
(b) $ 347.5 40.9 % $ 229.0 27.0 % $ 131.2 15.4 %
$ 79.9 $ 1.52
Three Fiscal Quarters Ended October
3, 2015
Gross
Margin
% Net
Sales
SG&A
% Net
Sales
Operating
Income
% Net
Sales
Net
Income
Diluted
EPS
As reported (GAAP) $ 894.5 41.7 % $ 650.5 30.3 % $ 276.7
12.9 % $ 165.2 $ 3.12 Amortization of tradenames (a) — (5.3 ) 5.3
3.3 0.06 Revaluation of contingent consideration (c) —
(1.9 ) 1.9 1.9 0.04
As
adjusted (b) $ 894.5 41.7 % $ 643.3 30.0 % $
283.9 13.2 % $ 170.4 $ 3.22
Fiscal Quarter Ended
September 27, 2014
Gross
Margin
% Net
Sales
SG&A
% Net
Sales
Operating
Income
% Net
Sales
Net
Income
Diluted
EPS
As reported (GAAP) $ 321.2 40.2 % $ 221.9 27.8 % $ 110.5
13.8 % $ 65.9 $ 1.23 Amortization of tradenames (a) — (2.3 ) 2.3
1.5 0.03 Revaluation of contingent consideration (c) — (0.4 ) 0.4
0.4 0.01 Closure of distribution facility (Hogansville, GA)
— (0.2 ) 0.2 0.1 —
As
adjusted (b) $ 321.2 40.2 % $ 219.0 27.4 % $
113.4 14.2 % $ 67.9 $ 1.27
Three Fiscal Quarters
Ended September 27, 2014
Gross
Margin
% Net
Sales
SG&A
% Net
Sales
Operating
Income
% Net
Sales
Net
Income
Diluted
EPS
As reported (GAAP) $ 828.4 40.9 % $ 638.3 31.5 % $ 219.3
10.8 % $ 126.1 $ 2.34 Amortization of tradenames (a) — (14.2 ) 14.2
8.9 0.16 Office consolidation costs (d) — (6.6 ) 6.6 4.2 0.08
Revaluation of contingent consideration (c) — (0.9 ) 0.9 0.9 0.02
Closure of distribution facility (Hogansville, GA) — (0.9 ) 0.9 0.6
0.01 Japan retail operations exit (1.0 ) (1.5 )
0.5 0.3 0.01
As adjusted (b) $ 827.4
40.9 % $ 614.3 30.3 % $ 242.4 12.0 % $ 140.9 $ 2.61
(a) Amortization of H.W. Carter and Sons
tradenames acquired in 2013.
(b) 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.
(c) Revaluation of the contingent
consideration liability associated with the Company’s acquisition
of Bonnie Togs in 2011.
(d) Costs associated with office
consolidation including severance, relocation, accelerated
depreciation, and other charges.
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 January 3, 2015
(14 weeks)
Gross
Margin
SG&A
Operating
Income
Net
Income
Diluted
EPS
As reported (GAAP) $ 356.0 $ 251.9 $ 114.0 $ 68.6 $ 1.29
Amortization of tradenames (a) — (2.3 ) 2.3 1.5 0.03 Japan retail
operations exit — (0.1 ) 0.1 — — Revaluation of contingent
consideration (b) — (0.4 ) 0.4 0.4 0.01 Closure of distribution
facility (Hogansville, GA) — (0.1 ) 0.1
— —
As adjusted (c) $ 356.0 $ 249.0
$ 116.9 $ 70.6 $ 1.32
Fiscal year ended
January 3, 2015 (53 weeks)
Gross
Margin
SG&A
Operating
Income
Net
Income
Diluted
EPS
As reported (GAAP) $ 1,184.4 $ 890.3 $ 333.3 $ 194.7 $ 3.62
Amortization of tradenames (a) — (16.4 ) 16.4 10.4 0.19 Office
consolidation costs (d) — (6.6 ) 6.6 4.2 0.08 Revaluation of
contingent consideration (b) — (1.3 ) 1.3 1.3 0.03 Closure of
distribution facility (Hogansville, GA) — (0.9 ) 0.9 0.6 0.01 Japan
retail operations exit (1.0 ) (1.5 ) 0.5
0.3 0.01
As adjusted (c) $ 1,183.4 $
863.3 $ 359.3 $ 211.5 $ 3.93
(a) Amortization of H.W. Carter and Sons
tradenames acquired in 2013.
(b) Revaluation of the contingent
consideration liability associated with the Company’s acquisition
of Bonnie Togs in 2011.
(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.
(d) Costs associated with office
consolidation including severance, relocation, accelerated
depreciation, and other charges.
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 October 3, 2015
September 27, 2014 October 3,
2015 September 27, 2014
Weighted-average number of common and common equivalent shares
outstanding: Basic number of common shares outstanding 51,740,523
52,356,122 51,960,041 52,788,217 Dilutive effect of equity awards
507,815 470,842 512,861 476,893 Diluted
number of common and common equivalent shares outstanding
52,248,338 52,826,964 52,472,902
53,265,110
As reported on a
GAAP Basis:
Basic net income per common share: Net income $ 79,326 $ 65,886 $
165,223 $ 126,079 Income allocated to participating securities (675
) (887 ) (1,557 ) (1,706 ) Net income available to common
shareholders $ 78,651 $ 64,999 $ 163,666 $
124,373 Basic net income per common share $ 1.52 $ 1.24 $
3.15 $ 2.36 Diluted net income per common share: Net income $
79,326 $ 65,886 $ 165,223 $ 126,079 Income allocated to
participating securities (669 ) (880 ) (1,545 ) (1,695 ) Net income
available to common shareholders $ 78,657 $ 65,006 $
163,678 $ 124,384 Diluted net income per common share
$ 1.51 $ 1.23 $ 3.12 $ 2.34
As adjusted
(a):
Basic net income per common share: Net income $ 79,925 $ 67,933 $
170,443 $ 140,919 Income allocated to participating securities (681
) (914 ) (1,607 ) (1,910 ) Net income available to common
shareholders $ 79,244 $ 67,019 $ 168,836 $
139,009 Basic net income per common share $ 1.53 $ 1.28 $
3.25 $ 2.63 Diluted net income per common share: Net income $
79,925 $ 67,933 $ 170,443 $ 140,919 Income allocated to
participating securities (675 ) (907 ) (1,595 ) (1,897 ) Net income
available to common shareholders $ 79,250 $ 67,026 $
168,848 $ 139,022 Diluted net income per common share
$ 1.52 $ 1.27 $ 3.22 $ 2.61
(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 0.6 million and 5.2 million in after-tax expenses from
these results for the fiscal quarter and three fiscal quarters
ended October 3, 2015, respectively. The Company has excluded
2.0 million and 14.8 million in after-tax expenses from these
results for the fiscal quarter and three fiscal quarters ended
September 27, 2014, respectively.
RECONCILIATION OF U.S. GAAP AND
NON-GAAP INFORMATION(unaudited)
The following table provides a
reconciliation of EBITDA and Adjusted EBITDA for the periods
indicated to net income, which is the most directly comparable
financial measure presented in accordance with GAAP:
Fiscal quarter ended Three
fiscal quarters ended Four fiscal quarters ended
October 3, 2015 September 27, 2014 October
3, 2015 September 27, 2014 October 3,
2015 (dollars in millions) Net income $ 79.3 $ 65.9 $ 165.2
$ 126.1 $ 233.8 Interest expense 6.9 6.8 20.5 20.6 27.6 Interest
income (0.1 ) — (0.4 ) (0.3 ) (0.5 ) Income tax expense 44.7 36.5
91.9 71.2 128.9 Depreciation and amortization (a) 14.8 15.4
49.6 57.0 67.5 EBITDA $ 145.6 $
124.6 $ 326.8 $ 274.6 $ 457.3
Adjustments to EBITDA Office consolidation costs (b) (c) $ —
$ — $ — $ 6.5 $ — Revaluation of contingent consideration (d) — 0.4
1.9 0.9 2.3 Closure of distribution facility (Hogansville, GA) (c)
— 0.2 — 0.9 0.1 Japan retail operations exit (c) — —
— (0.3 ) 0.1
Adjusted EBITDA $ 145.6 $
125.3 $ 328.7 $ 282.6 $ 459.8
(a) Includes amortization of acquired
tradenames.
(b) Costs associated with office
consolidation including severance, relocation, and other
charges.
(c) Amounts exclude costs related to
accelerated depreciation as such amounts are included in the total
of depreciation and amortization above.
(d) Revaluation of the contingent
consideration liability associated with the Company’s acquisition
of Bonnie Togs in 2011.
Note: Results may not be additive due to
rounding.
EBITDA and Adjusted EBITDA are supplemental financial measures
that are not defined or prepared in accordance with GAAP. We define
EBITDA as net income before interest, income taxes, and
depreciation and amortization. Adjusted EBITDA is EBITDA adjusted
for the items described in the footnotes (a) - (e) to the table
above.
We present EBITDA and Adjusted EBITDA because we consider them
important supplemental measures of our performance and believe they
are frequently used by securities analysts, investors, and other
interested parties in the evaluation of companies in our
industry.
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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20151029005656/en/
Carter’s, Inc.Sean McHugh, 678-791-7615Vice President &
Treasurer
Carters (NYSE:CRI)
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