- Fourth quarter fiscal 2017
results
- Net sales $1.03 billion, growth of
10%
- Diluted EPS $2.84, growth of 62%;
adjusted diluted EPS $2.32, growth of 30%
- Full year fiscal 2017 results
- Net sales $3.4 billion, growth of
6%
- Diluted EPS $6.24, growth of 23%;
adjusted diluted EPS $5.76, growth of 12%
- Significant 2017 benefits from the
Tax Cuts and Jobs Act to be shared with employees through cash
bonuses and enhanced retirement plan contributions
- Board of Directors authorizes new
$500 million share repurchase program and 22% increase in quarterly
dividend to $0.45 per share
- Full year fiscal 2018 outlook: net
sales growth of 5%; adjusted EPS growth of 15%
Carter’s, Inc. (NYSE:CRI), the largest branded marketer in North
America of apparel exclusively for babies and young children, today
reported its fourth quarter and fiscal 2017 results.
“We saw strong demand in all channels of distribution in the
fourth quarter, and are reporting another year of record sales and
earnings,” said Michael D. Casey, Chairman and Chief Executive
Officer. “In 2017, we achieved our 29th consecutive year of sales
growth, strengthened our business with the acquisitions of Skip Hop
and our largest international licensee based in Mexico, and
returned $260 million to shareholders through dividends and share
repurchases.
“The Tax Cuts and Jobs Act of 2017 is expected to have a
significant and positive impact on our Company’s future earnings,
cash flow, and ability to invest in its growth strategies. In 2018,
we plan to reinvest approximately half of the $40 million benefit
from the lower corporate tax rate in brand marketing and improved
eCommerce capabilities.
“Given the significant and unexpected benefit in 2017 of the
historic tax reform legislation, we are also announcing today that
our Board of Directors has approved $20 million in special
compensation awards to all of our Company’s eligible full-time and
part-time employees provided through enhanced retirement plan
contributions and bonuses.
“With the support of our talented organization throughout the
world, we are expecting another good year of sales, earnings and
cash flow in 2018 driven by our continued focus on providing the
best value and experience in young children’s apparel and related
products.”
Impact of Tax Cuts and Jobs Act of 2017
The Company’s provision for income taxes in the fourth quarter
of fiscal 2017 includes a net tax benefit of $40.0 million related
to the enactment of the Tax Cuts and Jobs Act of 2017. This net tax
benefit consists of a $50.4 million benefit related to revaluation
of the Company’s deferred tax assets and liabilities and a $10.4
million provisional estimate for additional tax expense related to
accumulated earnings outside of the United States.
Fourth quarter fiscal 2017 results also include pretax expense
of $21.2 million for special compensation and related payroll taxes
awarded as a result of this tax reform legislation. The nature of
the special compensation includes:
- Cash bonuses to full-time and part-time
global employees with one year of service, with full-time employees
receiving a bonus of approximately 5% of base salary and part-time
employees receiving approximately $100 per year of service with the
Company. The Company’s leadership team will not receive these
special bonuses.
- A 100% match of employee voluntary
contributions to Company-sponsored retirement programs, subject to
certain statutory thresholds and limits.
The net tax benefit and charges related to the special
compensation awards described above are excluded from the adjusted
operating income, net income, and earnings per diluted share
measures (all non-GAAP) for the fourth quarter fiscal 2017 and
fiscal 2017 described below. See the “Reconciliation of GAAP to
Adjusted Results” section of this release for additional
disclosures and reconciliations regarding non-GAAP measures.
Consolidated Results
Fourth Quarter of Fiscal 2017 compared to Fourth Quarter of
Fiscal 2016
Consolidated net sales increased $93.1 million, or 10%, to $1.03
billion. This increase reflects growth in all business segments and
contributions from the 2017 Skip Hop and Mexico licensee
acquisitions. Skip Hop, a global lifestyle brand for families with
young children, and the acquired business in Mexico contributed
$32.9 million and $8.8 million, respectively, to consolidated net
sales in the fourth quarter of fiscal 2017.
Changes in foreign currency exchange rates in the fourth quarter
of fiscal 2017 compared to the fourth quarter of fiscal 2016
favorably affected consolidated net sales in the fourth quarter of
fiscal 2017 by $4.5 million. On a constant currency basis (a
non-GAAP measure), consolidated net sales increased 9.5% in the
fourth quarter of fiscal 2017.
Operating income in the fourth quarter of fiscal 2017 increased
$6.4 million, or 4.6%, to $145.8 million, compared to $139.4
million in the fourth quarter of fiscal 2016. Operating margin in
the fourth quarter of fiscal 2017 decreased 70 basis points to
14.2%, compared to 14.9% in the fourth quarter of fiscal 2016.
Adjusted operating income (a non-GAAP measure) increased $25.4
million, or 17.9%, to $167.4 million, compared to $142.0 million in
the fourth quarter of fiscal 2016. Adjusted operating margin (a
non-GAAP measure) increased 110 basis points to 16.3%, compared to
15.2% in the fourth quarter of fiscal 2016, reflecting improved
gross margin, principally due to favorable product costs and other
sourcing efficiencies, and SG&A expense leverage.
Net income in the fourth quarter of fiscal 2017 increased $48.6
million, or 55.8%, to $135.7 million, or $2.84 per diluted share,
compared to $87.1 million, or $1.76 per diluted share, in the
fourth quarter of fiscal 2016.
Adjusted net income (a non-GAAP measure) increased $22.2
million, or 25.1%, to $111.0 million, compared to $88.7 million in
the fourth quarter of fiscal 2016. Adjusted earnings per diluted
share (a non-GAAP measure) increased 29.6% to $2.32, compared to
$1.79 in the fourth quarter of fiscal 2016.
Fiscal 2017 compared to Fiscal 2016
Consolidated net sales increased $201.2 million, or 6.3%, to
$3.4 billion. The net sales increase reflects growth in the
Company’s U.S. Retail segment and contribution from the Skip Hop
acquisition. The Skip Hop and Mexico acquisitions contributed $96.3
million and $15.4 million, respectively, to consolidated net sales
in fiscal 2017.
Changes in foreign currency exchange rates in fiscal 2017
compared to fiscal 2016 favorably affected consolidated net sales
in fiscal 2017 by $6.6 million. On a constant currency basis,
consolidated net sales increased 6.1% in fiscal 2017.
Operating income in fiscal 2017 decreased $7.0 million, or 1.6%,
to $419.6 million, compared to $426.6 million in fiscal 2016.
Operating margin in fiscal 2017 decreased 100 basis points to
12.3%, compared to 13.3% in fiscal 2016.
Adjusted operating income increased $13.4 million, or 3.1%, to
$444.8 million, compared to $431.4 million in fiscal 2016. Adjusted
operating margin decreased 40 basis points to 13.1%, compared to
13.5% in fiscal 2016, reflecting increased investments in retail
operations, marketing, and technology in addition to bad debt
provisions related to wholesale customer bankruptcies, which were
partially offset by favorable product costs.
Net income in fiscal 2017 increased $44.7 million, or 17.3%, to
$302.8 million, or $6.24 per diluted share, compared to $258.1
million, or $5.08 per diluted share, in fiscal 2016.
Adjusted net income increased $18.6 million, or 7.1%, to $279.7
million, compared to $261.1 million in fiscal 2016. Adjusted
earnings per diluted share increased 12.1%, to $5.76, compared to
$5.14 in fiscal 2016.
Cash flow from operations in fiscal 2017 was $329.6 million
compared to $369.2 million in fiscal 2016. The decrease primarily
reflected unfavorable changes in net working capital.
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
United States. 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
Fourth Quarter of Fiscal 2017 compared to Fourth Quarter of
Fiscal 2016
U.S. Retail segment sales increased $37.8 million, or 7.2%, to
$565.7 million. U.S. Retail comparable sales increased 4.5%,
comprised of eCommerce comparable sales growth of 19.1% and a
comparable retail store sales decline of 1.0%. Skip Hop contributed
$5.8 million to segment net sales in the fourth quarter of fiscal
2017.
In the fourth quarter of fiscal 2017, the Company opened 19
stores and closed 10 stores in the United States.
Fiscal 2017 compared to Fiscal 2016
U.S. Retail segment sales increased $118.9 million, or 7.2%, to
$1.78 billion. U.S. Retail comparable sales increased 2.7%,
comprised of eCommerce comparable sales growth of 21.6% and a
comparable retail store sales decline of 3.3%. Skip Hop contributed
$8.8 million to segment net sales in fiscal 2017.
In fiscal 2017, the Company opened 57 stores and closed 19
stores in the United States.
As of the end of the fourth quarter of fiscal 2017, the Company
operated 830 retail stores in the United States.
U.S. Wholesale Segment
Fourth Quarter of Fiscal 2017 compared to Fourth Quarter of
Fiscal 2016
U.S. Wholesale segment sales increased $32.7 million, or 11.0%,
to $329.8 million, driven by the contribution from the Skip Hop
acquisition and an increase in demand for Carter’s brand products.
Skip Hop contributed $17.5 million to segment net sales in the
fourth quarter of fiscal 2017.
Fiscal 2017 compared to Fiscal 2016
U.S. Wholesale segment sales increased $31.6 million, or 2.7%,
to $1.21 billion, reflecting the contribution from the Skip Hop
acquisition, partially offset by a decrease in demand for Carter’s
and OshKosh products. Skip Hop contributed $55.7 million to segment
net sales in fiscal 2017.
International Segment
Fourth Quarter of Fiscal 2017 compared to Fourth Quarter of
Fiscal 2016
International segment sales increased $22.6 million, or 20.7%,
to $131.8 million, reflecting contributions from the Skip Hop and
Mexico acquisitions and growth in Canada and China, partially
offset by decreased wholesale demand in other markets outside of
the United States. The Skip Hop and Mexico acquisitions contributed
$9.6 million and $8.8 million, respectively, to segment net sales
in the fourth quarter of fiscal 2017.
Changes in foreign currency exchange rates in the fourth quarter
of fiscal 2017 as compared to the fourth quarter of fiscal 2016
favorably affected International segment net sales in the fourth
quarter of fiscal 2017 by $4.5 million. On a constant currency
basis, International segment net sales increased 16.6%.
Compared to the fourth quarter of fiscal 2016, Canada retail
comparable sales decreased 0.2% in the fourth quarter of fiscal
2017, comprised of comparable stores sales decline of 2.6%,
partially offset by comparable eCommerce sales growth of 20.0%.
In the fourth quarter of fiscal 2017, the Company opened seven
stores in Canada and one store in Mexico.
Fiscal 2017 compared to Fiscal 2016
International segment sales increased $50.7 million, or 13.9%,
to $415.5 million. This increase reflects the contributions from
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 $31.8 million and $15.4 million, respectively, to
segment net sales in fiscal 2017.
Changes in foreign currency exchange rates in fiscal 2017 as
compared to fiscal 2016 favorably affected International segment
net sales in fiscal 2017 by $6.6 million. On a constant currency
basis, International segment net sales increased 12.1%.
Compared to fiscal 2016, Canada retail comparable sales
increased 0.2% in fiscal 2017, comprised of comparable eCommerce
sales growth of 37.6%, partially offset by comparable stores sales
decline of 3.1%.
In fiscal 2017, the Company opened 17 stores and closed two
stores in Canada and opened two stores in Mexico. As of the end of
fiscal 2017, the Company operated 179 retail stores in Canada and
41 stores in Mexico.
Expanded Return of Capital Initiatives
As part of the Company’s ongoing commitment to return capital to
shareholders, the Company’s Board of Directors on February 22, 2018
authorized a new $500 million share repurchase program and
approved a 22% increase ($0.08 per share) in its quarterly cash
dividend, to $0.45 per share, for payment on March 23, 2018, to
shareholders of record at the close of business on March 12,
2018.
Since 2007, the company has returned a total of $1.5 billion to
shareholders through share repurchases and dividends and retired
approximately 35% of its outstanding shares.
The share repurchase authorization announced today permits the
Company to repurchase shares of its common stock up to $500
million, in addition to approximately $74
million remaining under previous authorizations. Such
purchases may be made in the open market or in privately negotiated
transactions, with the level and timing of activity being at the
discretion of the Company's management depending on market
conditions, stock price, other investment priorities, and other
factors. These share repurchase authorizations have no expiration
date.
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.
Dividends
During the fourth quarter of fiscal 2017, the Company paid a
cash dividend of $0.37 per share totaling $17.5 million. In fiscal
2017, the Company paid quarterly cash dividends of $0.37 per share
each quarter totaling $70.9 million.
Stock Repurchase Activity
During the fourth quarter of fiscal 2017, the Company
repurchased and retired 375,814 shares of its common stock for
$37.8 million at an average price of $100.55 per share. During
fiscal 2017, the Company repurchased and retired 2.1 million shares
for $188.8 million at an average price of $89.74 per share. Fiscal
2018 year-to-date through February 26, 2018, the Company has
repurchased and retired a total of 95,498 shares for $11.4 million
at an average price of $119.32 per share. All shares were
repurchased in open market transactions pursuant to applicable
regulations for open market share repurchases.
2018 Business Outlook
For the first quarter of fiscal 2018, the Company projects net
sales to increase approximately 2% compared to the first quarter of
fiscal 2017 and adjusted diluted earnings per share to be
approximately comparable to adjusted diluted earnings per share of
$0.97 in the first quarter of fiscal 2017. This forecast for first
quarter fiscal 2018 adjusted earnings per share reflects an
anticipated effective tax rate of approximately 22%.
For fiscal 2018, the Company projects net sales to increase
approximately 5% over fiscal 2017 and adjusted diluted earnings per
share to increase approximately 15% compared to adjusted diluted
earnings per share of $5.76 in fiscal 2017. This forecast for
fiscal 2018 adjusted diluted earnings per share contemplates: 1)
adjusted operating income to be approximately comparable to
adjusted operating income of $445 million in fiscal 2017, which
reflects a significant year-over-year increase in investments in
brand marketing and improved eCommerce capabilities; and 2) an
effective tax rate of approximately 23%.
The Company believes these non-GAAP measurements provide
investors with a meaningful view of the Company’s core operating
results, and are the same measurements used by the Company's
executive management to assess the Company's performance.
Conference Call
The Company will hold a conference call with investors to
discuss fourth quarter and fiscal 2017 results and its business
outlook on February 27, 2018 at 8:30 a.m. Eastern Standard Time. To
participate in the call, please dial 719-325-2281. To listen to a
live broadcast of the call on the internet, please visit
www.carters.com and select the “Fourth Quarter 2017 Earnings
Conference Call” link under the “Investor Relations” tab.
Presentation materials for the call can be accessed under the same
tab by selecting links for “News & Events” followed by
“Webcasts & Presentations”. A replay of the call will be
available shortly after the broadcast through March 8, 2018, at
888-203-1112 (U.S. / Canada) or 719-457-0820 (international),
passcode 7077705. The replay will also be archived on the Company's
website under the “Investor Relations” tab.
About Carter’s, Inc.
Carter’s, Inc. is the largest branded marketer in North America
of apparel exclusively for babies and young children. The Company
owns the Carter’s and OshKosh B'gosh brands, two of the most
recognized brands in the marketplace. These brands are sold in
leading department stores, national chains, and specialty retailers
domestically and internationally. They are also sold through more
than 1,000 Company-operated stores in the United States, Canada,
and Mexico and online at www.carters.com, www.oshkoshbgosh.com, and
www.cartersoshkosh.ca. The Company’s Just One You and Genuine Kids
brands are available at Target, its Child of Mine brand is
available at Walmart, and its Simple Joys brand is available on
Amazon. The Company also owns Skip Hop, a global lifestyle brand
for families with young children. Carter’s is headquartered in
Atlanta, Georgia. Additional information may be found at
www.carters.com.
Cautionary Language
This press release contains forward-looking statements within
the meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 relating to the Company’s future
performance, including, without limitation, statements with respect
to the Company’s anticipated financial results for the first
quarter of fiscal 2018 and fiscal year 2018, 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; our products not being accepted in the
marketplace, due to quality concerns, changes in consumer
preference and fashion trends, or otherwise; a failure to meet
regulatory requirements, including those relating to product
quality and safety; negative publicity, including as a result of
product recalls or otherwise; a 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;
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;
fluctuations in foreign currency exchange rates; and an inability
to obtain additional financing on favorable terms. The Company does
not undertake any obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events, or otherwise.
CARTER’S, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except for share
data)
(unaudited)
For the fiscal quarter ended For the fiscal year
ended December 30, December 31,
December 30, December 31, 2017
2016 2017 2016 Net sales $ 1,027,306 $ 934,203
$ 3,400,410 $ 3,199,184 Cost of goods sold 567,099 523,711
1,917,096 1,820,035 Gross profit 460,207
410,492 1,483,314 1,379,149 Selling, general, and administrative
expenses 325,507 282,624 1,106,927 995,406 Royalty income (11,063 )
(11,545 ) (43,181 ) (42,815 ) Operating income 145,763 139,413
419,568 426,558 Interest expense 7,685 6,723 30,044 27,044 Interest
income (86 ) (110 ) (345 ) (563 ) Other expense (income), net 417
334 (1,163 ) 4,007 Income before income taxes
137,747 132,466 391,032 396,070 Provision for income taxes 2,058
45,349 88,268 137,964 Net income $
135,689 $ 87,117 $ 302,764 $ 258,106
Basic net income per common share $ 2.87 $ 1.77 $ 6.31 $
5.13 Diluted net income per common share $ 2.84 $ 1.76 $ 6.24 $
5.08 Dividend declared and paid per common share $ 0.37 $ 0.33 $
1.48 $ 1.32
CARTER’S, INC.
CONDENSED BUSINESS SEGMENT RESULTS
(dollars in thousands)
(unaudited)
For the fiscal quarter ended For the fiscal year
ended December 30, % of December
31, % of December 30, % of
December 31, % of 2017 total
sales 2016 total sales 2017 total
sales 2016 total sales
Net
sales:
U.S. Retail (a)
$
565,662
55.1 % $ 527,845 56.5 % $ 1,775,287 52.2 % $ 1,656,414 51.8 % U.S.
Wholesale 329,821 32.1 % 297,126 31.8 % 1,209,663 35.6 % 1,178,034
36.8 % International (b) 131,823 12.8 %
109,232 11.7 % 415,460 12.2 % 364,736 11.4 %
Total net sales
$
1,027,306
100.0 % $ 934,203 100.0 % $ 3,400,410 100.0 %
$ 3,199,184 100.0 %
Operating Operating
Operating Operating
Operating
income:
margin margin margin margin U.S. Retail
(c) (g)
$
87,570
15.5 % $ 85,457 16.2 % $ 215,601 12.1 % $ 212,581 12.8 % U.S.
Wholesale (d) (g) 68,017 20.6 % 65,032 21.9 % 252,090 20.8 %
260,953 22.2 % International (e) (g) 18,418 14.0 %
22,003 20.1 % 46,426 11.2 % 59,194 16.2
% Corporate expenses (f) (h) (28,242 ) (33,079 )
(94,549 ) (106,170 ) Total operating income
$
145,763
14.2 % $ 139,413 14.9 % $ 419,568 12.3 % $
426,558 13.3 % (a) Includes retail stores and
eCommerce results. (b) Includes international retail, eCommerce,
and wholesale sales. (c) Fiscal 2017 includes approximately $2.7
million of expenses related to store restructuring and
approximately $12.7 million for a provision for special employee
compensation. (d) Fiscal 2017 includes approximately $3.3 million
for a provision for special employee compensation. (e) Includes
international licensing income. Fiscal 2017 includes approximately
$2.3 million for a provision for special employee compensation. (f)
Includes expenses related to incentive compensation, stock-based
compensation, executive management, severance and relocation,
finance, building occupancy, information technology, and certain
legal, consulting, and audit fees. (g) $1.2 million of certain
costs related to inventory acquired from Skip Hop are included in
the operating income of U.S. Wholesale, U.S. Retail, and
International for fiscal 2017. (h) Includes the following charges:
For the fiscal quarter ended For the
fiscal year ended December 30, December
31, December 30, December 31,
(dollars in millions)
2017 2016 2017 2016 Provisions for
special employee compensation $ 2.9 $ — $ 2.9 $ — Amortization of
H.W. Carter and Sons tradenames $ — $ — $
—
$ 1.7 Adjustment to Skip Hop contingent consideration $ — $ — $
(3.6 ) $ — Direct sourcing initiative $ — $ 0.2 $ 0.3 $ 0.7
Acquisition-related costs $ 0.1 $ 2.4 $ 3.4 $ 2.4
CARTER’S, INC. CONDENSED CONSOLIDATED BALANCE
SHEETS
(dollars in thousands, except for share
data)
(unaudited)
December 30, December 31, 2017
2016 ASSETS Current assets: Cash and cash equivalents
$ 178,494 $ 299,358 Accounts receivable, net 240,561 202,471
Finished goods inventories 548,722 487,591 Prepaid expenses and
other current assets 49,892 32,180 Deferred income taxes —
35,486 Total current assets 1,017,669 1,057,086 Property,
plant, and equipment, net 377,924 385,874 Tradenames, net 365,551
308,928 Goodwill 230,424 176,009 Customer relationships, net 47,996
— Other assets 28,435 18,700 Total assets $ 2,067,999
$ 1,946,597
LIABILITIES AND STOCKHOLDERS’
EQUITY Current liabilities: Accounts payable $ 182,114 $
158,432 Other current liabilities 146,510 119,177
Total current liabilities 328,624 277,609 Long-term debt,
net 617,306 580,376 Deferred income taxes 84,848 130,656 Other
long-term liabilities 180,128 169,832 Total
liabilities 1,210,906 1,158,473 Stockholders’ equity:
Preferred stock; par value $.01 per share; 100,000 shares
authorized; none issued or outstanding at December 30, 2017 and
December 31, 2016 — — Common stock, voting; par value $.01 per
share; 150,000,000 shares authorized; 47,178,346 and 48,948,670
shares issued and outstanding at December 30, 2017 and December 31,
2016, respectively 472 489 Additional paid-in capital — —
Accumulated other comprehensive loss (29,093 ) (34,740 ) Retained
earnings 885,714 822,375 Total stockholders’ equity
857,093 788,124 Total liabilities and stockholders’
equity $ 2,067,999 $ 1,946,597
CARTER’S, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOW
(dollars in thousands)
(unaudited)
For the fiscal year ended December 30, 2017
December 31, 2016 Cash flows from operating
activities: Net income $ 302,764 $ 258,106 Adjustments to reconcile
net income to net cash provided by operating activities:
Depreciation and amortization 81,796 71,522 Amortization of
intangible assets 2,616 1,919 Adjustment and accretion of
contingent consideration (3,600 ) — Amortization of debt issuance
costs 1,572 1,461 Non-cash stock-based compensation 17,549 16,847
Unrealized foreign currency exchange (gain) loss, net (624 ) 33
Income tax benefit from stock-based compensation — (4,800 ) Loss on
disposal of property, plant, and equipment 1,572 1,167 Deferred
income taxes (54,892 ) 1,294 Effect of changes in operating assets
and liabilities, net of acquisitions: Accounts receivable, net
(18,046 ) 5,041 Inventories (20,922 ) (17,482 ) Prepaid expenses
and other assets (21,339 ) 2,060 Accounts payable and other
liabilities 41,175 32,061 Net cash provided by
operating activities 329,621 369,229 Cash flows from
investing activities: Capital expenditures (69,473 ) (88,556 )
Acquisition of businesses, net of cash acquired (158,457 ) —
Disposals of property, plant, and equipment 15 216
Net cash used in investing activities (227,915 ) (88,340 ) Cash
flows from financing activities: Payments of debt issuance costs
(2,119 ) — Borrowings under secured revolving credit facility
200,000 — Payments on secured revolving credit facility (163,965 )
— Repurchases of common stock (188,762 ) (300,445 ) Dividends paid
(70,914 ) (66,355 ) Income tax benefit from stock-based
compensation — 4,800 Withholdings of taxes from vesting of
restricted stock (5,753 ) (8,673 ) Proceeds from exercises of stock
options 8,438 7,166 Net cash used in financing
activities (223,075 ) (363,507 ) Net effect of exchange rate
changes on cash 505 767 Net decrease in cash and cash
equivalents (120,864 ) (81,851 ) Cash and cash equivalents,
beginning of fiscal year 299,358 381,209 Cash and
cash equivalents, end of fiscal year $ 178,494 $ 299,358
CARTER’S, INC. RECONCILIATION
OF GAAP TO ADJUSTED RESULTS
(dollars in millions, except earnings per
share)
(unaudited)
Fiscal quarter ended December 30, 2017 Gross
% of Net % of Net
Operating % of Net
Net
Diluted
Margin Sales SG&A
Sales Income Sales
Income
EPS
As reported (GAAP) $ 460.2 44.8 % $ 325.5 31.7 % $ 145.8
14.2 % $ 135.7 $ 2.84 Acquisition costs (b) (c) 0.4 (0.1 ) 0.5 0.3
0.01 Special employee compensation provision (b) (d) — (21.2 ) 21.2
15.1 0.32 Tax reform (e) — — — (40.0 ) (0.84 ) Store restructuring
costs (b) (h) — — — (0.2 ) (0.01 )
As
adjusted (a) $ 460.6 44.8 % $ 304.3 29.6 % $
167.4 16.3 % $ 111.0 $ 2.32
Fiscal year ended December 30, 2017 Gross %
of Net % of Net Operating
% of Net
Net
Diluted
Margin Sales SG&A
Sales Income Sales
Income
EPS
As reported (GAAP) $ 1,483.3 43.6 % $ 1,106.9 32.6 % $ 419.6
12.3 % $ 302.8 $ 6.24 Acquisition costs (b) (c) 1.2 0.2 1.0 0.2 —
Special employee compensation provision (b) (d) — (21.2 ) 21.2 15.1
0.31 Tax reform (e) — — — (40.0 ) (0.83 ) Direct sourcing
initiative (b) (f) — (0.3 ) 0.3 0.2 — Store restructuring costs (b)
(h) — (2.7 ) 2.7 1.5 0.03
As
adjusted (a) $ 1,484.5 43.7 % $ 1,082.9 31.8 % $
444.8 13.1 % $ 279.7 $ 5.76
Fiscal quarter ended December 31, 2016 Gross
% of Net % of Net
Operating % of Net
Net
Diluted
Margin Sales SG&A
Sales Income Sales
Income
EPS
As reported (GAAP) $ 410.5 43.9 % $ 282.6 30.3 % $ 139.4
14.9 % $ 87.1 $ 1.76 Acquisition costs (b) (g) — (2.4 ) 2.4 1.5
0.03
Direct sourcing initiative (b) (f)
— (0.2 ) 0.2 0.1 —
As adjusted (a) $
410.5 43.9 % $ 280.1 30.0 % $ 142.0 15.2 % $
88.7 $ 1.79
Fiscal year ended December 31,
2016 Gross % of Net % of
Net Operating % of Net
Net
Diluted
Margin Sales SG&A
Sales Income Sales
Income
EPS
As reported (GAAP) $ 1,379.1 43.1 % $ 995.4 31.1 % $ 426.6
13.3 % $ 258.1 $ 5.08 Acquisition costs (b) (g) — (2.4 ) 2.4 1.5
0.03 Amortization of tradenames (b) — (1.7 ) 1.7 1.1 0.02 Direct
sourcing initiative (b) (f) — (0.7 ) 0.7 0.5
0.01
As adjusted (a) $ 1,379.1 43.1 % $ 990.6
31.0 % $ 431.4 13.5 % $ 261.1 $ 5.14
CARTER’S, INC. RECONCILIATION OF GAAP TO ADJUSTED
RESULTS
(dollars in millions, except earnings per
share)
(unaudited)
Fiscal quarter ended April 1, 2017 Gross
% of Net % of Net
Operating % of Net
Net
Diluted
Margin Sales SG&A
Sales Income Sales
Income
EPS
As reported (GAAP) $ 315.8 43.1 % $ 247.8 33.8 % $ 78.6 10.7
% $ 46.7 $ 0.95 Acquisition costs (b) (g) — (1.3 ) 1.3 0.8 0.02
Direct sourcing initiative (b) (f) — (0.2 ) 0.2 0.2
—
As adjusted (a) $ 315.8 43.1 % $ 246.3
33.6 % $ 80.1 10.9 % $ 47.6 $ 0.97
(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 expenses, operating income, net income, and
diluted EPS excluding the adjustment items noted above and
discussed above. The Company believes these non-GAAP measurements
provide investors with a meaningful view of the Company’s core
operating results, and are the same measurements used by the
Company's executive management to assess the Company's performance.
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) Non-recurring costs related to the acquisitions
of Skip Hop and Carter's Mexico. (d)
Special employee compensation provided as
a result of the significant benefit related to the enactment of the
Tax Cuts and Jobs Act of 2017.
(e) Reflects the $40 million net benefit of the Tax Cuts and Jobs
Act of 2017. (f) Costs associated with the Company's direct
sourcing initiative, which include severance and relocation. (g)
Transaction costs associated with the Skip Hop acquisition. (h) Tax
credit received for certain payroll costs incurred during unusual
storm-related closures.
Note: Results may not be additive due to
rounding.
CARTER’S, INC. RECONCILIATION OF NET
INCOME ALLOCABLE TO COMMON SHAREHOLDERS
(unaudited)
For the fiscal quarter ended For the fiscal year
ended December 30, December 31,
December 30, December 31, 2017
2016 2017 2016 Weighted-average number of
common and common equivalent shares outstanding: Basic number of
common shares outstanding 46,883,462 48,824,395 47,593,211
49,917,858 Dilutive effect of equity awards 575,843 422,205
552,864 457,849 Diluted number of common and
common equivalent shares outstanding 47,459,305 49,246,600
48,146,075 50,375,707
As reported on a
GAAP Basis:
(dollars in thousands, except per share data) Basic net income per
common share: Net income $ 135,689 $ 87,117 $ 302,764 $ 258,106
Income allocated to participating securities (1,090 ) (686 ) (2,406
) (2,049 ) Net income available to common shareholders $ 134,599
$ 86,431 $ 300,358 $ 256,057 Basic net
income per common share $ 2.87 $ 1.77 $ 6.31 $ 5.13 Diluted net
income per common share: Net income $ 135,689 $ 87,117 $ 302,764 $
258,106 Income allocated to participating securities (1,078 ) (681
) (2,385 ) (2,035 ) Net income available to common shareholders $
134,611 $ 86,436 $ 300,379 $ 256,071
Diluted net income per common share $ 2.84 $ 1.76 $ 6.24 $ 5.08
As adjusted
(a):
(dollars in thousands, except per share data) Basic net income per
common share: Net income $ 110,983 $ 88,736 $ 279,722 $ 261,147
Income allocated to participating securities (889 ) (698 ) (2,219 )
(2,073 ) Net income available to common shareholders $ 110,094
$ 88,038 $ 277,503 $ 259,074 Basic net
income per common share $ 2.35 $ 1.80 $ 5.83 $ 5.19 Diluted net
income per common share: Net income $ 110,983 $ 88,736 $ 279,722 $
261,147 Income allocated to participating securities (880 ) (693 )
(2,200 ) (2,059 ) Net income available to common shareholders $
110,103 $ 88,043 $ 277,522 $ 259,088
Diluted net income per common share $ 2.32 $ 1.79 $ 5.76 $ 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 per share data
excluding the adjustments presented above. The Company excluded
approximately $15.3 million and $17.0 million in after-tax expenses
from these results for the quarter and fiscal year ended December
30, 2017, respectively. In addition, a $40.0 million preliminary
income tax benefit related to the accounting for the implementation
of the Tax Cuts and Jobs Act of 2017 was excluded from these
results for the fourth quarter and full fiscal 2017 year. The
Company excluded approximately $1.6 million and $3.1 million in
after-tax expenses from these results for the quarter and fiscal
year ended December 31, 2016, 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 Fiscal year ended
December 30, December 31, December 30,
December 31, 2017 2016 2017
2016
(dollars in millions)
Net income $ 135.7 $ 87.1 $
302.8 $ 258.1 Interest expense 7.7 6.7 30.0 27.0 Interest income
(0.1 ) (0.1 ) (0.3 ) (0.6 ) Tax expense 2.1 45.3 88.3 138.0
Depreciation and amortization (a) 22.3 19.2 84.4
73.4 EBITDA $ 167.6 $ 158.3 $ 505.1 $ 496.0
Adjustments to EBITDA Revaluation of contingent
consideration (b) — — (3.6 ) — Store restructuring costs (c) — —
2.7 — Special employee compensation provision (d) 21.2 — 21.2 —
Direct sourcing initiative (e) — 0.2 0.3 0.7 Acquisition-related
costs (f) 0.4 2.4 4.6 2.4
Adjusted
EBITDA $ 189.2 $ 160.8 $ 530.3 $ 499.1
(a) Includes amortization of acquired
finite-life tradenames and customer relationship intangible assets.
(b) Revaluation of the contingent consideration liability
associated with the Company’s acquisition of Skip Hop. (c) Net
costs arising from unusual storm damage and related closures. (d)
Special employee compensation provision related to significant
benefit related to the enactment of the Tax Cuts and Jobs Act of
2017; includes $1.2 million in related payroll taxes. (e) Pre-tax
costs associated with the Company's direct sourcing initiative,
which includes severance and relocation. (f) Non-recurring costs
incurred in connection with the Skip Hop and Carter's Mexico
business acquisitions.
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 (b) - (f) to the table above.
We present EBITDA and Adjusted EBITDA because we consider them
to be 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 are used by the Company's executive
management to assess the Company's 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 fiscal year ended
December 30, 2017:
Fiscal Quarter Ended
Reported
Net Sales
December
30, 2017
Impact of
Foreign
Currency
Translation
Constant-
Currency
Net Sales
December
30, 2016
Reported
Net Sales
December
31, 2016
Reported
Net Sales
% Change
Constant-
Currency
Net Sales
% Change
Consolidated net sales $ 1,027.3 $ (4.5 ) $ 1,022.8 $ 934.2
10.0 % 9.5 % International segment net sales $ 131.8 $ (4.5 ) $
127.3 $ 109.2 20.7 % 16.6 %
Fiscal Year Ended
Reported
Net Sales
December
30, 2017
Impact of
Foreign
Currency
Translation
Constant-
Currency
Net Sales
December
31, 2016
Reported
Net Sales
December
31, 2016
Reported
Net Sales
% Change
Constant-
Currency
Net Sales
% Change
Consolidated net sales $ 3,400.4 $ (6.6 ) $ 3,393.8 $
3,199.2 6.3 % 6.1 % International segment net sales $ 415.5 $ (6.6
) $ 408.9 $ 364.7 13.9 % 12.1 %
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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20180227005758/en/
Carter’s, Inc.Sean McHugh, 678-791-7615Vice President &
Treasurer
Carters (NYSE:CRI)
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