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Carter's, Inc. Reports Second Quarter 2012 Results

For fiscal 2012, the Company expects net sales will increase approximately 9% to 11% over fiscal 2011. The Company expects adjusted diluted earnings per share, excluding approximately $4 million to $5 million in expenses related to the Bonnie Togs acquisition, $3 million to $4 million in expenses related to the previously-announced distribution center closure, or other items the Company believes to be nonrepresentative of underlying business performance, to increase approximately 20% to 25% compared to adjusted diluted earnings per share of $2.09 in fiscal 2011.

Conference Call

The Company will hold a conference call with investors to discuss second quarter fiscal 2012 results and its business outlook on July 25, 2012 at 8:30 a.m. Eastern Time. To participate in the call, please dial 913-312-1383. To listen to a live broadcast of the call on the internet, please log on to www.carters.com and select the “Second Quarter 2012 Earnings Conference Call” link under the “Investor Relations” tab. Presentation materials for the call can be accessed at www.carters.com by selecting the “Conference Calls & Webcasts” link under the “Investor Relations” tab. A replay of the call will be available shortly after the broadcast through August 3, 2012, at 719-457-0820, passcode 5384169. The replay will also be archived on the Company's website.

About Carter's, Inc.

Carter's, Inc. is the largest branded marketer in the United States of apparel and related products exclusively for babies and young children. The Company owns the Carter's and OshKosh B'gosh brands, two of the most recognized brands in the marketplace. These brands are sold in leading department stores, national chains, and specialty retailers domestically and internationally. They are also sold through more than 600 Company-operated stores in the United States and Canada and on-line at www.carters.com and www.oshkoshbgosh.com. The Company's Just One You, Precious Firsts, and Genuine Kids brands are available at Target, and its Child of Mine brand is available at Walmart. Carter's is headquartered in Atlanta, Georgia. Additional information may be found at 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 third quarter of fiscal 2012 and fiscal year 2012, or any other future period, assessment of the Company's performance and financial position, and drivers of the Company's sales and earnings growth. Such statements are based on current expectations only, and are subject to certain risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. Factors that could cause actual results to materially differ include: the acceptance of the Company's products in the marketplace; changes in consumer preference and fashion trends; seasonal fluctuations in the children's apparel business; negative publicity; the breach of the Company's consumer databases; increased production costs; deflationary pricing pressures and customer acceptance of higher selling prices; a continued decrease in the overall level of consumer spending; the Company's dependence on its foreign supply sources; failure of its foreign supply sources to meet the Company's quality standards or regulatory requirements; the impact of governmental regulations and environmental risks applicable to the Company's business; disruption to our eCommerce business, distribution facilities, or in-sourcing capabilities; the loss of a product sourcing agent; increased competition in the baby and young children's apparel market; the ability of the Company to identify new retail store locations, and negotiate appropriate lease terms for the retail stores; the ability of the Company to adequately forecast demand, which could create significant levels of excess inventory; failure to successfully integrate Bonnie Togs into our existing business and realize growth opportunities and other benefits from the acquisition; failure to achieve sales growth plans, cost savings, and other assumptions that support the carrying value of the Company's intangible assets; and the ability to attract and retain key individuals within the organization. Many of these risks are further described in the most recently filed Quarterly Report on Form 10-Q and other reports filed with the Securities and Exchange Commission under the headings "Risk Factors" and "Forward-Looking Statements." The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

     

CARTER’S, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except for share data)

(unaudited)

 

For the three-month period ended

For the six-month period ended

June 30, 2012   July 2, 2011 June 30, 2012   July 2, 2011
Net sales $ 472,162 $ 394,488 $ 1,023,824 $ 863,488
Cost of goods sold 288,919   259,445   645,842   570,360  
Gross profit 183,243 135,043 377,982 293,128
Selling, general, and administrative expenses 156,290 121,290 305,995 235,070
Royalty income (7,474 ) (8,269 ) (16,240 ) (17,598 )
Operating income 34,427 22,022 88,227 75,656
Interest expense, net 1,738 1,756 3,695 3,606
Foreign currency (gain) loss (207 ) (231 ) 99   (231 )
Income before income taxes 32,896 20,497 84,433 72,281
Provision for income taxes 12,091   7,838   31,353   27,499  
Net income $ 20,805   $ 12,659   $ 53,080   $ 44,782  
Basic net income per common share $ 0.35 $ 0.22 $ 0.90 $ 0.77
Diluted net income per common share $ 0.35 $ 0.22 $ 0.89 $ 0.76
       

CARTER’S, INC.

BUSINESS SEGMENT RESULTS

(unaudited)

 
For the three-month periods ended For the six-month periods ended
(dollars in thousands) June 30, 2012 % of Total   July 2, 2011 % of Total June 30, 2012 % of Total   July 2, 2011 % of Total

Net sales:

Carter’s Wholesale $ 194,523 41.2 % $ 172,634 43.8 % $ 444,008 43.4 % $ 414,253 48.0 %
Carter’s Retail (a) 169,261   35.8 % 142,921   36.2 % 346,465   33.8 % 280,783   32.5 %
Total Carter’s 363,784   77.0 % 315,555   80.0 % 790,473   77.2 % 695,036   80.5 %
OshKosh Retail (a) 58,301 12.3 % 57,112 14.5 % 116,289 11.4 % 111,106 12.9 %
OshKosh Wholesale 12,789   2.7 % 14,700   3.7 % 33,063   3.2 % 34,776   4.0 %
Total OshKosh 71,090   15.1 % 71,812   18.2 % 149,352   14.6 % 145,882   16.9 %
International (b) 37,288   7.9 % 7,121   1.8 % 83,999   8.2 % 22,570   2.6 %
Total net sales $ 472,162   100.0 % $ 394,488   100.0 % $ 1,023,824   100.0 % $ 863,488   100.0 %
 

Operating income (loss):

% of segment net sales % of segment net sales % of segment net sales % of segment net sales
Carter’s Wholesale $ 35,945 18.5 % $ 20,438 11.8 % $ 76,216 17.2 % $ 57,581 13.9 %
Carter’s Retail (a) 19,951   11.8 % 19,392   13.6 % 50,485   14.6 % 46,055   16.4 %
Total Carter’s 55,896   15.4 % 39,830   12.6 % 126,701   16.0 % 103,636   14.9 %
OshKosh Retail (a) (9,319 ) (16.0 )% (5,719 ) (10.0 )% (16,778 ) (14.4 )% (11,121 ) (10.0 )%
OshKosh Wholesale (574 ) (4.5 )% (1,994 ) (13.6 )% (454 ) (1.4 )% (431 ) (1.2 )%
Total OshKosh (9,893 ) (13.9 )% (7,713 ) (10.7 )% (17,232 ) (11.5 )% (11,552 ) (7.9 )%
International (b) 6,257   (c) 16.8 % 3,607   50.7 % 13,724   (c) 16.3 % 8,586   38.0 %
Segment operating income 52,260 11.1 % 35,724 9.1 % 123,193 12.0 % 100,670 11.7 %
Corporate expenses (d) (17,833 ) (e) (3.8 )% (13,702 ) (f) (3.5 )% (34,966 ) (e) (3.4 )% (25,014 ) (f) (2.9 )%
Total operating income $ 34,427   7.3 % $ 22,022   5.6 % $ 88,227   8.6 % $ 75,656   8.8 %
 
 

(a)

Includes eCommerce results.

(b)

Net sales includes international retail, eCommerce, and wholesale sales. Operating income includes international licensing income.

(c)

Includes $1.1 million and $1.8 million charges associated with the revaluation of the Company’s contingent consideration for the three and six-month periods ended June 30, 2012.

(d)

Corporate expenses generally include expenses related to incentive compensation, stock-based compensation, executive management, severance and relocation, finance, building occupancy, information technology, certain legal fees, consulting, and audit fees.

(e)

Includes $0.7 million and $1.8 million in facility closure-related costs related to closure of a distribution facility located in Hogansville, Georgia for the three and six-month periods ended June 30, 2012, respectively. For the second quarter of 2012, the total closure-related costs consisted of severance of $0.3 million, accelerated depreciation (included in selling, general and administrative expenses) of $0.4 million, and other closure costs of $0.1 million. For the first half of 2012, the total closure-related costs consisted of severance of $1.4 million, accelerated depreciation (included in selling, general and administrative expenses) of $0.4 million and other closure costs of $0.1 million.

(f)

Includes $1.2 million and $2.2 million of professional service fees associated with the acquisition of Bonnie Togs for the three and six-month periods ended July 2, 2011, respectively.

     

CARTER’S, INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except for share data)

(unaudited)

 
June 30, 2012 December 31, 2011 July 2, 2011
ASSETS
Current assets:
Cash and cash equivalents $ 237,629 $ 233,494 $ 86,725
Accounts receivable, net 131,888 157,754 124,667
Finished goods inventories, net 377,857 347,215 458,114
Prepaid expenses and other current assets 16,858 18,519 16,689
Deferred income taxes 23,838   25,165   23,687  
Total current assets 788,070 782,147 709,882
Property, plant, and equipment, net 139,592 122,346 101,796
Tradenames 306,028 306,176 306,356
Goodwill 188,621 188,679 191,050
Deferred debt issuance costs, net 2,270 2,624 2,978
Other intangible assets, net 221 258 311
Other assets 436   479   445  
Total assets $ 1,425,238   $ 1,402,709   $ 1,312,818  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt $ $ $
Accounts payable 120,922 102,804 119,428
Other current liabilities 34,012   49,949   37,226  
Total current liabilities 154,934 152,753 156,654
Long-term debt 186,000 236,000 236,000
Deferred income taxes 113,355 114,421 112,261
Other long-term liabilities 103,612   93,826   75,021  
Total liabilities 557,901   597,000   579,936  
Commitments and contingencies
Stockholders’ equity:
Preferred stock; par value $.01 per share; 100,000 shares authorized; none issued or outstanding at June 30, 2012, December 31, 2011, and July 2, 2011
Common stock, voting; par value $.01 per share; 150,000,000 shares authorized; 58,989,420, 58,595,421, and 58,087,327 shares issued and outstanding at June 30, 2012, December 31, 2011, and July 2, 2011, respectively 590 586 581
Additional paid-in capital 240,427 231,738 218,857
Accumulated other comprehensive loss (11,427 ) (11,282 ) (1,989 )
Retained earnings 637,747   584,667   515,433  
Total stockholders’ equity 867,337   805,709   732,882  
Total liabilities and stockholders’ equity $ 1,425,238   $ 1,402,709   $ 1,312,818  
 

CARTER’S, INC.

CONSOLIDATED STATEMENTS OF CASH FLOW

(dollars in thousands)

(unaudited)

 

For the six-month periods ended

June 30, 2012   July 2, 2011
Cash flows from operating activities:
Net income $ 53,080 $ 44,782
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 17,606 16,367
Non-cash revaluation of contingent consideration 1,779
Amortization of Bonnie Togs tradename and non-compete agreements 187
Amortization of debt issuance costs 354 354
Non-cash stock-based compensation expense 6,351 4,883
Income tax benefit from stock-based compensation (1,834 ) (2,840 )
Loss on disposal/sale of property, plant, and equipment 517 140
Deferred income taxes 554 4,844
Effect of changes in operating assets and liabilities:
Accounts receivable 25,887 (234 )
Inventories (30,705 ) (123,324 )
Prepaid expenses and other assets 1,706 1,291
Accounts payable and other liabilities 14,457   (32,565 )
 
Net cash provided by (used in) operating activities 89,939   (86,302 )
 
Cash flows from investing activities:
Capital expenditures (37,711 ) (16,086 )
Acquisition of Bonnie Togs (61,199 )
Proceeds from sale of property, plant, and equipment 6    
 
Net cash used in investing activities (37,705 ) (77,285 )
 
Cash flows from financing activities:
Borrowings under revolving credit facility 2,500
Payments on revolving credit facility (52,500 )
Income tax benefit from stock-based compensation 1,834 2,840
Withholdings from vesting of restricted stock (2,408 ) (1,602 )
Proceeds from exercise of stock options 2,481   1,692  
 
Net cash (used in) provided by financing activities (48,093 ) 2,930
 
Effect of exchange rate changes on cash (6 )
Net increase (decrease) in cash and cash equivalents 4,135 (160,657 )
Cash and cash equivalents, beginning of period 233,494   247,382  
 
Cash and cash equivalents, end of period $ 237,629   $ 86,725  
 

CARTER’S, INC.

RECONCILIATION OF GAAP TO ADJUSTED RESULTS

 
Three-month period ended June 30, 2012
(dollars in millions, except earnings per share) SG&A  

Operating Income

  Net Income   Diluted EPS
As reported (GAAP) $ 156.3 $ 34.4 $ 20.8 $ 0.35
Revaluation of contingent consideration (a) (1.1 ) 1.1 1.1 0.01
Facility closure-related costs (b) (0.7 ) 0.7   0.5   0.01
As adjusted (d) $ 154.5   $ 36.2   $ 22.4   $ 0.37
 
Six-month period ended June 30, 2012
(dollars in millions, except earnings per share) SG&A

Operating Income

Net Income Diluted EPS
As reported (GAAP) $ 306.0 $ 88.2 $ 53.1 $ 0.89
Revaluation of contingent consideration (a) (1.8 ) 1.8 1.8 0.03
Facility closure-related costs (b) (1.8 ) 1.8   1.2   0.02
As adjusted (d) $ 302.4   $ 91.8   $ 56.0   $ 0.94
 
Three-month period ended July 2, 2011
(dollars in millions, except earnings per share) SG&A

Operating Income

Net Income Diluted EPS
As reported (GAAP) $ 121.3 $ 22.0 $ 12.7 $ 0.22
Professional fees / other expenses (c) (1.2 ) 1.2   0.7   0.01
As adjusted (d) $ 120.1   $ 23.2   $ 13.4   $ 0.23
 
Six-month period ended July 2, 2011
(dollars in millions, except earnings per share) SG&A

Operating Income

Net Income Diluted EPS
As reported (GAAP) $ 235.1 $ 75.7 $ 44.8 $ 0.76
Professional fees / other expenses (c) (2.2 ) 2.2   1.4   0.03
As adjusted (d) $ 232.9   $ 77.9   $ 46.2   $ 0.79
 

(a)

Revaluation of the contingent consideration liability associated with the Company's June 2011 acquisition of Bonnie Togs.

(b)

Costs related to the closure of a distribution facility located in Hogansville, Georgia, including severance and related benefits of $0.3 million and $1.4 million for the three and six-month periods ended June 30, 2012, respectively, $0.4 million in accelerated depreciation for the three and six-months period ended June 30, 2012, respectively and $0.1 million in other closure costs for the three and six-month periods ended June 30, 2012, respectively.

(c)

Professional service fees associated with the acquisition of Bonnie Togs.

(d)

In addition to the results provided in this earnings release in accordance with GAAP, the Company has provided adjusted, non-GAAP financial measurements that present SG&A, operating income, net income, and net income on a diluted share basis excluding the adjustments discussed above. The Company believes these adjustments provide a meaningful comparison of the Company’s results. The adjusted, non-GAAP financial measurements included in this earnings release should not be considered as an alternative to net income or as any other measurement of performance derived in accordance with GAAP. The adjusted, non-GAAP financial measurements are presented for informational purposes only and are not necessarily indicative of the Company’s future condition or results of operations.

 

Note: Results may not be additive due to rounding.

 

CARTER’S, INC.

RECONCILIATION OF GAAP TO ADJUSTED RESULTS

 
Three-month period ended October 1, 2011
(dollars in millions, except earnings per share)

Gross Margin

  SG&A  

Operating Income

  Net Income   Diluted EPS
As reported (GAAP) $ 192.1 $ 145.8 $ 56.8 $ 34.4 $ 0.58
Amortization of fair value step-up of inventory (a) 5.9 5.9 4.3 0.07
Revaluation of contingent consideration (b) (1.0 ) 1.0 1.0 0.02
Professional fees / other expenses (c)   (0.1 ) 0.1    
As adjusted (d) $ 198.1   $ 144.8   $ 63.8   $ 39.7   $ 0.67
 
 
Twelve-month period ended December 31, 2011
(dollars in millions, except earnings per share)

Gross Margin

SG&A

Operating Income

Net Income Diluted EPS
As reported (GAAP) $ 692.3 $ 542.1 $ 187.5 $ 114.0 $ 1.94

Acquisition-related expenses:

Amortization of fair value step-up of inventory (a) 6.7 6.7 4.8 0.08
Revaluation of contingent consideration (b) (2.5 ) 2.5 2.5 0.04
Professional fees / other expenses (c)   (3.0 ) 3.0   1.9   0.03
Total acquisition-related expenses 6.7   (5.5 ) 12.2   9.2   0.15
As adjusted (d) $ 698.9   $ 536.6   $ 199.7   $ 123.2   $ 2.09
 

(a)

Expense related to the amortization of the fair value step-up for Bonnie Togs inventory acquired.

(b)

Revaluation of the contingent consideration liability associated with the Company's June 2011 acquisition of Bonnie Togs.

(c)

Professional service fees associated with the acquisition of Bonnie Togs.

(d)

In addition to the results provided in this earnings release in accordance with GAAP, the Company has provided adjusted, non-GAAP financial measurements that present 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 to the Company's results. The adjusted, non-GAAP financial measurements included in this earnings release should not be considered as an alternative to net income or as any other measurement of performance derived in accordance with GAAP. The adjusted, non-GAAP financial measurements are presented for informational purposes only and are not necessarily indicative of the Company's future condition or results of operations.

 

Note: Results may not be additive due to rounding.

     

CARTER’S, INC.

RECONCILIATION OF NET INCOME ALLOCABLE TO COMMON SHAREHOLDERS

 
For the

three-month periods ended

For the six-month periods ended

June 30, 2012   July 2, 2011 June 30, 2012   July 2, 2011
Weighted-average number of common and common equivalent outstanding:
Basic number of common shares outstanding 58,200,702 57,320,717 58,128,989 57,185,008
Dilutive effect of unvested restricted stock 170,495 96,845 174,134 101,921
Dilutive effect of stock options 676,321   635,425   645,174   665,797  
Diluted number of common and common equivalent shares outstanding 59,047,518   58,052,987       58,948,297   57,952,726  
 

As reported on a GAAP Basis:

Basic net income per common share:
Net income $ 20,805,000 $ 12,659,000 $ 53,080,000 $ 44,782,000
Income allocated to participating securities (281,253 ) (140,083 ) (718,436 ) (496,715 )
Net income available to common shareholders $ 20,523,747   $ 12,518,917   $ 52,361,564   $ 44,285,285  
 
Basic net income per common share $ 0.35 $ 0.22 $ 0.90 $ 0.77
 
Diluted net income per common share
Net income $ 20,805,000 $ 12,659,000 $ 53,080,000 $ 44,782,000
Income allocated to participating securities (278,065 ) (138,564 ) (710,655 ) (491,061 )
Net income available to common shareholders $ 20,526,935   $ 12,520,436   $ 52,369,345   $ 44,290,939  
 
Diluted net income per common share 0.35 0.22 0.89 0.76
 

As adjusted (a):

Basic net income per common share:
Net income $ 22,353,000 $ 13,402,000 $ 56,021,000 $ 46,176,000
Income allocated to participating securities (302,179 ) (148,305 ) (758,242 ) (512,177 )
Net income available to common shareholders $ 22,050,821   $ 13,253,695   $ 55,262,758   $ 45,663,823  
 
Basic net income per common share $ 0.38 $ 0.23 $ 0.95 $ 0.80
 
Diluted net income per common share
Net income $ 22,353,000 $ 13,402,000 $ 56,021,000 $ 46,176,000
Income allocated to participating securities (298,755 ) (146,697 ) (750,030 ) (506,347 )
Net income available to common shareholders $ 22,054,245   $ 13,255,303   $ 55,270,970   $ 45,669,653  
 
Diluted net income per common share $ 0.37 $ 0.23 $ 0.94 $ 0.79
 

(a)

In addition to the results provided in this earnings release in accordance with GAAP, the Company has provided adjusted, non-GAAP financial measurements that present per share data excluding the adjustments discussed above. The Company has excluded $1.6 million and $2.9 million in after-tax expenses from these results for the three and six-month periods ended June 30, 2012, respectively. The Company has excluded $0.7 million and $1.4 million in after-tax expenses from these results for the three and six-month periods ended July 2, 2011, respectively.





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