(Source: Business Wire)
Carter's, Inc. (NYSE:CRI), the largest branded marketer in the United States of apparel exclusively for babies and young children, today reported its first quarter 2009 results.
"The trends in our business continue to be favorable, despite a very difficult retail market," said Michael D. Casey, Chief Executive Officer. "In this economy, consumers are more cautious with their spending, and we believe that the compelling value and nature of our product offerings, combined with the investments we have made in product benefits, brand presentation, and retail store operations, give us a competitive advantage.
"In addition, we have recently taken steps to improve our cost structure in order to stay ahead of the risks inherent in this economy," continued Mr. Casey. "We are committed to improving the profitability of the Company and believe these actions will contribute meaningfully to our long-term growth objectives."
First Quarter Highlights
Consolidated net sales increased 8.1% to $356.8 million. Net sales of the Company's Carter's brands increased 6.1% to $283.6 million. Net sales of the Company's OshKosh brand increased 16.6% to $73.2 million.
Consolidated retail sales increased 17.6% to $153.8 million. Carter's retail segment sales increased 18.0% to $101.9 million, with comparable store sales increasing 5.2%. OshKosh retail segment sales increased 16.8% to $51.8 million, with comparable store sales increasing 11.1%. Consolidated retail operating income increased $11.5 million to $16.3 million. Increased sales, improved gross margin, and improved inventory management contributed to the growth in earnings.
In the first quarter of fiscal 2009, the Company opened seven Carter's retail stores. As of the end of the first quarter, the Company operated 260 Carter's and 165 OshKosh retail stores.
Carter's wholesale sales increased 4.3% to $122.9 million due to strong product sell-through performance. OshKosh wholesale sales increased 15.9% to $21.4 million due to timing of shipments.
The Company's mass channel sales, which are comprised of sales of its Child of Mine brand to Walmart and Just One Year brand to Target, decreased 6.6% to $58.7 million due to timing of shipments.
The Company has announced a restructuring initiative comprised of a net reduction of its corporate workforce of approximately 10%, including the closure of its Oshkosh, Wisconsin facility; the closure of one of the Company's three distributions centers; and a program to improve the efficiency of retail store labor and benefits expenses. The Company has also reduced discretionary spending, including implementing a wage freeze and suspending the Company's matching contribution to its 401(k) plan.
As a result of the workforce reduction and distribution facility closure, the Company has recorded pre-tax charges of approximately $8.7 million related to severance, asset impairment, accelerated depreciation, and other closure costs. The Company expects to incur approximately $2.0 million of additional severance and accelerated depreciation charges in the second quarter of fiscal 2009. The Company expects to incur approximately $4.0 million of expenses throughout the balance of 2009 related to recruiting, relocation, and retention costs in order to consolidate certain functions currently managed in the Company's Oshkosh, Wisconsin facility into the Company's other corporate offices. Pre-tax annual savings resulting from the Company's restructuring activities are expected to be approximately $10.0 million.
Reported operating income in the first quarter of fiscal 2009 was $28.6 million, an increase of 39.0% from $20.6 million in the first quarter of fiscal 2008. Excluding the effect of certain items in the current year, which are detailed at the end of this release, adjusted operating income increased 81.5% to $37.3 million, driven primarily by growth in earnings from the Carter's and OshKosh retail segments.
Reported net income increased 41.6% to $16.4 million, or $0.28 per diluted share, compared to $11.6 million, or $0.19 per diluted share, in the first quarter of fiscal 2008. Excluding the effect of certain items in the current year, which are detailed at the end of this release, adjusted net income for the first quarter of fiscal 2009 increased 89.2%, and adjusted diluted earnings per share increased 100% to $0.38 per diluted share.
A reconciliation of income as reported under accounting principles generally accepted in the United States of America ("GAAP") to income adjusted for certain items is provided at the end of this release.
Cash flow from operations in the first quarter increased $4.4 million over the first quarter of fiscal 2008 due primarily to increased earnings.
Outlook
Due to earlier demand by wholesale and mass channel customers which benefited the first quarter, second quarter sales are expected to be flat to down low single digits compared to the second quarter of fiscal 2008. Excluding the effect of 2009 restructuring charges and the executive retirement charges recorded in fiscal 2008, second quarter adjusted earnings per share are expected to be down $0.07 to $0.10 compared to the second quarter of fiscal 2008.
For the second half of fiscal 2009, net sales are expected to be comparable to the second half of fiscal 2008 due to an expected reduction in mass channel sales, which will offset growth expected in other segments of the business. Performance comparisons for the second half of fiscal 2009 will be more challenging due to the sales growth achieved in the second half of fiscal 2008. Excluding the asset write-down recorded in the second half of fiscal 2008, low single digit percentage growth in earnings per share is expected compared to the second half of fiscal 2008, with earnings growth weighted to the fourth quarter.
Conference Call
The Company will hold a conference call with investors to discuss first quarter results on April 29, 2009 at 8:30 a.m. Eastern Time. To participate in the call, please dial 913-312-1448. To listen to a live broadcast of the call on the internet, please log on to www.carters.com and select the "Q1 2009 Earnings Conference Call" link under the "Investor Relations" tab. The conference call will be simultaneously broadcast on the Company's website at www.carters.com. Presentation materials for the call can be accessed on the Company's website 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 May 8, 2009, at 719-457-0820, passcode 4569492. The replay will be archived on the Company's website at the same location.
For more information on Carter's, Inc., please visit www.carters.com.
Cautionary Language
Statements contained herein that relate to the Company's future performance, including, without limitation, statements with respect to the Company's anticipated results for fiscal 2009 or any other future period, are forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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: a decrease in sales to, or the loss of one or more of, the Company's key customers; increased competition in the baby and young children's apparel market; the acceptance of the Company's products in the marketplace; deflationary pricing pressures; our dependence on foreign supply sources; failure of our foreign supply sources to meet our quality standards or regulatory requirements; negative publicity; leverage, which increases the Company's exposure to interest rate risk and could require the Company to dedicate a substantial portion of it's cash flow to repay debt principal; an inability to access suitable financing due to the current economic crisis; a continued decrease in the overall value of the United States equity markets due to the current economic crisis; a continued decrease in the overall level of consumer spending; changes in consumer preference and fashion trends; the impact of governmental regulations and environmental risks applicable to the Company's business; the breach of the Company's consumer databases; the ability of the Company to adequately forecast demand, which could create significant levels of excess inventory; the ability of the Company to identify new retail store locations, and negotiate appropriate lease terms for the retail stores; the ability to attract and retain key individuals within the organization; failure to realize the revenue growth and earnings forecasts of OshKosh B'Gosh, Inc., which could further impact the carrying value of the Company's intangible assets; and seasonal fluctuations in the children's apparel business. Many of these risks are further described in the most recently filed Annual Report on Form 10-K 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) Three-month periods ended April 4, 2009 March 29, 2008 Net sales: Carter's: Wholesale $ 122,897 $ 117,832 Retail 101,930 86,402 Mass Channel 58,745 62,924 Carter's net sales 283,572 267,158 OshKosh: Retail 51,828 44,365 Wholesale 21,387 18,449 OshKosh net sales 73,215 62,814 Total net sales 356,787 329,972 Cost of goods sold 229,440 225,057 Gross profit 127,347 104,915 Selling, general, and administrative expenses 99,130 92,276 Workforce reduction and facility closure costs 8,420 -- Royalty income (8,762 ) (7,914 ) Operating income 28,559 20,553 Interest expense, net 3,175 4,520 Income before income taxes 25,384 16,033 Provision for income taxes 9,016 4,474 Net income $ 16,368 $ 11,559 Basic net income per common share $ 0.29 $ 0.20 Diluted net income per common share $ 0.28 $ 0.19 Basic weighted-average number of shares outstanding 55,958,825 57,215,027 Diluted weighted-average number of shares outstanding 57,749,815 59,306,222 -------------------------------------------------------------------------------
CARTER'S, INC. BUSINESS SEGMENT RESULTS (unaudited) For the three-month periods ended (dollars in thousands) April 4, 2009 % of Total March 29, 2008 % of Total Net sales: Carter's: Wholesale $ 122,897 34.4 % $ 117,832 35.7 % Retail 101,930 28.6 % 86,402 26.2 % Mass Channel 58,745 16.5 % 62,924 19.1 % Carter's net sales 283,572 79.5 % 267,158 81.0 % OshKosh: Retail 51,828 14.5 % 44,365 13.4 % Wholesale 21,387 6.0 % 18,449 5.6 % OshKosh net sales 73,215 20.5 % 62,814 19.0 % Total net sales $ 356,787 100.0 % $ 329,972 100.0 % Operating income (loss): % of segment net sales % of segment net sales Carter's: Wholesale $ 24,179 19.7 % $ 21,559 18.3 % Retail 16,588 16.3 % 11,442 13.2 % Mass Channel 8,035 13.7 % 6,742 10.7 % Carter's operating income 48,802 17.2 % 39,743 14.9 % OshKosh: Wholesale 44 0.2 % (2,524 ) (13.7 )% Retail (331 ) (0.6 )% (6,733 ) (15.2 )% Mass Channel (a) 706 -- 531 -- OshKosh operating income (loss) 419 0.6 % (8,726 ) (13.9 )% Segment operating income 49,221 13.8 % 31,017 9.4 % Corporate expenses (b) (11,920 ) (3.3 )% (10,464 ) (3.2 )% Workforce reduction and facility closure costs (c) (8,742 ) (2.5 )% -- -- Net corporate expenses (20,662 ) (5.8 )% (10,464 ) (3.2 )% Total operating income $ 28,559 8.0 % $ 20,553 6.2 % (a) OshKosh mass channel consists of a licensing agreement with Target Stores. Operating income consists of royalty income, net of related expenses. (b) Other reconciling items generally include expenses related to severance and relocation, executive management, finance, stock-based compensation, building occupancy, information technology, certain legal fees, incentive compensation, consulting, and audit fees. (c) Includes closure costs associated with the Company's Barnesville, Georgia distribution facility of $3.3 million consisting of severance, asset impairment charges, and other closure costs, $0.3 million in related accelerated depreciation, $1.8 million of asset impairment charges related to the Company's Oshkosh, Wisconsin facility, and $3.3 million of severance related to the Company's corporate workforce reduction. -------------------------------------------------------------------------------
CARTER'S, INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands, except for share data) (unaudited) April 4, 2009 January 3, 2009 March 29, 2008 ASSETS Current assets: Cash and cash equivalents $ 186,834 $ 162,349 $ 65,546 Accounts receivable, net 112,931 106,060 128,501 Finished goods inventories, net 153,941 203,486 174,232 Prepaid expenses and other current assets 13,974 13,214 16,394 Deferred income taxes 28,597 27,982 25,293 Total current assets 496,277 513,091 409,966 Property, plant, and equipment, net 84,809 86,229 71,557 Tradenames 305,733 305,733 306,733 Cost in excess of fair value of net assets acquired 136,570 136,570 136,570 Deferred debt issuance costs, net 3,314 3,598 4,463 Licensing agreements, net 4,346 5,260 8,001 Other assets 469 576 7,761 Total assets $ 1,031,518 $ 1,051,057 $ 945,051 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 3,503 $ 3,503 $ 4,379 Accounts payable 42,915 79,011 30,097 Other current liabilities 56,211 57,613 45,425 Total current liabilities 102,629 140,127 79,901 Long-term debt 333,648 334,523 337,150 Deferred income taxes 107,928 108,989 114,177 Other long-term liabilities 41,411 40,822 30,998 Total liabilities 585,616 624,461 562,226 Commitments and contingencies Stockholders' equity: Preferred stock; par value $.01 per share; 100,000 shares authorized; none issued or outstanding at April 4, 2009, January 3, 2009, and March 29, 2008 -- -- -- Common stock, voting; par value $.01 per share; 150,000,000 shares authorized, 56,677,490, 56,352,111, and 57,008,933 shares issued and outstanding at April 4, 2009, January 3, 2009, and March 29, 2008, respectively 567 563 570 Additional paid-in capital 214,441 211,767 223,778 Accumulated other comprehensive (loss) income (7,058 ) (7,318 ) 392 Retained earnings 237,952 221,584 158,085 Total stockholders' equity 445,902 426,596 382,825 Total liabilities and stockholders' equity $ 1,031,518 $ 1,051,057 $ 945,051 -------------------------------------------------------------------------------
CARTER'S, INC. CONSOLIDATED STATEMENTS OF CASH FLOW (dollars in thousands) (unaudited) For the three-month periods ended April 4, 2009 March 29, 2008 Cash flows from operating activities: Net income $ 16,368 $ 11,559 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,395 7,007 Amortization of debt issuance costs 284 280 Non-cash stock-based compensation expense 1,874 1,586 Income tax benefit from exercised stock options (778 ) (40 ) Non-cash asset impairment charges 2,962 -- Deferred income taxes (1,665 ) 669 Effect of changes in operating assets and liabilities: Accounts receivable (6,871 ) (8,794 ) Inventories 49,545 51,262 Prepaid expenses and other assets A service of YellowBrix, Inc.
