Company Announcements

Carter’s, Inc. Reports Third Quarter Fiscal 2020 Results

  • Third quarter results show progress recovering from market disruption
  • Net sales $865 million, decline of 8%
  • U.S. Retail comparable sales down 3.5%, including 17% increase in eCommerce sales
  • Sales of exclusive brands to Target, Walmart and Amazon grew 10%
  • Operating income $114 million, growth of 35%; adjusted operating income $120 million, growth of 4%
  • Diluted EPS $1.85, growth of 38%; adjusted diluted EPS $1.96, growth of 5%
  • $1.6 billion in liquidity at quarter end

ATLANTA--(BUSINESS WIRE)--Oct. 23, 2020-- Carter’s, Inc. (NYSE:CRI), the largest branded marketer in North America of apparel exclusively for babies and young children, today reported its third quarter fiscal 2020 results.

“We exceeded our sales and earnings goals in the third quarter,” said Michael D. Casey, Chairman and Chief Executive Officer. “The quarter got off to a strong start with our Fourth of July holiday retail sales up 7%. We saw less robust demand in August during the back-to-school shopping period with many children beginning their school year at home and learning virtually. We had the strongest level of demand in September with our Labor Day holiday retail sales up 15%, our best performance in three years.

“Earnings in the quarter were driven by the strength of our product offerings, more effective brand marketing, fewer promotions, curtailed spending and growth in eCommerce sales. eCommerce continues to be our fastest growing and highest margin business.

“We believe our third quarter performance reflects the strength of our brands, our strong value proposition, broad market distribution and the less discretionary nature of children’s apparel.

“As we enter the final weeks of the year, consumer demand is less predictable this holiday season given the lingering effects and, in some markets, resurgence of the coronavirus. That said, we believe we are well-positioned to outperform the market in the balance of 2020 and years ahead by providing the best value and experience in young children’s apparel.”

Adjustments to Reported GAAP Results

In addition to the results presented in this earnings release in accordance with GAAP, the Company has provided adjusted, non-GAAP financial measurements, as presented below. The Company believes these adjustments provide a meaningful comparison of the Company’s results and afford investors a view of what management considers to be the Company's core performance. These measures are presented for informational purposes only. See “Reconciliation of GAAP to Adjusted Results” section of this release for additional disclosures and reconciliations regarding these non-GAAP financial measures.

 

Third Fiscal Quarter

 

2020

 

 

2019

(In millions, except earnings per share)

Operating
Income

 

% Net
Sales

 

Net
Income

 

Diluted
EPS

 

 

Operating
Income

 

% Net
Sales

 

Net
Income

 

Diluted
EPS

As reported (GAAP)

$

113.5

 

 

13.1

%

 

$

81.2

 

 

$

1.85

 

 

 

$

83.9

 

 

8.9

%

 

$

60.3

 

 

$

1.34

 

COVID-19 expenses

3.3

 

 

 

 

2.5

 

 

0.06

 

 

 

 

 

 

 

 

 

 

Retail store operating leases and other long-lived asset impairments, net

1.5

 

 

 

 

1.1

 

 

0.03

 

 

 

 

 

 

 

 

 

 

Productivity/restructuring costs

1.2

 

 

 

 

1.0

 

 

0.02

 

 

 

 

 

 

 

 

 

 

Intangible asset impairment

 

 

 

 

 

 

 

 

 

30.8

 

 

 

 

23.7

 

 

0.53

 

As adjusted

$

119.5

 

 

13.8

%

 

$

85.9

 

 

$

1.96

 

 

 

$

114.7

 

 

12.2

%

 

$

83.9

 

 

$

1.87

 

 

First Three Fiscal Quarters

 

2020

 

 

2019

(In millions, except earnings per share)

Operating
Income

 

% Net
Sales

 

Net
Income

 

Diluted
EPS

 

 

Operating
Income

 

% Net
Sales

 

Net
Income

 

Diluted
EPS

As reported (GAAP)

$

56.0

 

 

2.8

%

 

$

10.7

 

 

$

0.24

 

 

 

$

209.1

 

 

8.6

%

 

$

138.7

 

 

$

3.06

 

Intangible asset impairment

26.5

 

 

 

 

20.2

 

 

0.46

 

 

 

30.8

 

 

 

 

23.7

 

 

0.52

 

Goodwill impairment

17.7

 

 

 

 

17.7

 

 

0.40

 

 

 

 

 

 

 

 

 

 

COVID-19 expenses

18.8

 

 

 

 

14.3

 

 

0.34

 

 

 

 

 

 

 

 

 

 

Productivity/restructuring costs

8.8

 

 

 

 

6.8

 

 

0.15

 

 

 

1.6

 

 

 

 

1.3

 

 

0.03

 

Retail store operating leases and other long-lived asset impairments, net

6.5

 

 

 

 

4.9

 

 

0.11

 

 

 

 

 

 

 

 

 

 

Debt extinguishment loss

 

 

 

 

 

 

 

 

 

 

 

 

 

6.0

 

 

0.13

 

Store restructuring costs

 

 

 

 

 

 

 

 

 

(0.7

)

 

 

 

(0.6

)

 

(0.01

)

China business model change

 

 

 

 

 

 

 

 

 

(2.1

)

 

 

 

(2.1

)

 

(0.05

)

As adjusted

$

134.3

 

 

6.6

%

 

$

74.7

 

 

$

1.70

 

 

 

$

238.7

 

 

9.9

%

 

$

166.9

 

 

$

3.68

 

 

Note: Results may not be additive due to rounding.

Consolidated Results

The discussion of results below is presented on an adjusted (non-GAAP) basis where noted.

Third Quarter of Fiscal 2020 compared to Third Quarter of Fiscal 2019

Net sales decreased $78.2 million, or 8.3%, to $865.1 million, compared to $943.3 million in the third quarter of fiscal 2019. The decline reflects decreased sales to certain wholesale customers, decreased traffic to Company-operated stores, and decreased back-to-school sales (all a result of ongoing disruptions related to the COVID-19 pandemic), partially offset by strong eCommerce channel growth. U.S. Retail segment comparable sales declined 3.5%, reflecting a retail store decline, partially offset by eCommerce growth of 17.2%.

Operating income increased $29.7 million, or 35.4%, to $113.5 million, compared to $83.9 million in the third quarter of fiscal 2019. Operating margin increased 420 basis points to 13.1%. Adjusted operating income (a non-GAAP measure) increased $4.9 million, or 4.2%, to $119.5 million, compared to $114.7 million in the third quarter of fiscal 2019. Adjusted operating margin increased 160 basis points to 13.8%, reflecting improved gross margin and strong management of spending.

Net income increased $21.0 million, or 34.8%, to $81.2 million, or $1.85 per diluted share, compared to $60.3 million, or $1.34 per diluted share, in the third quarter of fiscal 2019. Adjusted net income (a non-GAAP measure) increased $2.0 million, or 2.3%, to $85.9 million, compared to $83.9 million in the third quarter of fiscal 2019. Adjusted earnings per diluted share (a non-GAAP measure) increased 4.8% to $1.96, compared to $1.87 in the third quarter of fiscal 2019.

First Three Quarters of Fiscal 2020 compared to First Three Quarters of Fiscal 2019

Net sales decreased $384.3 million, or 15.9%, to $2.03 billion. This decrease reflects the temporary closure of the Company’s retail stores earlier this year, largely in the months of March, April, and May, and decreased sales to certain wholesale customers (both a result of disruptions related to COVID-19), partially offset by strong growth in eCommerce sales. Comparable eCommerce sales in the U.S. increased 39%.

Operating income was $56.0 million, compared to $209.1 million in the first three quarters of fiscal 2019. Adjusted operating income (a non-GAAP measure) was $134.3 million, compared to $238.7 million in the first three quarters of fiscal 2019. The decrease reflects the decline in net sales, increased inventory provisions, and lower royalty income, partially offset by decreased selling, general, and administrative expenses.

Net income was $10.7 million, or $0.24 per diluted share, compared to $138.7 million, or $3.06 per diluted share, in the first three quarters of fiscal 2019. Adjusted net income (a non-GAAP measure) was $74.7 million, compared to $166.9 million in the first three quarters of fiscal 2019. Adjusted earnings per diluted share (a non-GAAP measure) was $1.70, compared to $3.68 in the first three quarters of fiscal 2019.

Net cash provided by operations in the first three quarters of fiscal 2020 was $320.1 million compared to $73.4 million in the first three quarters of fiscal 2019. The increase reflects the extension of vendor payment terms, deferrals of retail store lease and other cash payments, and a reduction in inventory, partially offset by lower earnings related to COVID-19 disruptions.

See the “Business Segment Results” and “Reconciliation of GAAP to Adjusted Results” sections of this release for additional disclosures regarding business segment performance and non-GAAP measures.

Liquidity and Financial Position

During the third quarter of fiscal 2020, the Company repaid $244 million in outstanding borrowings under its $750 million secured revolving credit facility using cash on hand. The Company’s total liquidity at the end of the third quarter of fiscal 2020 was $1.6 billion, comprised of cash and cash equivalents of $831 million and approximately $740 million in available borrowing capacity (exclusive of $7 million of outstanding letters of credit) on its secured revolving credit facility.

Earlier this year, the Company announced that, in connection with the COVID-19 pandemic, it temporarily suspended its common stock share repurchase program and quarterly cash dividend. No distributions of capital occurred in the third quarter of fiscal 2020. Provisions in the Company’s secured revolving credit facility restrict the Company’s ability to pay cash dividends or repurchase its common stock through the third fiscal quarter of 2021, and could have the effect of restricting the Company’s ability to do so thereafter. The Company’s Board of Directors will evaluate future distributions of capital, including share repurchases and dividends, based on a number of factors, including restrictions under the Company’s revolving credit facility, business conditions, the Company’s financial performance, and other considerations.

The Company continues to believe it has sufficient liquidity for the foreseeable future to maintain its operations and manage through the disruption caused by the COVID-19 pandemic.

2020 Business Outlook

Given the market disruption caused by the COVID-19 pandemic, recent spikes in confirmed cases of the coronavirus, and related uncertainty on timing and extent of the market recovery, the Company is not providing fiscal 2020 sales and earnings guidance at this time.

Conference Call

The Company will hold a conference call with investors to discuss third quarter fiscal 2020 results and its business outlook on October 23, 2020 at 8:30 a.m. Eastern Daylight Time. To participate in the call, please dial 334-777-6978. To listen to a live broadcast via the internet and view the accompanying presentation materials, please visit ir.carters.com and select links for “News & Events” followed by “Webcasts & Presentations”. A replay of the call will be available shortly after the broadcast through November 6, 2020, at 888-203-1112 (U.S. / Canada) or 719-457-0820 (international), passcode 9393867. The replay will also be archived online on the “Webcasts & Presentations” page noted above.

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 approximately 1,100 Company-operated stores in the United States, Canada, and Mexico and online at www.carters.com, www.oshkosh.com, www.cartersoshkosh.ca, and www.carters.com.mx. The Company’s Child of Mine brand is available at Walmart, its Just One You brand is available at Target, 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.

Forward Looking Statements

This press release contains forward-looking statements within the meaning of the federal securities laws relating to our future performance, including statements with respect to the potential effects of the COVID-19 pandemic and the Company’s liquidity. 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, Quarterly Report on Form 10-Q for the quarter ended March 28, 2020, and other reports filed with the Securities and Exchange Commission from time to time under the headings “Risk Factors”. Included among those risks are those related to: the effects of the current coronavirus outbreak; financial difficulties for one or more of our major customers; an overall decrease in consumer spending; our products not being accepted in the marketplace; increased competition in the market place; diminished value of our brands; the failure to protect our intellectual property; the failure to comply with applicable quality standards or regulations; unseasonable or extreme weather conditions; pending and threatened lawsuits; a breach of our information technology systems and the loss of personal data; increased margin pressures, including increased cost of materials and labor; our foreign sourcing arrangements; disruptions in our supply chain; the management and expansion of our business domestically and internationally; the acquisition and integration of other brands and businesses; and changes in our tax obligations, including additional customs, duties or tariffs. 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 per share data)

(unaudited)

 

 

Fiscal Quarter Ended

 

Three Fiscal Quarters Ended

 

September 26,
2020

 

September 28,
2019

 

September 26,
2020

 

September 28,
2019

Net sales

$

865,080

 

 

$

943,322

 

 

$

2,034,437

 

 

$

2,418,764

 

Cost of goods sold

483,333

 

 

540,808

 

 

1,170,778

 

 

1,376,336

 

Adverse purchase commitments (inventory and raw materials), net

(1,968

)

 

303

 

 

16,166

 

 

1,354

 

Gross profit

383,715

 

 

402,211

 

 

847,493

 

 

1,041,074

 

Royalty income, net

9,063

 

 

9,192

 

 

19,989

 

 

27,371

 

Selling, general, and administrative expenses

279,251

 

 

296,733

 

 

767,237

 

 

828,540

 

Goodwill impairment

 

 

 

 

17,742

 

 

 

Intangible asset impairment

 

 

30,800

 

 

26,500

 

 

30,800

 

Operating income

113,527

 

 

83,870

 

 

56,003

 

 

209,105

 

Interest expense

16,347

 

 

9,966

 

 

40,523

 

 

28,667

 

Interest income

(330

)

 

(200

)

 

(1,217

)

 

(937

)

Other (income) expense, net

(2,758

)

 

483

 

 

2,647

 

 

474

 

Loss on extinguishment of debt

 

 

 

 

 

 

7,823

 

Income before income taxes

100,268

 

 

73,621

 

 

14,050

 

 

173,078

 

Income tax provision

19,027

 

 

13,369

 

 

3,347

 

 

34,423

 

Net income

$

81,241

 

 

$

60,252

 

 

$

10,703

 

 

$

138,655

 

 

 

 

 

 

 

 

 

Basic net income per common share

$

1.86

 

 

$

1.35

 

 

$

0.25

 

 

$

3.08

 

Diluted net income per common share

$

1.85

 

 

$

1.34

 

 

$

0.24

 

 

$

3.06

 

Dividend declared and paid per common share

$

 

 

$

0.50

 

 

$

0.60

 

 

$

1.50

 

CARTER’S, INC.

BUSINESS SEGMENT RESULTS

(dollars in thousands)

(unaudited)

 

 

Fiscal Quarter Ended

 

 

Three Fiscal Quarters Ended

 

September 26,
2020

 

% of
Total Net Sales

 

September 28,
2019

 

% of
Total Net Sales

 

 

September 26,
2020

 

% of
Total Net Sales

 

September 28,
2019

 

% of
Total Net Sales

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Retail

$

449,150

 

 

51.9

%

 

$

464,100

 

 

49.2

%

 

 

$

1,085,883

 

 

53.4

%

 

$

1,264,283

 

 

52.3

%

U.S. Wholesale

302,135

 

 

34.9

%

 

352,256

 

 

37.3

%

 

 

706,009

 

 

34.7

%

 

856,713

 

 

35.4

%

International

113,795

 

 

13.2

%

 

126,966

 

 

13.5

%

 

 

242,545

 

 

11.9

%

 

297,768

 

 

12.3

%

Total net sales

$

865,080

 

 

100.0

%

 

$

943,322

 

 

100.0

%

 

 

$

2,034,437

 

 

100.0

%

 

$

2,418,764

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss):

 

 

% of
Segment
Net Sales

 

 

 

% of
Segment
Net Sales

 

 

 

 

% of
Segment
Net Sales

 

 

 

% of
Segment
Net Sales

U.S. Retail

$

47,559

 

 

10.6

%

 

$

49,472

 

 

10.7

%

 

 

$

38,902

 

 

3.6

%

 

$

124,567

 

 

9.9

%

U.S. Wholesale

65,718

 

 

21.8

%

 

54,391

 

 

15.4

%

 

 

89,141

 

 

12.6

%

 

145,181

 

 

16.9

%

International

17,400

 

 

15.3

%

 

6,136

 

 

4.8

%

 

 

(15,819

)

 

(6.5

)%

 

15,351

 

 

5.2

%

Corporate expenses (*)

(17,150

)

 

n/a

 

 

(26,129

)

 

n/a

 

 

 

(56,221

)

 

n/a

 

 

(75,994

)

 

n/a

 

Total operating income

$

113,527

 

 

13.1

%

 

$

83,870

 

 

8.9

%

 

 

$

56,003

 

 

2.8

%

 

$

209,105

 

 

8.6

%

(*)

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

 

Fiscal Quarter Ended September 26, 2020

 

 

Three Fiscal Quarters Ended September 26, 2020

Charges:

U.S. Retail

 

U.S. Wholesale

 

International

 

 

U.S. Retail

 

U.S. Wholesale

 

International

Productivity/restructuring costs(1)

$

0.3

 

 

$

0.2

 

 

$

0.3

 

 

 

$

3.4

 

 

$

1.5

 

 

$

1.9

 

Goodwill impairment

 

 

 

 

 

 

 

 

 

 

 

17.7

 

Skip Hop tradename impairment charge

 

 

 

 

 

 

 

0.5

 

 

6.8

 

 

3.7

 

OshKosh tradename impairment charge

 

 

 

 

 

 

 

13.6

 

 

1.6

 

 

0.3

 

Incremental costs associated with COVID-19 pandemic

1.6

 

 

1.4

 

 

0.3

 

 

 

8.3

 

 

8.5

 

 

2.0

 

Retail store operating leases and other long-lived asset impairments, net of gain(2)

1.5

 

 

 

 

 

 

 

6.3

 

 

 

 

0.2

 

Total charges

$

3.4

 

 

$

1.6

 

 

$

0.6

 

 

 

$

32.1

 

 

$

18.4

 

 

$

25.8

 

(1)

The third fiscal quarter ended September 26, 2020, the three fiscal quarters ended September 26, 2020, and the three fiscal quarters ended September 28, 2019 also include corporate charges related to organizational restructuring of $0.4 million, $2.0 million, and $1.6 million, respectively.

(2)

Impairments include an immaterial gain on the remeasurement of retail store operating leases.

Fiscal Quarter Ended September 28, 2019

 

 

Three Fiscal Quarters Ended September 28, 2019

Charges:

U.S. Retail

 

U.S. Wholesale

 

International

 

 

U.S. Retail

 

U.S. Wholesale

 

International

Benefit related to sale of inventory previously reserved in China

$

 

 

$

 

 

$

 

 

 

$

 

 

$

 

 

$

(2.1

)

Reversal of store restructuring costs previously recorded during the third quarter of fiscal 2017

 

 

 

 

 

 

 

(0.7

)

 

 

 

 

Skip Hop tradename impairment charge

1.2

 

 

19.1

 

 

10.5

 

 

 

1.2

 

 

19.1

 

 

10.5

 

Total charges

$

1.2

 

 

$

19.1

 

 

$

10.5

 

 

 

$

0.5

 

 

$

19.1

 

 

$

8.4

 

 

Note: Results may not be additive due to rounding.

CARTER’S, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

(unaudited)

 

 

September 26, 2020

 

December 28, 2019

 

September 28, 2019

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

831,175

 

 

$

214,311

 

 

$

153,936

 

Accounts receivable, net of allowance for credit losses of $7,675, $6,354, $4,591, respectively

263,231

 

 

251,005

 

 

293,203

 

Finished goods inventories, net of inventory reserves of $30,053, $9,283, and $19,583, respectively

646,608

 

 

593,987

 

 

723,242

 

Prepaid expenses and other current assets

56,493

 

 

48,454

 

 

53,264

 

Total current assets

1,797,507

 

 

1,107,757

 

 

1,223,645

 

Property, plant, and equipment, net of accumulated depreciation of $576,123, $523,848, and $504,833, respectively

274,574

 

 

320,168

 

 

330,371

 

Operating lease assets

619,057

 

 

687,024

 

 

709,523

 

Tradenames, net

307,955

 

 

334,642

 

 

334,705

 

Goodwill

209,507

 

 

229,026

 

 

228,235

 

Customer relationships, net

38,147

 

 

41,126

 

 

41,890

 

Other assets

34,874

 

 

33,374

 

 

31,211

 

Total assets

$

3,281,621

 

 

$

2,753,117

 

 

$

2,899,580

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

473,473

 

 

$

183,641

 

 

$

205,782

 

Current operating lease liabilities

172,364

 

 

160,228

 

 

158,524

 

Other current liabilities

115,069

 

 

131,631

 

 

119,862

 

Total current liabilities

760,906

 

 

475,500

 

 

484,168

 

 

 

 

 

 

 

Long-term debt, net

989,086

 

 

594,672

 

 

769,525

 

Deferred income taxes

60,160

 

 

74,370

 

 

78,916

 

Long-term operating lease liabilities

587,099

 

 

664,372

 

 

691,717

 

Other long-term liabilities

62,489

 

 

64,073

 

 

62,520

 

Total liabilities

$

2,459,740

 

 

$

1,872,987

 

 

$

2,086,846

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

Preferred stock; par value $.01 per share; 100,000 shares authorized; none issued or outstanding at September 26, 2020, December 28, 2019, and September 28, 2019

$

 

 

$

 

 

$

 

Common stock, voting; par value $.01 per share; 150,000,000 shares authorized; 43,648,671, 43,963,103 and 44,287,636 shares issued and outstanding at September 26, 2020, December 28, 2019, and September 28, 2019, respectively

436

 

 

440

 

 

443

 

Additional paid-in capital

9,258

 

 

 

 

 

Accumulated other comprehensive loss

(41,402

)

 

(35,634

)

 

(38,908

)

Retained earnings

853,589

 

 

915,324

 

 

851,199

 

Total stockholders' equity

821,881

 

 

880,130

 

 

812,734

 

Total liabilities and stockholders' equity

$

3,281,621

 

 

$

2,753,117

 

 

$

2,899,580

 

CARTER’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

 

 

Three Fiscal Quarters Ended

 

September 26, 2020

 

September 28, 2019

Cash flows from operating activities:

 

 

 

Net income

$

10,703

 

 

$

138,655

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

Depreciation of property, plant, and equipment

66,985

 

 

68,005

 

Amortization of intangible assets

2,784

 

 

2,810

 

Provisions for (recoveries of) excess and obsolete inventory

20,912

 

 

4,567

 

Goodwill impairment

17,742

 

 

 

Intangible asset impairments

26,500

 

 

30,800

 

Other asset impairments and loss on disposal of property, plant and equipment, net of recoveries

9,395

 

 

407

 

Amortization of debt issuance costs

1,641

 

 

1,087

 

Stock-based compensation expense

9,531

 

 

13,540

 

Unrealized foreign currency exchange loss, net

1,354

 

 

176

 

Provisions for (recoveries of) doubtful accounts receivable from customers

7,702

 

 

(2,063

)

Loss on extinguishment of debt

 

 

7,823

 

Deferred income tax (benefit) expense

(16,697

)

 

8,300

 

Effect of changes in operating assets and liabilities:

 

 

 

Accounts receivable

(21,576

)

 

(32,792

)

Finished goods inventories

(76,739

)

 

(152,023

)

Prepaid expenses and other assets

(7,660

)

 

(16,688

)

Accounts payable and other liabilities

267,551

 

 

751

 

Net cash provided by operating activities

320,128

 

 

73,355

 

 

 

 

 

Cash flows from investing activities:

 

 

 

Capital expenditures

(25,212

)

 

(46,138

)

Disposals and recoveries from property, plant, and equipment

 

 

749

 

Net cash used in investing activities

(25,212

)

 

(45,389

)

 

 

 

 

Cash flows from financing activities:

 

 

 

Proceeds from senior notes due 2025

500,000

 

 

 

Proceeds from senior notes due 2027

 

 

500,000

 

Payment of senior notes due 2021

 

 

(400,000

)

Premiums paid to extinguish debt

 

 

(5,252

)

Payment of debt issuance costs

(7,639

)

 

(5,793

)

Borrowings under secured revolving credit facility

644,000

 

 

265,000

 

Payments on secured revolving credit facility

(744,000

)

 

(186,000

)

Repurchases of common stock

(45,255

)

 

(147,464

)

Dividends paid

(26,260

)

 

(67,528

)

Withholdings from vestings of restricted stock

(4,928

)

 

(4,214

)

Proceeds from exercises of stock options

3,728

 

 

6,881

 

Net cash provided by (used in) financing activities

319,646

 

 

(44,370

)

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

2,302

 

 

263

 

Net increase (decrease) in cash and cash equivalents

616,864

 

 

(16,141

)

Cash and cash equivalents, beginning of period

214,311

 

 

170,077

 

Cash and cash equivalents, end of period

$

831,175

 

 

$

153,936

 

CARTER’S, INC.

RECONCILIATION OF GAAP TO ADJUSTED RESULTS

(dollars in millions, except earnings per share)

(unaudited)

 

 

Fiscal Quarter Ended September 26, 2020

 

Gross
Margin

 

% Net
Sales

 

SG&A

 

% Net
Sales

 

Operating
Income

 

% Net
Sales

 

Income
Taxes

 

Net
Income

 

Diluted
EPS

As reported (GAAP)

$

383.7

 

 

44.4

%

 

$

279.3

 

 

32.3

%

 

$

113.5

 

 

13.1

%

 

$

19.0

 

 

$

81.2

 

 

$

1.85

 

COVID-19 expenses (b)

 

 

 

 

(3.3

)

 

 

 

3.3

 

 

 

 

0.8

 

 

2.5

 

 

0.06

 

Retail store operating leases and other long-lived asset impairments, net (c)

 

 

 

 

(1.5

)

 

 

 

1.5

 

 

 

 

0.4

 

 

1.1

 

 

0.03

 

Productivity/restructuring costs (d)

 

 

 

 

(1.2

)

 

 

 

1.2

 

 

 

 

0.2

 

 

1.0

 

 

0.02

 

As adjusted (a)

$

383.7

 

 

44.4

%

 

$

273.2

 

 

31.6

%

 

$

119.5

 

 

13.8

%

 

$

20.4

 

 

$

85.9

 

 

$

1.96

 

 

Three Fiscal Quarters Ended September 26, 2020

 

Gross
Margin

 

% Net
Sales

 

SG&A

 

% Net
Sales

 

Operating
Income

 

% Net
Sales

 

Income
Taxes

 

Net
Income

 

Diluted
EPS

As reported (GAAP)

$

847.5

 

 

41.7

%

 

$

767.2

 

 

37.7

%

 

$

56.0

 

 

2.8

%

 

$

3.3

 

 

$

10.7

 

 

$

0.24

 

Intangible asset impairment (e)

 

 

 

 

 

 

 

 

26.5

 

 

 

 

6.3

 

 

20.2

 

 

0.46

 

Goodwill impairment (f)

 

 

 

 

 

 

 

 

17.7

 

 

 

 

 

 

17.7

 

 

0.40

 

COVID-19 expenses (b)

 

 

 

 

(18.8

)

 

 

 

18.8

 

 

 

 

4.5

 

 

14.3

 

 

0.34

 

Productivity/restructuring costs (d)

 

 

 

 

(8.8

)

 

 

 

8.8

 

 

 

 

1.9

 

 

6.8

 

 

0.15

 

Retail store operating leases and other long-lived asset impairments, net (c)

 

 

 

 

(6.5

)

 

 

 

6.5

 

 

 

 

1.6

 

 

4.9

 

 

0.11

 

As adjusted (a)

$

847.5

 

 

41.7

%

 

$

733.2

 

 

36.0

%

 

$

134.3

 

 

6.6

%

 

$

17.7

 

 

$

74.7

 

 

$

1.70

 

 

Fiscal Quarter Ended September 28, 2019

 

Gross
Margin

 

% Net
Sales

 

SG&A

 

% Net
Sales

 

Operating
Income

 

% Net
Sales

 

Income
Taxes

 

Net
Income

 

Diluted
EPS

As reported (GAAP)

$

402.2

 

 

42.6

%

 

$

296.7

 

 

31.5

%

 

$

83.9

 

 

8.9

%

 

$

13.4

 

 

$

60.3

 

 

$

1.34

 

Intangible asset impairment (e)

 

 

 

 

 

 

 

 

30.8

 

 

 

 

7.1

 

 

23.7

 

 

0.53

 

As adjusted (a)

$

402.2

 

 

42.6

%

 

$

296.7

 

 

31.5

%

 

$

114.7

 

 

12.2

%

 

$

20.5

 

 

$

83.9

 

 

$

1.87

 

 

Three Fiscal Quarters Ended September 28, 2019

 

Gross
Margin

 

% Net
Sales

 

SG&A

 

% Net
Sales

 

Operating
Income

 

% Net
Sales

 

Income
Taxes

 

Net
Income

 

Diluted
EPS

As reported (GAAP)

$

1,041.1

 

 

43.0

%

 

$

828.5

 

 

34.3

%

 

$

209.1

 

 

8.6

%

 

$

34.4

 

 

$

138.7

 

 

$

3.06

 

Intangible asset impairment (e)

 

 

 

 

 

 

 

 

30.8

 

 

 

 

7.1

 

 

23.7

 

 

0.52

 

Debt extinguishment loss (g)

 

 

 

 

 

 

 

 

 

 

 

 

1.8

 

 

6.0

 

 

0.13

 

Productivity/restructuring costs (d)

 

 

 

 

(1.6

)

 

 

 

1.6

 

 

 

 

0.4

 

 

1.3

 

 

0.03

 

Store restructuring costs (h)

 

 

 

 

0.7

 

 

 

 

(0.7

)

 

 

 

(0.2

)

 

(0.6

)

 

(0.01

)

China business model change (i)

(2.1

)

 

 

 

 

 

 

 

(2.1

)

 

 

 

 

 

(2.1

)

 

(0.05

)

As adjusted (a)

$

1,039.0

 

 

43.0

%

 

$

827.6

 

 

34.2

%

 

$

238.7

 

 

9.9

%

 

$

43.6

 

 

$

166.9

 

 

$

3.68

 

(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, operating income, income tax, 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 and afford investors a view of what management considers to be the Company's core 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)

Net expenses incurred due to the COVID-19 pandemic, including incremental employee-related costs, costs associated with additional protective equipment and cleaning supplies, restructuring costs, and a payroll tax benefit.

(c)

Principally related to U.S. Retail store lease assets.

(d)

Certain lease exit, severance and related costs resulting from restructuring actions (not related to COVID-19).

(e)

Intangible impairment charges related to the OshKosh and Skip Hop tradename assets.

(f)

Goodwill impairment charge recorded in the International segment.

(g)

Related to the redemption of the $400 million aggregate principal amount of senior notes due 2021 in March 2019 that were previously issued by a wholly-owned subsidiary of the Company.

(h)

Reversal of retail store restructuring costs previously recorded during the third quarter of fiscal 2017.

(i)

Benefit related to the sale of inventory previously reserved in China.

 

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

 

September 26,
2020

 

September 28,
2019

 

September 26,
2020

 

September 28,
2019

Weighted-average number of common and common equivalent shares outstanding:

 

 

 

 

 

 

 

Basic number of common shares outstanding

43,193,752

 

 

44,144,135

 

 

43,237,319

 

 

44,640,413

 

Dilutive effect of equity awards

156,878

 

 

287,904

 

 

174,351

 

 

302,832

 

Diluted number of common and common equivalent shares outstanding

43,350,630

 

 

44,432,039

 

 

43,411,670

 

 

44,943,245

 

As reported on a GAAP Basis:

 

 

 

 

 

 

 

(dollars in thousands, except per share data)

 

 

 

 

 

 

 

Basic net income per common share:

 

 

 

 

 

 

 

Net income

$

81,241

 

 

$

60,252

 

 

$

10,703

 

 

$

138,655

 

Income allocated to participating securities

(837

)

 

(565

)

 

(88

)

 

(1,244

)

Net income available to common shareholders

$

80,404

 

 

$

59,687

 

 

$

10,615

 

 

$

137,411

 

Basic net income per common share

$

1.86

 

 

$

1.35

 

 

$

0.25

 

 

$

3.08

 

Diluted net income per common share:

 

 

 

 

 

 

 

Net income

$

81,241

 

 

$

60,252

 

 

$

10,703

 

 

$

138,655

 

Income allocated to participating securities

(834

)

 

(563

)

 

(89

)

 

(1,239

)

Net income available to common shareholders

$

80,407

 

 

$

59,689

 

 

$

10,614

 

 

$

137,416

 

Diluted net income per common share

$

1.85

 

 

$

1.34

 

 

$

0.24

 

 

$

3.06

 

As adjusted (a):

 

 

 

 

 

 

 

Basic net income per common share:

 

 

 

 

 

 

 

Net income

$

85,903

 

 

$

83,932

 

 

$

74,700

 

 

$

166,937

 

Income allocated to participating securities

(885

)

 

(794

)

 

(759

)

 

(1,508

)

Net income available to common shareholders

$

85,018

 

 

$

83,138

 

 

$

73,941

 

 

$

165,429

 

Basic net income per common share

$

1.97

 

 

$

1.88

 

 

$

1.71

 

 

$

3.71

 

Diluted net income per common share:

 

 

 

 

 

 

 

Net income

$

85,903

 

 

$

83,932

 

 

$

74,700

 

 

$

166,937

 

Income allocated to participating securities

(882

)

 

(791

)

 

(757

)

 

(1,502

)

Net income available to common shareholders

$

85,021

 

 

$

83,141

 

 

$

73,943

 

 

$

165,435

 

Diluted net income per common share

$

1.96

 

 

$

1.87

 

 

$

1.70

 

 

$

3.68

 

(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 $4.7 million and $64.0 million in after-tax expenses from these results for the fiscal quarter and three fiscal quarters ended September 26, 2020, respectively. The Company has excluded $23.7 million and $28.3 million in after-tax expenses from these results for the fiscal quarter and three fiscal quarters ended September 28, 2019, respectively.

 

Note: Results may not be additive due to rounding.

RECONCILIATION OF U.S. GAAP AND NON-GAAP INFORMATION

(dollars in millions)

(unaudited)

 

The following table provides a reconciliation of net income to EBITDA and Adjusted EBITDA for the periods indicated:

 

 

 

Fiscal Quarter Ended

 

Three Fiscal Quarters Ended

 

Four Fiscal
Quarters Ended

 

 

September 26,
2020

 

September 28,
2019

 

September 26,
2020

 

September 28,
2019

 

September 26,
2020

Net income

 

$

81.2

 

 

$

60.3

 

 

$

10.7

 

 

$

138.7

 

 

$

135.9

 

Interest expense

 

16.3

 

 

10.0

 

 

40.5

 

 

28.7

 

 

49.5

 

Interest income

 

(0.3

)

 

(0.2

)

 

(1.2

)

 

(0.9

)

 

(1.6

)

Income tax expense

 

19.0

 

 

13.4

 

 

3.3

 

 

34.4

 

 

33.1

 

Depreciation and amortization

 

24.1

 

 

24.0

 

 

69.8

 

 

70.8

 

 

94.9

 

EBITDA

 

$

140.4

 

 

$

107.3

 

 

$

123.1

 

 

$

271.6

 

 

$

311.7

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments to EBITDA

 

 

 

 

 

 

 

 

 

 

Intangible asset impairment (a)

 

$

 

 

$

30.8

 

 

$

26.5

 

 

$

30.8

 

 

$

26.5

 

Goodwill impairment (b)

 

 

 

 

 

17.7

 

 

 

 

17.7

 

COVID-19 expenses (c)

 

3.3

 

 

 

 

18.8

 

 

 

 

18.8

 

Productivity/restructuring costs (d)

 

1.0

 

 

 

 

8.5

 

 

1.6

 

 

8.5

 

Retail store operating leases and other long-lived asset impairments, net (e)

 

1.5

 

 

 

 

6.4

 

 

 

 

6.4

 

Customer bankruptcy charges, net (f)

 

 

 

 

 

 

 

 

 

(0.6

)

Debt extinguishment loss (g)

 

 

 

 

 

 

 

7.8

 

 

 

Store restructuring costs (h)

 

 

 

 

 

 

 

(0.7

)

 

 

China business model change, net (i)

 

 

 

 

 

 

 

(2.1

)

 

 

Total adjustments

 

5.8

 

 

30.8

 

 

78.1

 

 

37.5

 

 

77.5

 

Adjusted EBITDA

 

$

146.2

 

 

$

138.1

 

 

$

201.2

 

 

$

309.1

 

 

$

389.2

 

(a)

Related to the write-down of the OshKosh and Skip Hop tradename assets.

(b)

Goodwill impairment charge recorded in the International segment.

(c)

Net expenses incurred due to the COVID-19 pandemic.

(d)

Certain lease exit, severance and related costs resulting from restructuring actions (not related to COVID-19). Amounts for fiscal quarter, three fiscal quarters, and four fiscal quarters ended September 26, 2020 exclude $0.2 million of depreciation expense that is included in the corresponding depreciation and amortization line item.

(e)

Principally related to U.S. Retail store lease assets.

(f)

Recovery related to the Toys "R" Us bankruptcy.

(g)

Related to the redemption of the $400 million aggregate principal amount of senior notes due 2021 in March 2019 that were previously issued by a wholly-owned subsidiary of the Company.

(h)

Reversal of retail store restructuring costs previously recorded during the third quarter of fiscal 2017.

(i)

Benefit related to the sale of inventory previously reserved in China.

 

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 footnotes (a) - (i) 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. These measures also afford investors a view of what management considers to be the Company's core 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 table below reflects the calculation of constant currency net sales on a consolidated and International segment basis for the fiscal quarter and three fiscal quarters ended September 26, 2020:

 

 

Fiscal Quarter Ended

 

Reported Net
Sales
September 26,
2020

 

Impact of
Foreign
Currency
Translation

 

Constant-Currency
Net Sales

September 26,
2020

 

Reported Net
Sales

September 28,
2019

 

Reported
Net Sales
% Change

 

Constant-Currency
Net Sales
% Change

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated net sales

$

865.1

 

 

$

(2.0

)

 

$

867.1

 

 

$

943.3

 

 

(8.3

)%

 

(8.1

)%

International segment net sales

$

113.8

 

 

$

(2.0

)

 

$

115.8

 

 

$

127.0

 

 

(10.4

)%

 

(8.8

)%

 

Three Fiscal Quarters Ended

 

Reported Net
Sales
September 26,
2020

 

Impact of
Foreign
Currency
Translation

 

Constant-Currency
Net Sales
September 26,
2020

 

Reported Net
Sales
September 28,
2019

 

Reported
Net Sales
% Change

 

Constant-Currency
Net Sales
% Change

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated net sales

$

2,034.4

 

 

$

(4.7

)

 

$

2,039.1

 

 

$

2,418.8

 

 

(15.9

)%

 

(15.7

)%

International segment net sales

$

242.5

 

 

$

(4.7

)

 

$

247.2

 

 

$

297.8

 

 

(18.5

)%

 

(17.0

)%

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.

Sean McHugh
Vice President & Treasurer
sean.mchugh@carters.com

Source: Carter’s, Inc.

Sean McHugh
Vice President & Treasurer
sean.mchugh@carters.com