Company Announcements

Carter’s, Inc. Reports Second Quarter Fiscal 2022 Results

  • Net sales $701 million
  • Diluted EPS $0.93; adjusted diluted EPS $1.30
  • Returned $132 million to shareholders through share repurchases and dividends in Q2; $237 million returned in the first half of fiscal 2022
  • Full year fiscal 2022 outlook:
    • Net sales of approximately $3.25 billion to $3.30 billion
    • Adjusted diluted EPS of approximately $7.10 to $7.60

ATLANTA--(BUSINESS WIRE)--Jul. 29, 2022-- Carter’s, Inc. (NYSE:CRI), the largest branded marketer in North America of apparel exclusively for babies and young children, today reported its second quarter fiscal 2022 results.

“After a strong start to the year, our sales slowed in the second quarter,” said Michael D. Casey, Chairman and Chief Executive Officer. “In 2021, the United States government provided unprecedented stimulus payments and support to families with young children to help them recover from the pandemic. The absence of that support this year, together with the surge in gas prices and inflation, have weighed on consumers’ demand for our brands.

“Since the pandemic began, year-over-year comparisons have been affected by historic challenges and the related disruption to the lives of families with young children. Our performance relative to the pre-pandemic period reflects our progress increasing the profitability of Carter’s. By that measure, our earnings are significantly higher in 2022 and have been driven by the structural improvements made to our business since 2019.

“Those improvements include the rationalization of lower margin product choices, closure of less productive stores, investment in inventory management and pricing capabilities, reduction in promotions and improved price realization. These changes enabled Carter’s to achieve record earnings in 2021.

“We have revised our outlook for the balance of the year to reflect the trends in our business, and market risks related to inflation and related impact on consumer demand.

“We are focused on mitigating the effects of the current retail environment, including reducing inventory commitments and discretionary spending. We plan to continue investing in our direct-to-consumer, merchandising, brand marketing, and pricing capabilities which we believe will enable us to achieve our longer-term growth objectives.”

Adjustments to Reported GAAP Results

In addition to the results provided in this earnings release in accordance with GAAP, the Company has provided adjusted, non-GAAP financial measurements, as presented below. These 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. See “Reconciliation of GAAP to Adjusted Results” section of this release for additional disclosures and reconciliations regarding these non-GAAP financial measures.

In the second quarter of fiscal 2022, a pre-tax adjustment of approximately $19.9 million ($15.2 million net of tax, or $0.38 per diluted share) was made related to a loss on extinguishment of debt.

 

Second Fiscal Quarter

 

2022

2021

(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)

$

75.4

 

10.8

%

 

$

37.0

 

$

0.93

 

 

$

107.6

 

 

14.4

%

 

$

71.6

 

 

$

1.62

 

Loss on extinguishment of debt

 

 

 

 

 

15.2

 

 

0.38

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring costs

 

 

 

 

 

 

 

 

 

 

2.2

 

 

 

 

 

1.6

 

 

 

0.04

 

COVID-19 expenses

 

 

 

 

 

 

 

 

 

 

1.0

 

 

 

 

 

0.8

 

 

 

0.02

 

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

 

 

 

 

 

 

 

 

 

 

(0.4

)

 

 

 

 

(0.3

)

 

 

(0.01

)

As adjusted

$

75.4

 

10.8

%

 

$

52.1

 

$

1.30

 

 

$

110.4

 

 

14.8

%

 

$

73.7

 

 

$

1.67

 

 

First Half

 

2022

 

 

2021

(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)

$

178.0

 

12.0

%

 

$

104.9

 

$

2.59

 

 

$

235.1

 

 

15.3

%

 

$

157.8

 

 

$

3.58

 

Loss on extinguishment of debt

 

 

 

 

 

15.2

 

 

0.37

 

 

 

 

 

 

 

 

 

 

 

 

COVID-19 expenses

 

 

 

 

 

 

 

 

 

 

3.2

 

 

 

 

 

2.4

 

 

 

0.05

 

Restructuring costs

 

 

 

 

 

 

 

 

 

 

2.7

 

 

 

 

 

2.0

 

 

 

0.05

 

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

 

 

 

 

 

 

 

 

 

 

(1.9

)

 

 

 

 

(1.5

)

 

 

(0.03

)

As adjusted

$

178.0

 

12.0

%

 

$

120.1

 

$

2.97

 

 

$

239.0

 

 

15.6

%

 

$

160.7

 

 

$

3.64

 

 

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.

Second Quarter of Fiscal 2022 compared to Second Quarter of Fiscal 2021

Net sales decreased $45.7 million, or 6.1%, to $700.7 million, driven by declines in the Company’s U.S. Retail and U.S. Wholesale sales, partially offset by growth in its International sales. U.S. Retail and U.S. Wholesale net sales declined by 11% and 3%, respectively. International net sales grew 7%. U.S. Retail comparable net sales declined 8%. Changes in foreign currency exchange rates used for translation in the second quarter of fiscal 2022, as compared to the second quarter of fiscal 2021, had an unfavorable effect on consolidated net sales of approximately $2.3 million, or 0.3%.

Operating income decreased $32.2 million to $75.4 million, compared to $107.6 million in the second quarter of fiscal 2021. Operating margin was 10.8%, compared to 14.4% in the prior-year period. Adjusted operating income (a non-GAAP measure) decreased $35.0 million to $75.4 million, compared to $110.4 million in the second quarter of fiscal 2021. Adjusted operating margin was 10.8%, compared to 14.8% in the prior year period, reflecting higher ocean freight rates, increased inventory provisions, and fixed cost deleverage on lower sales, partially offset by lower air freight expenses, lower performance-based compensation provisions, and reduction of other discretionary spending.

Net income was $37.0 million, or $0.93 per diluted share, compared to $71.6 million, or $1.62 per diluted share, in the second quarter of fiscal 2021. Adjusted net income (a non-GAAP measure) was $52.1 million, compared to $73.7 million in the second quarter of fiscal 2021. Adjusted earnings per diluted share (a non-GAAP measure) was $1.30, compared to $1.67 in the prior-year quarter.

First Half of Fiscal 2022 compared to First Half of Fiscal 2021

Net sales decreased $51.8 million, or 3.4%, to $1.48 billion, driven by a decline in the Company’s U.S. Retail segment, partially offset by growth in its International and U.S. Wholesale segments. U.S. Retail net sales declined 10%, reflecting the comparison to the first half of 2021 which benefited from significant and unprecedented government stimulus payments made to consumers in response to the pandemic and a lower store count related to the closure of low-margin stores. U.S. Retail comparable net sales declined 7%. International and U.S. Wholesale net sales increased by 9% and 3%, respectively. Changes in foreign currency exchange rates used for translation in the first half of fiscal 2022, as compared to the first half of fiscal 2021, had an unfavorable effect on consolidated net sales of approximately $2.5 million, or 0.2%.

Operating income decreased $57.0 million to $178.0 million, compared to $235.1 million in the first half of fiscal 2021. Operating margin was 12.0%, compared to 15.3% in the prior year period. Adjusted operating income (a non-GAAP measure) decreased $60.9 million to $178.0 million, compared to $239.0 million in the first half of fiscal 2021. Adjusted operating margin was 12.0%, compared to 15.6% in the prior year period, reflecting higher ocean freight rates, increased inventory provisions, and fixed cost deleverage on lower sales, partially offset by lower air freight, lower performance-based compensation provisions, and reduction in other discretionary spending.

Net income was $104.9 million, or $2.59 per diluted share, compared to $157.8 million, or $3.58 per diluted share, in the first half of fiscal 2021. Adjusted net income (a non-GAAP measure) was $120.1 million, compared to $160.7 million in the first half of fiscal 2021. Adjusted earnings per diluted share (a non-GAAP measure) was $2.97, compared to adjusted loss per diluted share of $3.64 in the first half of fiscal 2021.

Net cash used in operations in the first half of fiscal 2022 was $93.6 million, compared to net cash provided by operations of $49.5 million in the first half of fiscal 2021. The decline primarily reflected lower net sales, planned earlier inventory receipts to improve second half deliveries, and payment of fiscal 2021 performance-based compensation, partially offset by a decrease in payment terms to certain of our vendors in 2021.

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.

Return of Capital

In the second quarter and first half of fiscal 2022, the Company returned to shareholders a total of $131.7 million and $236.8 million, respectively, through share repurchases and cash dividends as described below.

  • During the second quarter of fiscal 2022, the Company repurchased and retired 1.3 million shares of its common stock for $101.8 million at an average price of $80.02 per share. In the first half of fiscal 2022, the Company repurchased and retired 2.1 million shares of its common stock for $176.3 million at an average price of $85.36 per share. These first half repurchases represent approximately 5% of shares outstanding as of the beginning of fiscal year 2022. Fiscal year-to-date through July 28, 2022, the Company has repurchased and retired a total of 2.5 million shares for $206.8 million at an average price of $83.86 per share. All shares were repurchased in open market transactions pursuant to applicable regulations for such transactions. As of July 28, 2022, the total remaining capacity under the Company’s previously announced repurchase authorizations was approximately $842 million.
  • In the second quarter of fiscal 2022, the Company paid a cash dividend of $0.75 per share totaling $29.9 million. In the first half of fiscal 2022, the Company paid cash dividends totaling $60.5 million. Future payments of quarterly dividends 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.

Early Extinguishment of Debt

On April 4, 2022, the Company redeemed senior notes with a principal amount of $500 million, bearing an interest rate of 5.5%. Cash on hand was utilized to extinguish this debt.

2022 Business Outlook

The Company’s outlooks for the third quarter of fiscal 2022 and fiscal year 2022 reflect:

  • A continuation of second quarter demand trends;
  • Inventory commitments aligned with our revised sales outlook, and a better mix and level of inventories relative to last year, supporting the upcoming back-to-school and holiday seasons;
  • Improving supply chain performance;
  • Reduced discretionary spending;
  • Improved price realization;
  • Continued investment in our direct-to-consumer, merchandising, brand marketing, and pricing capabilities;
  • Lower interest expense; and
  • Benefit of share repurchases.

For the third quarter of fiscal 2022, the Company projects:

  • Net sales of approximately $850 million to $865 million;
  • Adjusted operating income of approximately $90 million to $100 million, compared to $123.9 million in the third quarter of fiscal 2021; and
  • Adjusted diluted earnings per share of approximately $1.50 to $1.70, compared to $1.93 in the third quarter of fiscal 2021.

For fiscal year 2022, the Company projects:

  • Net sales of approximately $3.25 billion to $3.30 billion;
  • Adjusted operating income of approximately $415 million to $440 million, compared to $500.8 million in fiscal 2021; and
  • Adjusted diluted earnings per share of approximately $7.10 to $7.60, compared to $7.87 in fiscal 2021.

Our adjusted diluted earnings per share outlook for fiscal year 2022 excludes a pre-tax loss on extinguishment of debt of approximately $19.9 million, which was recorded in the second fiscal quarter.

We have not reconciled forward-looking adjusted operating income or adjusted diluted earnings per share to their most directly comparable GAAP measures because we cannot predict with reasonable certainty the ultimate outcome of certain components of such reconciliations that are not within our control due to factors described above, or others that may arise, without unreasonable effort. For these reasons, we are unable to assess the probable significance of the unavailable information, which could materially impact the amount of future operating income or diluted EPS, the most directly comparable GAAP metrics to adjusted operating income and adjusted diluted earnings per share, respectively.

Conference Call

The Company will hold a conference call with investors to discuss second quarter fiscal 2022 results and its business outlook on July 29, 2022 at 8:30 a.m. Eastern Daylight Time. To listen to a live webcast and view the accompanying presentation materials, please visit ir.carters.com and select links for “News & Events” followed by “Webcasts & Presentations.” To access the call by phone, please preregister on https://register.vevent.com/register/BIdd252838d6814c208b63afb9b9f145e5 to receive your dial-in number and unique passcode.

A webcast replay will be available shortly after the conclusion of the call at ir.carters.com.

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 970 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 future outlook, financial results, liquidity, strategy, financings, and investments. 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 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

 

Two Fiscal Quarters Ended

 

July 2, 2022

 

July 3, 2021

 

July 2, 2022

 

July 3, 2021

Net sales

$

700,695

 

 

$

746,400

 

 

$

1,481,980

 

 

$

1,533,761

 

Cost of goods sold

 

364,657

 

 

 

379,793

 

 

 

790,851

 

 

 

781,524

 

Adverse purchase commitments (inventory and raw materials), net

 

4,799

 

 

 

(2,100

)

 

 

4,848

 

 

 

(8,430

)

Gross profit

 

331,239

 

 

 

368,707

 

 

 

686,281

 

 

 

760,667

 

Royalty income, net

 

5,602

 

 

 

6,645

 

 

 

13,076

 

 

 

14,108

 

Selling, general, and administrative expenses

 

261,423

 

 

 

267,770

 

 

 

521,315

 

 

 

539,697

 

Operating income

 

75,418

 

 

 

107,582

 

 

 

178,042

 

 

 

235,078

 

Interest expense

 

8,652

 

 

 

15,295

 

 

 

23,784

 

 

 

30,643

 

Interest income

 

(272

)

 

 

(201

)

 

 

(610

)

 

 

(426

)

Other expense (income), net

 

17

 

 

 

(723

)

 

 

(494

)

 

 

(1,640

)

Loss on extinguishment of debt

 

19,940

 

 

 

 

 

 

19,940

 

 

 

 

Income before income taxes

 

47,081

 

 

 

93,211

 

 

 

135,422

 

 

 

206,501

 

Income tax provision

 

10,111

 

 

 

21,608

 

 

 

30,519

 

 

 

48,702

 

Net income

$

36,970

 

 

$

71,603

 

 

$

104,903

 

 

$

157,799

 

 

 

 

 

 

 

 

 

Basic net income per common share

$

0.93

 

 

$

1.63

 

 

$

2.60

 

 

$

3.59

 

Diluted net income per common share

$

0.93

 

 

$

1.62

 

 

$

2.59

 

 

$

3.58

 

Dividend declared and paid per common share

$

0.75

 

 

$

0.40

 

 

$

1.50

 

 

$

0.40

 

CARTER’S, INC.

BUSINESS SEGMENT RESULTS

(dollars in thousands)

(unaudited)

 

 

Fiscal Quarter Ended

 

 

Two Fiscal Quarters Ended

 

July 2, 2022

 

% of
Total Net
Sales

 

July 3, 2021

 

% of
Total Net
Sales

 

 

July 2, 2022

 

% of
Total Net
Sales

 

July 3, 2021

 

% of
Total Net
Sales

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Retail

$

379,097

 

 

54.1

%

 

$

423,627

 

 

56.8

%

 

 

$

745,455

 

 

50.3

%

 

$

830,694

 

 

54.2

%

U.S. Wholesale

 

224,016

 

 

32.0

%

 

 

231,630

 

 

31.0

%

 

 

 

531,317

 

 

35.9

%

 

 

515,007

 

 

33.6

%

International

 

97,582

 

 

13.9

%

 

 

91,143

 

 

12.2

%

 

 

 

205,208

 

 

13.8

%

 

 

188,060

 

 

12.2

%

Consolidated net sales

$

700,695

 

 

100.0

%

 

$

746,400

 

 

100.0

%

 

 

$

1,481,980

 

 

100.0

%

 

$

1,533,761

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income:

 

 

% of
Segment
Net Sales

 

 

 

% of
Segment
Net Sales

 

 

 

 

% of
Segment
Net Sales

 

 

 

% of
Segment
Net Sales

U.S. Retail

$

55,540

 

 

14.7

%

 

$

87,080

 

 

20.6

%

 

 

$

105,534

 

 

14.2

%

 

$

163,600

 

 

19.7

%

U.S. Wholesale

 

33,593

 

 

15.0

%

 

 

40,592

 

 

17.5

%

 

 

 

94,099

 

 

17.7

%

 

 

110,650

 

 

21.5

%

International

 

12,163

 

 

12.5

%

 

 

9,007

 

 

9.9

%

 

 

 

22,551

 

 

11.0

%

 

 

18,741

 

 

10.0

%

Corporate expenses (*)

 

(25,878

)

 

n/a

 

 

 

(29,097

)

 

n/a

 

 

 

 

(44,142

)

 

n/a

 

 

 

(57,913

)

 

n/a

 

Consolidated operating income

$

75,418

 

 

10.8

%

 

$

107,582

 

 

14.4

%

 

 

$

178,042

 

 

12.0

%

 

$

235,078

 

 

15.3

%

(*)  

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.

(dollars in millions)

Fiscal Quarter Ended July 3, 2021

 

 

Two Fiscal Quarters Ended July 3, 2021

Charges:

U.S.
Retail

 

U.S.
Wholesale

 

International

 

 

U.S.
Retail

 

U.S.
Wholesale

 

International

Incremental costs associated with COVID-19 pandemic

$

0.5

 

 

$

0.4

 

$

0.1

 

 

$

1.6

 

 

$

1.3

 

$

0.3

Restructuring costs (1)

 

(0.6

)

 

 

 

 

2.3

 

 

 

(0.6

)

 

 

0.1

 

 

2.3

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

 

(0.4

)

 

 

 

 

 

 

 

(1.9

)

 

 

 

 

Total charges (3)

$

(0.5

)

 

$

0.4

 

$

2.4

 

 

$

(0.9

)

 

$

1.4

 

$

2.6

(1)

Fiscal quarter and two fiscal quarters ended July 3, 2021 include $2.3 million of costs associated with the early exit of the Canada corporate office lease. Fiscal quarter and two fiscal quarters ended July 3, 2021 also includes corporate charges related to organizational restructuring of $0.5 million and $0.9 million, respectively.

(2)

Related to gains on the modification of previously impaired retail store leases.

(3)

Total charges for two fiscal quarters ended July 3, 2021 exclude a customer bankruptcy recovery of $38,000.

 

Note: Results may not be additive due to rounding.

CARTER’S, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

(unaudited)

 

 

July 2, 2022

 

January 1, 2022

 

July 3, 2021

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

231,339

 

 

$

984,294

 

 

$

1,120,901

 

Accounts receivable, net of allowance for credit losses of $5,758, $7,281, and $7,130, respectively

 

183,920

 

 

 

231,354

 

 

 

163,957

 

Finished goods inventories, net of inventory reserves of $18,057, $14,378, and $15,726, respectively

 

858,258

 

 

 

647,742

 

 

 

619,617

 

Prepaid expenses and other current assets

 

81,482

 

 

 

50,131

 

 

 

66,549

 

Total current assets

 

1,354,999

 

 

 

1,913,521

 

 

 

1,971,024

 

Property, plant, and equipment, net of accumulated depreciation of $548,013, $528,926, and $545,702 respectively

 

186,778

 

 

 

216,004

 

 

 

231,944

 

Operating lease assets

 

449,350

 

 

 

487,748

 

 

 

527,121

 

Tradenames, net

 

307,518

 

 

 

307,643

 

 

 

307,768

 

Goodwill

 

211,247

 

 

 

212,023

 

 

 

213,195

 

Customer relationships, net

 

32,248

 

 

 

33,969

 

 

 

35,777

 

Other assets

 

31,747

 

 

 

30,889

 

 

 

29,097

 

Total assets

$

2,573,887

 

 

$

3,201,797

 

 

$

3,315,926

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

408,006

 

 

$

407,044

 

 

$

356,826

 

Current operating lease liabilities

 

142,981

 

 

 

147,537

 

 

 

158,270

 

Other current liabilities

 

96,102

 

 

 

176,449

 

 

 

113,240

 

Total current liabilities

 

647,089

 

 

 

731,030

 

 

 

628,336

 

 

 

 

 

 

 

Long-term debt, net

 

616,275

 

 

 

991,370

 

 

 

990,437

 

Deferred income taxes

 

45,730

 

 

 

40,910

 

 

 

58,150

 

Long-term operating lease liabilities

 

400,046

 

 

 

441,861

 

 

 

484,881

 

Other long-term liabilities

 

43,881

 

 

 

46,440

 

 

 

56,618

 

Total liabilities

$

1,753,021

 

 

$

2,251,611

 

 

$

2,218,422

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

Preferred stock; par value $0.01 per share; 100,000 shares authorized; none issued or outstanding at July 2, 2022, January 1, 2022, and July 3, 2021

$

 

 

$

 

 

$

 

Common stock, voting; par value $0.01 per share; 150,000,000 shares authorized; 39,315,094, 41,148,870, and 44,011,080 shares issued and outstanding at July 2, 2022, January 1, 2022, and July 3, 2021, respectively

 

393

 

 

 

411

 

 

 

440

 

Additional paid-in capital

 

 

 

 

 

 

 

31,521

 

Accumulated other comprehensive loss

 

(32,203

)

 

 

(28,897

)

 

 

(27,263

)

Retained earnings

 

852,676

 

 

 

978,672

 

 

 

1,092,806

 

Total stockholders' equity

 

820,866

 

 

 

950,186

 

 

 

1,097,504

 

Total liabilities and stockholders' equity

$

2,573,887

 

 

$

3,201,797

 

 

$

3,315,926

 

CARTER’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

 

 

Two Fiscal Quarters Ended

 

July 2, 2022

 

July 3, 2021

Cash flows from operating activities:

 

 

 

Net income

$

104,903

 

 

$

157,799

 

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

 

 

 

Depreciation of property, plant, and equipment

 

29,838

 

 

 

44,613

 

Amortization of intangible assets

 

1,865

 

 

 

1,866

 

Provisions for excess and obsolete inventory

 

3,709

 

 

 

1,451

 

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

 

246

 

 

 

2,056

 

Amortization of debt issuance costs

 

1,173

 

 

 

1,497

 

Stock-based compensation expense

 

12,218

 

 

 

12,322

 

Unrealized foreign currency exchange (gain) loss, net

 

(32

)

 

 

61

 

(Recoveries of) provisions for doubtful accounts receivable from customers

 

(1,520

)

 

 

1,206

 

Unrealized loss (gain) on investments

 

1,867

 

 

 

(1,279

)

Loss on extinguishment of debt

 

19,940

 

 

 

 

Deferred income taxes expense

 

4,762

 

 

 

5,817

 

Other

 

1,019

 

 

 

 

Effect of changes in operating assets and liabilities:

 

 

 

Accounts receivable

 

48,973

 

 

 

21,620

 

Finished goods inventories

 

(215,519

)

 

 

(19,663

)

Prepaid expenses and other assets

 

(32,308

)

 

 

(8,724

)

Accounts payable and other liabilities

 

(74,729

)

 

 

(171,119

)

Net cash (used in) provided by operating activities

$

(93,595

)

 

$

49,523

 

 

 

 

 

Cash flows from investing activities:

 

 

 

Capital expenditures

$

(16,313

)

 

$

(20,506

)

Proceeds from sale of investments

 

 

 

 

5,000

 

Net cash used in investing activities

$

(16,313

)

 

$

(15,506

)

 

 

 

 

Cash flows from financing activities:

 

 

 

Payment of senior notes due 2025

$

(500,000

)

 

$

 

Premiums paid to extinguish debt

 

(15,678

)

 

 

 

Payment of debt issuance costs

 

(2,420

)

 

 

(223

)

Borrowings under secured revolving credit facility

 

120,000

 

 

 

 

Repurchases of common stock

 

(176,306

)

 

 

 

Dividends paid

 

(60,460

)

 

 

(17,596

)

Withholdings from vesting of restricted stock

 

(6,681

)

 

 

(3,698

)

Proceeds from exercises of stock options

 

311

 

 

 

5,147

 

Other

 

(321

)

 

 

 

Net cash used in financing activities

$

(641,555

)

 

$

(16,370

)

 

 

 

 

Net effect of exchange rate changes on cash and cash equivalents

 

(1,492

)

 

 

931

 

Net (decrease) increase in cash and cash equivalents

$

(752,955

)

 

$

18,578

 

Cash and cash equivalents, beginning of period

 

984,294

 

 

 

1,102,323

 

Cash and cash equivalents, end of period

$

231,339

 

 

$

1,120,901

 

CARTER’S, INC.

RECONCILIATION OF GAAP TO ADJUSTED RESULTS

(dollars in millions, except earnings per share)

(unaudited)

 

 

Fiscal Quarter Ended July 2, 2022

 

Gross
Profit

 

% Net
Sales

 

SG&A

 

% Net
Sales

 

Operating
Income

 

% Net
Sales

 

Income
Taxes

 

Net
Income

 

Diluted
EPS

As reported (GAAP)

$

331.2

 

47.3

%

 

$

261.4

 

37.3

%

 

$

75.4

 

10.8

%

 

$

10.1

 

$

37.0

 

$

0.93

Loss on extinguishment of debt (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

4.8

 

 

15.2

 

 

0.38

As adjusted (a)

$

331.2

 

47.3

%

 

$

261.4

 

37.3

%

 

$

75.4

 

10.8

%

 

$

14.9

 

$

52.1

 

$

1.30

 

Two Fiscal Quarters Ended July 2, 2022

 

Gross
Profit

 

% Net
Sales

 

SG&A

 

% Net
Sales

 

Operating
Income

 

% Net
Sales

 

Income
Taxes

 

Net
Income

 

Diluted
EPS

As reported (GAAP)

$

686.3

 

46.3

%

 

$

521.3

 

35.2

%

 

$

178.0

 

12.0

%

 

$

30.5

 

$

104.9

 

$

2.59

Loss on extinguishment of debt (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

4.8

 

 

15.2

 

 

0.37

As adjusted (a)

$

686.3

 

46.3

%

 

$

521.3

 

35.2

%

 

$

178.0

 

12.0

%

 

$

35.3

 

$

120.1

 

$

2.97

 

Fiscal Quarter Ended July 3, 2021

 

Gross
Profit

 

% Net
Sales

 

SG&A

 

% Net
Sales

 

Operating
Income

 

% Net
Sales

 

Income
Taxes

 

Net
Income

 

Diluted
EPS

As reported (GAAP)

$

368.7

 

49.4

%

 

$

267.8

 

 

35.9

%

 

$

107.6

 

 

14.4

%

 

$

21.6

 

 

$

71.6

 

 

$

1.62

 

Restructuring costs (c)

 

 

 

 

 

(2.2

)

 

 

 

 

2.2

 

 

 

 

 

0.6

 

 

 

1.6

 

 

 

0.04

 

COVID-19 expenses (d)

 

 

 

 

 

(1.0

)

 

 

 

 

1.0

 

 

 

 

 

0.3

 

 

 

0.8

 

 

 

0.02

 

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

 

 

 

 

 

0.4

 

 

 

 

 

(0.4

)

 

 

 

 

(0.1

)

 

 

(0.3

)

 

 

(0.01

)

As adjusted (a)

$

368.7

 

49.4

%

 

$

264.9

 

 

35.5

%

 

$

110.4

 

 

14.8

%

 

$

22.4

 

 

$

73.7

 

 

$

1.67

 

 

Two Fiscal Quarters Ended July 3, 2021

 

Gross
Profit

 

% Net
Sales

 

SG&A

 

% Net
Sales

 

Operating
Income

 

% Net
Sales

 

Income
Taxes

 

Net
Income

 

Diluted
EPS

As reported (GAAP)

$

760.7

 

49.6

%

 

$

539.7

 

 

35.2

%

 

$

235.1

 

 

15.3

%

 

$

48.7

 

 

$

157.8

 

 

$

3.58

 

COVID-19 expenses (d)

 

 

 

 

 

(3.2

)

 

 

 

 

3.2

 

 

 

 

 

0.8

 

 

 

2.4

 

 

 

0.05

 

Restructuring costs (c)

 

 

 

 

 

(2.7

)

 

 

 

 

2.7

 

 

 

 

 

0.7

 

 

 

2.0

 

 

 

0.05

 

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

 

 

 

 

 

1.9

 

 

 

 

 

(1.9

)

 

 

 

 

(0.5

)

 

 

(1.5

)

 

 

(0.03

)

As adjusted (a) (e)

$

760.7

 

49.6

%

 

$

535.8

 

 

34.9

%

 

$

239.0

 

 

15.6

%

 

$

49.7

 

 

$

160.7

 

 

$

3.64

 

 

Fiscal Quarter Ended October 2, 2021

 

Gross
Profit

 

% Net
Sales

 

SG&A

 

% Net
Sales

 

Operating
Income

 

% Net
Sales

 

Income
Taxes

 

Net
Income

 

Diluted
EPS

As reported (GAAP)

$

408.8

 

45.9

%

 

$

293.2

 

 

32.9

%

 

$

124.0

 

 

13.9

%

 

$

23.4

 

 

$

85.0

 

 

$

1.93

COVID-19 expenses (d)

 

 

 

 

 

(0.3

)

 

 

 

 

0.3

 

 

 

 

 

0.1

 

 

 

0.2

 

 

 

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

 

 

 

 

 

0.3

 

 

 

 

 

(0.3

)

 

 

 

 

(0.1

)

 

 

(0.2

)

 

 

Restructuring costs (c)

 

 

 

 

 

0.2

 

 

 

 

 

(0.2

)

 

 

 

 

 

 

 

(0.1

)

 

 

As adjusted (a)

$

408.8

 

45.9

%

 

$

293.3

 

 

32.9

%

 

$

123.9

 

 

13.9

%

 

$

23.3

 

 

$

84.9

 

 

$

1.93

 

Fiscal Year Ended January 1, 2022

 

Gross
Profit

 

% Net
Sales

 

SG&A

 

% Net
Sales

 

Operating
Income

 

% Net
Sales

 

Income
Taxes

 

Net
Income

 

Diluted
EPS

As reported (GAAP)

$

1,662.3

 

47.7

%

 

$

1,193.9

 

 

34.2

%

 

$

497.1

 

 

14.3

%

 

$

98.5

 

 

$

339.7

 

 

$

7.81

 

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

 

 

 

 

 

2.6

 

 

 

 

 

(2.6

)

 

 

 

 

(0.6

)

 

 

(2.0

)

 

 

(0.05

)

COVID-19 expenses (d)

 

 

 

 

 

(3.9

)

 

 

 

 

3.9

 

 

 

 

 

1.0

 

 

 

3.0

 

 

 

0.07

 

Restructuring costs (c)

 

 

 

 

 

(2.4

)

 

 

 

 

2.4

 

 

 

 

 

0.6

 

 

 

1.8

 

 

 

0.04

 

As adjusted (a) (e)

$

1,662.3

 

47.7

%

 

$

1,190.2

 

 

34.1

%

 

$

500.8

 

 

14.4

%

 

$

99.5

 

 

$

342.5

 

 

$

7.87

 

(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 profit, 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)

Related to the redemption of the $500 million aggregate principal amount of senior notes due 2025 in April 2022 that were previously issued by a wholly-owned subsidiary of the Company.

(c)

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

(d)

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.

(e)

Adjusted results exclude a customer bankruptcy recovery of $38,000.

 

Note: Results may not be additive due to rounding.

CARTER’S, INC.

RECONCILIATION OF NET INCOME ALLOCABLE TO COMMON SHAREHOLDERS

(unaudited)

 

 

Fiscal Quarter Ended

 

Two Fiscal Quarters Ended

 

July 2,
2022

 

July 3,
2021

 

July 2,
2022

 

July 3,
2021

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

 

 

 

 

 

 

 

Basic number of common shares outstanding

 

39,344,834

 

 

 

43,445,780

 

 

 

39,807,354

 

 

 

43,408,262

 

Dilutive effect of equity awards

 

29,153

 

 

 

169,631

 

 

 

48,274

 

 

 

151,468

 

Diluted number of common and common equivalent shares outstanding

 

39,373,987

 

 

 

43,615,411

 

 

 

39,855,628

 

 

 

43,559,730

 

As reported on a GAAP Basis:

 

 

 

 

 

 

 

(dollars in thousands, except per share data)

 

 

 

 

 

 

 

Basic net income per common share:

 

 

 

 

 

 

 

Net income

$

36,970

 

 

$

71,603

 

 

$

104,903

 

 

$

157,799

 

Income allocated to participating securities

 

(536

)

 

 

(860

)

 

 

(1,480

)

 

 

(1,896

)

Net income available to common shareholders

$

36,434

 

 

$

70,743

 

 

$

103,423

 

 

$

155,903

 

Basic net income per common share

$

0.93

 

 

$

1.63

 

 

$

2.60

 

 

$

3.59

 

Diluted net income per common share:

 

 

 

 

 

 

 

Net income

$

36,970

 

 

$

71,603

 

 

$

104,903

 

 

$

157,799

 

Income allocated to participating securities

 

(536

)

 

 

(857

)

 

 

(1,479

)

 

 

(1,890

)

Net income available to common shareholders

$

36,434

 

 

$

70,746

 

 

$

103,424

 

 

$

155,909

 

Diluted net income per common share

$

0.93

 

 

$

1.62

 

 

$

2.59

 

 

$

3.58

 

As adjusted (a):

 

 

 

 

 

 

 

Basic net income per common share:

 

 

 

 

 

 

 

Net income

$

52,121

 

 

$

73,700

 

 

$

120,053

 

 

$

160,687

 

Income allocated to participating securities

 

(774

)

 

 

(886

)

 

 

(1,705

)

 

 

(1,931

)

Net income available to common shareholders

$

51,347

 

 

$

72,814

 

 

$

118,348

 

 

$

158,756

 

Basic net income per common share

$

1.31

 

 

$

1.68

 

 

$

2.97

 

 

$

3.66

 

Diluted net income per common share:

 

 

 

 

 

 

 

Net income

$

52,121

 

 

$

73,700

 

 

$

120,053

 

 

$

160,687

 

Income allocated to participating securities

 

(774

)

 

 

(883

)

 

 

(1,704

)

 

 

(1,925

)

Net income available to common shareholders

$

51,347

 

 

$

72,817

 

 

$

118,349

 

 

$

158,762

 

Diluted net income per common share

$

1.30

 

 

$

1.67

 

 

$

2.97

 

 

$

3.64

 

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 $15.2 million in after-tax expenses from these results for both the fiscal quarter and two fiscal quarters ended July 2, 2022. The Company has excluded $2.1 million and $2.9 million in after-tax expenses from these results for the fiscal quarter and two fiscal quarters ended July 3, 2021, 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

 

Two Fiscal Quarters Ended

 

Four Fiscal
Quarters Ended

 

 

July 2, 2022

 

July 3, 2021

 

July 2, 2022

 

July 3, 2021

 

July 2, 2022

Net income

 

$

37.0

 

 

$

71.6

 

 

$

104.9

 

 

$

157.8

 

 

$

286.9

 

Interest expense

 

 

8.7

 

 

 

15.3

 

 

 

23.8

 

 

 

30.6

 

 

 

53.4

 

Interest income

 

 

(0.3

)

 

 

(0.2

)

 

 

(0.6

)

 

 

(0.4

)

 

 

(1.3

)

Income tax expense

 

 

10.1

 

 

 

21.6

 

 

 

30.5

 

 

 

48.7

 

 

 

80.4

 

Depreciation and amortization

 

 

17.5

 

 

 

22.4

 

 

 

31.7

 

 

 

46.5

 

 

 

79.3

 

EBITDA

 

$

73.0

 

 

$

130.7

 

 

$

190.3

 

 

$

283.2

 

 

$

498.7

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments to EBITDA

 

 

 

 

 

 

 

 

 

 

Loss on extinguishment of debt (a)

 

$

19.9

 

 

$

 

 

$

19.9

 

 

$

 

 

$

19.9

 

COVID-19 expenses (b)

 

 

 

 

 

1.0

 

 

 

 

 

 

3.2

 

 

$

0.8

 

Restructuring costs (c)

 

 

 

 

 

1.7

 

 

 

 

 

 

1.6

 

 

 

(0.4

)

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

 

 

 

 

 

(0.4

)

 

 

 

 

 

(1.9

)

 

 

(0.7

)

Total adjustments

 

 

19.9

 

 

 

2.3

 

 

 

19.9

 

 

 

2.9

 

 

 

19.6

 

Adjusted EBITDA (d)

 

$

92.9

 

 

$

133.0

 

 

$

210.2

 

 

$

286.0

 

 

$

518.3

 

a.

Related to the redemption of the $500 million aggregate principal amount of senior notes due 2025 in April 2022 that were previously issued by a wholly-owned subsidiary of the Company.

b.

Expenses incurred due to the COVID-19 pandemic.

c.

Certain lease exit, severance and related costs resulting from restructuring actions (not related to COVID-19). Amounts for fiscal quarter and two fiscal quarters ended July 3, 2021 exclude $0.5 million, $1.1 million, respectively, and amount for four fiscal quarters ended July 2, 2022 excludes $0.1 million of depreciation expense included in the corresponding depreciation and amortization line item.

d.

Adjusted EBITDA for the two fiscal quarters ended July 3, 2021 excludes a customer bankruptcy recovery of $38,000.

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) - (d) 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 two fiscal quarters ended July 2, 2022:

 

 

Fiscal Quarter Ended

 

Reported Net
Sales

July 2, 2022

 

Impact of
Foreign
Currency
Translation

 

Constant-
Currency Net
Sales

July 2, 2022

 

Reported Net
Sales

July 3, 2021

 

Reported
Net Sales %
Change

 

Constant-
Currency
Net Sales
Change

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated net sales

$

700.7

 

$

(2.3

)

 

$

703.0

 

$

746.4

 

(6.1

)%

 

(5.8

)%

International segment net sales

$

97.6

 

$

(2.3

)

 

$

99.9

 

$

91.1

 

7.1

%

 

9.6

%

 

Two Fiscal Quarters Ended

 

Reported Net
Sales

July 2, 2022

 

Impact of
Foreign
Currency
Translation

 

Constant-
Currency Net
Sales

July 2, 2022

 

Reported Net
Sales

July 3, 2021

 

Reported
Net Sales %
Change

 

Constant-
Currency
Net Sales
% Change

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated net sales

$

1,482.0

 

$

(2.5

)

 

$

1,484.4

 

$

1,533.8

 

(3.4

)%

 

(3.2

)%

International segment net sales

$

205.2

 

$

(2.5

)

 

$

207.7

 

$

188.1

 

9.1

%

 

10.4

%

Note: Results may not be additive due to rounding.

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
(678) 791-7615

Source: Carter’s, Inc.