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Carter’s, Inc. Reports Third Quarter Fiscal 2014 Results, Revenue in Retail Segment Increases by 12.1%

By   /   October 24, 2014  /   No Comments

Georgia, United States – Carter’s, Inc., the largest branded marketer in the United States of apparel exclusively for babies and young children, reported its third quarter fiscal 2014 results.

  • Net Sales $799 Million, Up 5%
  • Total U.S. Direct-to-Consumer Sales: Carter’s +12%, OshKosh +12%
  • EPS $1.23, Up 27%; Adjusted EPS $1.27, Up 14%

“We’ve achieved our sales and earnings objectives in the third quarter. Our growth was driven by our U.S. direct-to-consumer and international businesses,” said Michael D. Casey, Chairman and Chief Executive Officer. “We’re expecting good growth in sales and earnings in the balance of the year driven by the strength of our product offerings and compelling value provided by our Carter’s and OshKosh B’gosh brands.”

Third Quarter of Fiscal 2014 compared to Third Quarter of Fiscal 2013

Consolidated net sales increased $38.8 million, or 5.1%, to $798.9 million. Net domestic sales of the Company’s Carter’s brands increased $21.6 million, or 3.8%, to $591.2 million. Net domestic sales of the Company’s OshKosh B’gosh brand increased $10.1 million, or 9.4%, to $116.5 million. Net international sales increased $7.1 million, or 8.5%, to $91.2 million. Changes in foreign currency exchange rates in the third quarter of fiscal 2014 as compared to the third quarter of fiscal 2013 negatively impacted consolidated net sales in the third quarter of fiscal 2014 by $2.9 million. On a constant currency basis, consolidated net sales increased 5.5% in the third quarter.

Operating income in the third quarter of fiscal 2014 increased $19.4 million, or 21.3%, to $110.5 million, compared to $91.1 million in the third quarter of fiscal 2013.

Third quarter fiscal 2014 operating income includes expenses totaling $3.0 million related to the following: the amortization of acquired tradenames; the revaluation of the Bonnie Togs contingent consideration; and the Hogansville, Georgia distribution center closure. Third quarter fiscal 2013 operating income included expenses totaling $13.1 million related to the following: the amortization of acquired tradenames; the corporate office consolidation; the revaluation of the Bonnie Togs contingent consideration; and the Hogansville distribution center closure.

Excluding the expenses noted above in both periods, adjusted operating income in the third quarter of fiscal 2014 increased$9.3 million, or 8.9%, to $113.4 million, compared to $104.2 million in the third quarter of fiscal 2013. The increase in adjusted operating income reflects growth in sales and expense leverage that were partially offset by higher product costs.

Net income in the third quarter of fiscal 2014 increased $9.3 million, or 16.5%, to $65.9 million, or $1.23 per diluted share, compared to $56.6 million, or $0.97 per diluted share, in the third quarter of fiscal 2013. Excluding the expenses noted above in both periods, adjusted net income in the third quarter of fiscal 2014 increased $2.9 million, or 4.5%, to $67.9 million, compared to $65.0 million in the third quarter of fiscal 2013. Adjusted earnings per diluted share in the third quarter of fiscal 2014 increased 13.6% to $1.27, compared to $1.12 in the third quarter of fiscal 2013.

Business Segment Results

(Third Quarter of Fiscal 2014 compared to Third Quarter of Fiscal 2013)

Carter’s Segments

Carter’s retail segment sales increased $30.4 million, or 12.1%, to $281.5 million. The increase was driven by incremental sales of $23.9 million generated by new retail store openings and an eCommerce sales increase of $12.0 million. This growth was partially offset by a $4.2 million decrease in comparable retail stores sales and $1.3 million in lower sales due to retail store closings. Carter’s direct-to-consumer comparable sales increased 3.1%, comprised of eCommerce comparable sales growth of 28.0% and a comparable retail stores sales decline of 2.0%.

In the third quarter of fiscal 2014, the Company opened 17 Carter’s retail stores in the United States and closed one. The Company operated 525 Carter’s retail stores in the United States as of September 27, 2014.

Carter’s wholesale segment sales decreased $8.8 million, or 2.8%, to $309.8 million, principally driven by a decline in shipments to a single customer.

OshKosh B’gosh Segments

OshKosh retail segment sales increased $9.5 million, or 11.6%, to $91.4 million. The increase was driven by incremental sales of $7.2 million generated by new store openings, an eCommerce sales increase of $3.5 million, and a comparable retail stores sales increase of $0.1 million. This growth was partially offset by $1.3 million in lower sales due to retail store closings.OshKosh direct-to-consumer comparable sales increased 4.6%, comprised of eCommerce comparable sales growth of 32.1% and a comparable retail stores sales increase of 0.2%.

In the third quarter of fiscal 2014, the Company opened ten OshKosh retail stores in the United States and closed two. The Company operated 195 OshKosh retail stores in the United States as of September 27, 2014.

OshKosh wholesale segment sales increased $0.5 million, or 2.1%, to $25.1 million.

International Segment

International segment sales increased $7.1 million, or 8.5%, to $91.2 million, reflecting growth in the Company’s wholesale, eCommerce, and Canadian retail store businesses. Changes in foreign currency exchange rates in the third quarter of fiscal 2014 as compared to the third quarter of fiscal 2013 negatively impacted international segment net sales in the third quarter of fiscal 2014 by $2.9 million. On a constant currency basis, international segment net sales increased 11.9%. The Company’s former retail operations in Japan, which the Company substantially exited in the first quarter of fiscal 2014, contributed $3.9 million to segment sales in the third quarter of fiscal 2013.

Canadian comparable retail stores sales declined 2.2%, reflecting growth in combined sales of Carter’s and OshKosh B’goshbranded products that was more than offset by the discontinuation of Bonnie Togs legacy private label brands in fiscal 2014. In the third quarter of fiscal 2014, the Company opened five retail stores in Canada. The Company operated 115 retail stores inCanada as of September 27, 2014.

First Three Quarters of Fiscal 2014 compared to First Three Quarters of Fiscal 2013

Consolidated net sales increased $155.6 million, or 8.3% to $2.0 billion. Net domestic sales of the Company’s Carter’s brands increased $104.6 million, or 7.4%, to $1.5 billion. Net domestic sales of the Company’s OshKosh B’gosh brand increased $27.1 million, or 10.9%, to $274.8 million. Net international sales increased $23.9 million, or 12.0%, to $222.9 million. Changes in foreign currency exchange rates in the first three quarters of fiscal 2014 as compared to the first three quarters of fiscal 2013 negatively impacted consolidated net sales in the first three quarters of fiscal 2014 by $9.7 million. On a constant currency basis, consolidated net sales increased 8.8% in the first three quarters of fiscal 2014.

Operating income in the first three quarters of fiscal 2014 increased $28.6 million, or 15.0%, to $219.3 million, compared to$190.8 million in the first three quarters of fiscal 2013.

Operating income in the first three quarters of fiscal 2014 includes net expenses totaling $23.0 million related to the following: the amortization of acquired tradenames; the office consolidation; the revaluation of the Bonnie Togs contingent consideration; the Hogansville distribution center closure; and the exit of retail operations in Japan. Operating income in the first three quarters of fiscal 2013 included expenses totaling $34.7 million related to the following: the office consolidation; the amortization of acquired tradenames; the revaluation of the Bonnie Togs contingent consideration; and the Hogansville distribution center closure.

Excluding the net expenses noted above in both periods, adjusted operating income in the first three quarters of fiscal 2014 increased $16.9 million, or 7.5%, to $242.4 million, compared to $225.4 million in the first three quarters of fiscal 2013. The increase in adjusted operating income reflects growth in sales and expense leverage that were partially offset by higher product costs.

Net income in the first three quarters of fiscal 2014 increased $8.4 million, or 7.2%, to $126.1 million, or $2.34 per diluted share, compared to $117.7 million, or $1.98 per diluted share, in the first three quarters of fiscal 2013. Excluding the net expenses noted above in both periods, adjusted net income in the first three quarters of fiscal 2014 increased $0.5 million, or 0.4%, to $140.9 million, compared to $140.4 million in the first three quarters of fiscal 2013. Adjusted earnings per diluted share in the first three quarters of fiscal 2014 increased 10.4% to $2.61, compared to $2.36 in the first three quarters of fiscal 2013.

Cash flow from operations in the first three quarters of fiscal 2014 was $24.9 million compared to $63.5 million in the first three quarters of fiscal 2013. The decrease reflects increased working capital requirements, principally due to business growth, higher product costs, and improved timing of payments.

Business Segment Results

(First Three Quarters of Fiscal 2014 compared to First Three Quarters of Fiscal 2013)

Carter’s Segments

Carter’s retail segment sales increased $86.6 million, or 13.2%, to $745.5 million. The increase was driven by incremental sales of $63.4 million generated by new retail store openings and an eCommerce sales increase of $32.4 million. This growth was partially offset by a $7.4 million decrease in comparable retail stores sales and $1.8 million in lower sales due to retail store closings. Carter’s direct-to-consumer comparable sales increased 3.8%, comprised of eCommerce comparable sales growth of 30.4% and a comparable retail stores sales decline of 1.4%. In the first three fiscal quarters of fiscal 2014, the Company opened 53 Carter’s retail stores and closed four stores.

Carter’s wholesale segment sales increased $17.9 million, or 2.3%, to $781.5 million.

OshKosh B’gosh Segments

OshKosh retail segment sales increased $28.8 million, or 14.9%, to 222.5 million. The increase was driven by incremental sales of $17.0 million generated by new store openings, an eCommerce sales increase of $9.4 million, and a comparable retail stores sales increase of $4.9 million. This growth was partially offset by $2.5 million in lower sales due to retail store closings. OshKosh direct-to-consumer comparable sales increased 7.5%, comprised of eCommerce comparable sales growth of 34.9% and a comparable retail stores sales increase of 3.0%. In the first three fiscal quarters of fiscal 2014, the Company opened 20 OshKosh retail stores and closed six stores.

OshKosh wholesale segment sales decreased $1.7 million, or 3.2%, to 52.3 million.

International Segment

International segment sales increased $23.9 million, or 12.0%, to $222.9 million, reflecting growth in the Company’s wholesale, Canadian retail store, and eCommerce businesses. Changes in foreign currency exchange rates in the first three quarters of fiscal 2014 as compared to the first three quarters of fiscal 2013 negatively impacted international segment net sales in the first three quarters of fiscal 2014 by $9.7 million. On a constant currency basis, international segment net sales increased 16.9%. The Company’s former retail operations in Japan contributed $4.4 million in net sales in the first three quarters of fiscal 2014, compared to $12.1 million in the first three quarters of fiscal 2013.

Canadian comparable retail store sales declined 2.8%, reflecting growth in combined sales of Carter’s and OshKosh B’goshbranded products that was more than offset by the discontinuation of Bonnie Togs legacy private label brands in fiscal 2014. In the first three fiscal quarters of fiscal 2014, the Company opened 14 retail stores in Canada and closed one store.

Dividends

During the third quarter of fiscal 2014, the Company paid a cash dividend of $0.19 per share totaling $10.1 million. During the first three quarters of fiscal 2014, the Company paid cash dividends totaling $30.5 million. Future declarations of quarterly dividends and the establishment of related record and payment dates will be at the discretion of the Company’s Board of Directors based on a number of factors, including the Company’s future financial performance and other considerations.

Share Repurchase Activity

During the third quarter of fiscal 2014, the Company repurchased and retired 367,948 shares of its common stock for $26.7 million at an average price of $72.54 per share in open market transactions. During the first three quarters of fiscal 2014, the Company repurchased and retired 867,099 shares for $62.8 million at an average price of $72.39 per share in open market transactions. Year-to-date through October 22, 2014, the Company repurchased and retired a total of 935,399 shares for $68.1 million at an average price of $72.84 per share in the open market.

As of October 22, 2014, the total remaining capacity under the Company’s previously-announced repurchase authorizations was $199 million.

2014 Business Outlook

In the fourth quarter of fiscal 2014, the Company projects net sales to increase approximately 10% to 12% over the fourth quarter of fiscal 2013 and adjusted diluted earnings per share to increase approximately 20% to 25% compared to adjusted diluted earnings per share of $1.02 in the fourth quarter of fiscal 2013. This forecast for fourth quarter fiscal 2014 adjusted earnings per share excludes the following anticipated expenses: approximately $2 million related to the amortization of the acquired tradenames and approximately $0.4 million related to the revaluation of the Bonnie Togs contingent consideration.

In fiscal 2014, the Company projects net sales to increase approximately 8% to 10% over fiscal 2013 and adjusted diluted earnings per share to increase approximately 14% to 16% compared to adjusted diluted earnings per share of $3.37 in fiscal 2013. This forecast for fiscal 2014 adjusted earnings per share excludes the following anticipated expenses: approximately $16 million related to the amortization of the acquired tradenames; approximately $7 million related to the corporate office consolidation; approximately $1 million related to the revaluation of the Bonnie Togs contingent consideration; approximately $1 million related to the Hogansville distribution center closure; and approximately $1 million related to net exit costs associated with retail operations in Japan.

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Source: Carter’s, Inc.

 

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