Release Details

• Net sales $696 million
• Diluted EPS $0.95; adjusted diluted EPS $0.98
• Returned $38 million to shareholders through share repurchases and dividends
• Company reaffirms full year fiscal 2023 outlook¹:
  • Net sales of $3.0 billion
  • Adjusted operating income of $350 million
  • Adjusted diluted EPS of $6.15

ATLANTA--(BUSINESS WIRE)--Apr. 28, 2023-- Carter’s, Inc. (NYSE:CRI), the largest branded marketer in North America of apparel exclusively for babies and young children, today reported its first quarter fiscal 2023 results.

“We exceeded our first quarter sales and earnings objectives,” said Michael D. Casey, Chairman and Chief Executive Officer. “We saw higher than planned demand from some of our largest wholesale customers eager to receive our new Spring product offerings in preparation for the shift to warmer weather outfitting. Our retail and international sales were in line with our plans.

“On-time deliveries of our product offerings sourced from Asia improved to the best performance we have experienced since the pandemic began and enabled us to support earlier than planned demand.

“As expected, our first quarter sales and earnings were lower than last year. Historic inflation began to meaningfully weigh on families with young children and their demand for our brands last year.

“To mitigate the effects of lower consumer demand, we have focused on reducing discretionary spending and improving price realization, largely driven through better inventory management. As a result, earnings and cash flow from operations exceeded our expectations in the first quarter.

“Given a good start to the year, we are reaffirming our previous guidance for sales and earnings for 2023. With time, we expect inflation will decrease to more acceptable levels, the burden of lower real wages affecting families with young children will moderate, and demand for our brands will improve.

“Carter’s is the best-selling brand in young children’s apparel with unparalleled market share and distribution capabilities. We believe our multi-brand, multi-channel business model, and leading market position in essential core products will enable Carter’s to benefit from the market recovery in the years ahead.”

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 non-GAAP financial measurements provide a meaningful comparison of the Company’s results and afford investors a view of what management considers to be the Company’s underlying performance. These measures are presented for informational purposes only. See “Reconciliation of Adjusted Results to GAAP” section of this release for additional disclosures and reconciliations regarding these non-GAAP financial measures. Adjustments made to Q1 fiscal 2023 results reflect costs related to organizational restructuring. There were no adjustments to Q1 fiscal 2022 results.

Consolidated Results

First Quarter of Fiscal 2023 compared to First Quarter of Fiscal 2022

Net sales decreased $85.4 million, or 10.9%, to $695.9 million, compared to $781.3 million in the first quarter of fiscal 2022. Macroeconomic factors, including inflation, drove lower demand from consumers and wholesale customers. U.S. Retail comparable net sales declined 12.9%. Changes in foreign currency exchange rates used for translation in the first quarter fiscal 2023, as compared to the first quarter of fiscal 2022, had an unfavorable effect on consolidated net sales of approximately $2.2 million, or 0.3%.

Operating income decreased $46.3 million, or 45.1%, to $56.4 million, compared to $102.6 million in the first quarter of fiscal 2022. Operating margin decreased to 8.1%, compared to 13.1% in the prior year period, principally due to fixed cost deleverage on lower sales, channel mix of sales, and higher inbound freight costs, partly offset by lower air freight expenses.

Adjusted operating income (a non-GAAP measure) decreased $45.1 million, or 44.0%, to $57.5 million, compared to $102.6 million in the first quarter of fiscal 2022. Adjusted operating margin was 8.3%, compared to 13.1% in the prior year period, principally due to the factors discussed above.

Net income decreased $31.9 million to $36.0 million, or $0.95 per diluted share, compared to $67.9 million, or $1.66 per diluted share, in the first quarter of fiscal 2022.

Adjusted net income (a non-GAAP measure) decreased $31.1 million to $36.9 million, compared to $67.9 million in the first quarter of fiscal 2022. Adjusted earnings per diluted share (a non-GAAP measure) was $0.98, compared to $1.66 in the first quarter of fiscal 2022.

Net cash provided by operations in the first quarter of fiscal 2023 was $42.2 million, compared to net cash used in operations of $163.8 million in the prior year period. The improved operating cash flow principally reflects favorable changes in working capital, including the reduction in inventories, and lower payments of performance-based compensation, partially offset by decreased net income.

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

Return of Capital Activity

In the first quarter of fiscal 2023, the Company returned a total of $38.1 million to shareholders through share repurchases and cash dividends as described below.

• Share repurchases: During the first quarter, the Company repurchased and retired approximately 136 thousand shares of its common stock for $9.6 million at an average price of $70.55 per share. Fiscal year-to-date through April 27, 2023, the Company repurchased and retired approximately 272 thousand shares for $19.2 million at an average price of $70.54 per share. As of April 27, 2023, the total remaining capacity under the Company’s previously-announced repurchase authorizations was approximately $730 million.
• Dividends: In the first quarter, the Company paid a cash dividend of $0.75 per common share totaling $28.5 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.

2023 Business Outlook

We do not reconcile 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.

For the second quarter of fiscal 2023, the Company expects approximately:

• $590 million to $605 million in net sales (compared to $700.7 million in the second quarter of fiscal 2022);
• $30 million to $35 million in adjusted operating income (compared to $75.4 million in the second quarter of fiscal 2022); and
• $0.40 to $0.50 in adjusted diluted earnings per share (compared to $1.30 in the second quarter of fiscal 2022).

Our forecast for the second quarter of fiscal 2023 assumes:

• Shift of previously planned U.S. Wholesale demand from the second quarter to the first quarter of 2023;
• Continued inflationary pressure on consumer demand;
• Improved gross margin, reflecting lower inventory-related costs and lower inbound freight costs;
• Comparable SG&A;
• Higher interest expense and tax rate; and
• Lower shares outstanding.

For fiscal year 2023, the Company is reaffirming its prior guidance and projects approximately:

• $3.0 billion in net sales (compared to $3,212.7 million in fiscal 2022);
• $350 million in adjusted operating income (compared to $388.2 million in fiscal 2022);
• $6.15 in adjusted diluted earnings per share (compared to $6.90 in fiscal 2022);
• Operating cash flow of over $300 million; and
• Capital expenditures of approximately $75 million.

Our forecast for fiscal year 2023 assumes:

• Improvement in demand trend as inflation moderates;
• Gross margin expansion, driven by lower transportation costs, improved price realization, and favorable changes in channel mix;
• Comparable SG&A;
• Higher interest expense and tax rate; and
• Lower shares outstanding.

Our adjusted operating income and diluted earnings per share outlooks for fiscal year 2023 exclude a pre-tax net charge of $1.2 million related to organizational restructuring recorded in the first fiscal quarter.

Conference Call

The Company will hold a conference call with investors to discuss first quarter fiscal 2023 results and its business outlook on April 28, 2023 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/BI8a4d7c8d0bba49e3ac509567ccbd80ce 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 of young children’s apparel in North America. 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 nearly 1,000 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 Little Planet, a brand focused on organic fabrics and sustainable materials, and 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

Statements contained in this press release that are not historical fact and use predictive words such as “estimates”, “outlook”, “guidance”, “expect”, “believe”, “intend”, “designed”, “target”, “plans”, “may”, “will”, “are confident” and similar words are forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). These forward-looking statements and related assumptions involve risks and uncertainties that could cause actual results and outcomes to differ materially from any forward-looking statements or views expressed in this press release. These risks and uncertainties include, but are not limited to, the factors disclosed in Part I, Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and otherwise in our reports and filings with the Securities and Exchange Commission, as well as the following factors: the continuing effects of the novel coronavirus (COVID-19) pandemic; macroeconomic factors, including inflationary pressures; the impact of supply chain delays; 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, including increased transportation and freight costs; the management and expansion of our business domestically and internationally; the acquisition and integration of other brands and businesses; changes in our tax obligations, including additional customs, duties or tariffs; our ability to achieve our forecasted financial results for the fiscal year; our continued ability to declare and pay a dividend and conduct share repurchases in future periods; our planned opening and closing of stores during the fiscal year; and other risks detailed in the Company’s periodic reports as filed in accordance with the Securities Exchange Act of 1934, as amended. 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.

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Sean McHugh
Vice President & Treasurer
(678) 791-7615

Source: Carter’s, Inc