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Carter's, Inc. Reports First Quarter Results

  • Sales Increased $90 Million, Up 44%
  • GAAP Diluted EPS $0.52; Adjusted EPS $0.56, Up 22%

ATLANTA, April 25 /PRNewswire-FirstCall/ -- Carter's, Inc. (NYSE: CRI), the largest branded marketer of apparel exclusively for babies and young children in the United States, reported its first quarter results for fiscal 2006.

As noted in its press release dated July 14, 2005, Carter's, Inc. (the "Company") acquired all of the outstanding common stock of OshKosh B'Gosh, Inc. ("OshKosh") for a purchase price of $312.1 million (the "Acquisition"). As part of financing the Acquisition, the Company refinanced its existing debt (the "Refinancing"), including its former senior credit facility, and repurchased all of its 10.875% Senior Subordinated Notes due 2011 (the "Notes"). Results for the first quarter of fiscal 2006 include OshKosh for the entire period, while results for the first quarter of fiscal 2005 do not include OshKosh.

First Quarter 2006 compared to First Quarter 2005

Net sales increased 43.8% to $296.4 million. Excluding OshKosh sales of $71.0 million, net sales increased 9.3% to $225.4 million.

The Company's wholesale sales increased 32.4% to $131.0 million. Excluding OshKosh wholesale sales of $28.7 million, wholesale sales increased 3.4% to $102.3 million.

The Company's mass channel sales, which are comprised of sales of our Child of Mine and Just One Year brands, increased 36.8% to $54.0 million. Our Genuine Kids from OshKosh brand is sold at Target under a licensing arrangement, the income from which is included in royalty income and has no impact on mass channel sales.

Retail store sales increased 64.4% to $111.4 million. Excluding OshKosh retail store sales of $42.3 million, retail store sales increased 1.9% to $69.1 million. This increase was driven by new store openings, partially offset by a comparable store sales decline of 2.2%.

In the first quarter of fiscal 2006, the Company opened seven Carter's retail stores and one OshKosh retail store. The Company closed one Carter's retail store and one OshKosh retail store during the first quarter of fiscal 2006. As of April 1, 2006, the Company had 199 Carter's retail stores and 142 OshKosh retail stores.

Net income increased 14.0% to $15.8 million, or $0.52 per diluted share, including non-cash charges of $0.02 per diluted share of intangible amortization related to the Acquisition and $0.02 per diluted share related to stock-based compensation resulting from the adoption of Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"). Excluding these charges, adjusted net income increased 23.7% to $17.1 million, or $0.56 per diluted share. The reconciliation of income, as reported under generally accepted accounting principles ("GAAP"), to income adjusted for these charges is shown below.

Fred Rowan, Chairman and CEO, noted that, "We are off to a strong start and we are on track to achieve our growth objectives for 2006. We had a good quarter in terms of growth in sales and earnings and we continue to make significant progress integrating and improving the OshKosh business. Our first quarter performance reflects the strength of our brand and channel diversification. Excluding the benefit of OshKosh, the growth in our wholesale and mass channel segments more than offset the impact of the comparable store sales decline in our Carter's brand retail store segment during the quarter. We continue to believe that our balanced platform for growth, strengthened by the addition of OshKosh, will enable us to achieve our long-term growth objectives."

                                        (dollars in millions, except EPS)
                                     Three-month period ended April 1, 2006

                                      Before           Net         Diluted
                                      Taxes           Income         EPS

    Income, as reported (GAAP)        $32.3           $15.8         $0.52

        Intangible amortization (a)     1.2             0.7          0.02

        Stock option expense (b)        0.9             0.6          0.02
                                        2.1             1.3          0.04
    Income, as adjusted (c)           $34.4           $17.1         $0.56

     (a) Non-cash charges associated with the Acquisition, including the
         amortization of OshKosh intangible assets, primarily licensing
     (b) Stock-based compensation charges associated with the adoption of SFAS
     (c) 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 income before taxes, net income,
         and net income on a diluted share basis excluding certain adjustments
         discussed above.  These 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
         information is presented for informational purposes only and is not
         necessarily indicative of the Company's future condition or results
         of operations.  We believe these adjustments are meaningful because
         they were not incurred in the first quarter of fiscal 2005 and thus
         provide a more meaningful comparison.  Also, this earnings release
         can be found on the Company's website at

Net cash used in operations was $14.0 million in the first quarter of fiscal 2006 as compared to net cash provided by operations of $24.6 million in the first quarter of fiscal 2005. The change in cash flow was driven by significant reductions in accounts payable and accrued liabilities and increases in accounts receivable, partially offset by the reduction in inventories. Such changes in working capital were driven by timing of payments to vendors and shipments to customers, in addition to the impact of the Acquisition. In March 2006, the Company made a voluntary payment of $9.0 million on its term loan. Since the Acquisition and Refinancing, the Company has reduced its long-term debt by approximately $80.0 million, or 16%.

Business Outlook

Our business outlook is based on our current expectations and includes "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Although the Company believes the comments reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct.

    (dollars in millions, except for share data)

                          Second Quarter 2006         Fiscal Year 2006

    Consolidated Net Sales  $275   +43%(a)   $1,335 to $1,350  +19% to +20%(c)
    Consolidated Adjusted
     Diluted EPS           $0.32   +10%(b)    $2.93 to $2.98   +20% to +22%(d)

     (a) Comparison to the second quarter of fiscal 2005, which does not
         include the results of OshKosh.
     (b) Estimated adjusted increase excluding $0.02 per diluted share of
         intangible amortization charges related to the acquisition of OshKosh
         and $0.02 per diluted share of stock option expense related to the
         adoption of SFAS 123R compared to adjusted second quarter fiscal 2005
         results of $0.29 per diluted share excluding plant closure costs of
         $0.11 per diluted share.
     (c) Comparison to fiscal 2005, which includes results of OshKosh from the
         Acquisition through December 31, 2005.
     (d) Estimated adjusted increase excluding $0.10 per diluted share of
         intangible amortization charges related to the acquisition of OshKosh
         and $0.08 per diluted share of stock option expense related to the
         adoption of SFAS 123R compared to adjusted fiscal 2005 results of
         $2.45 per diluted share excluding plant closure costs of $0.18 per
         diluted share, inventory step-up and intangible amortization charges
         of $0.32 per diluted share related to the acquisition of OshKosh, and
         debt extinguishment costs of $0.40 per diluted share as previously
         described in our earnings release filed February 22, 2006 on Form

In fiscal 2006, the Company plans to open 30 Carter's and 14 OshKosh retail stores and plans to close ten Carter's and three OshKosh retail stores.

The Company will broadcast its quarterly conference call on April 26, 2006 at 8:30 a.m. Eastern Time. To participate in the call, please dial 1-913-981-5520. To listen to the live broadcast over the internet, please log on to, go to "About Carter's," click on "Investor Relations," and then click on the link "First Quarter Conference Call." A replay of the call will be available shortly after the broadcast through midnight Eastern Time, May 5, 2006, at 1-719-457-0820, passcode 4357109, and archived on the Company's website at the same location as the live webcast.

For more information on Carter's, Inc. please visit

Cautionary Language

Statements contained herein that relate to the Company's future performance, including, without limitation, statements with respect to the Company's anticipated results for fiscal 2006 or any other future period, are forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on current expectations only, and are subject to certain risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. Factors that could cause actual results to materially differ include a decrease in sales to, or the loss of one or more of the Company's key customers, the acceptance of our products in the marketplace, deflationary pressures on our prices, disruptions in foreign supply sources, negative publicity, increased competition in the baby and young children's apparel market, our substantial leverage which increases our exposure to interest rate risk and could require us to dedicate a substantial portion of our cash flow to repay principal, changes in consumer preference and fashion trends, a decrease in the overall level of consumer spending, the impact of governmental regulations and environmental risks applicable to the Company's business, our ability to identify new locations and negotiate appropriate lease terms for our retail stores, our ability to attract and retain key individuals within the organization, failure to realize the cost savings and other benefits that we expect from synergies and other Acquisition-related cost reduction initiatives, and seasonal fluctuations in the children's apparel business. These risks are described in our most recently filed Annual Report on Form 10- K under the heading "Risk Factors" and "Statement Regarding Forward-Looking Statements." The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

                                CARTER'S, INC.
                (dollars in thousands, except for share data)

                                                   Three-month periods ended
                                                     April 1,       April 2,
                                                       2006           2005
    Net sales:
      Wholesale                                     $131,041        $98,954
      Retail                                         111,380         67,764
      Mass channel                                    54,026         39,489
        Total net sales                              296,447        206,207
    Cost of goods sold                               188,304        130,442
    Gross profit                                     108,143         75,765
    Selling, general, and administrative expenses     82,966         51,996
    Facility closure costs                                81             --
    Royalty income                                    (7,179)        (3,523)
    Operating income                                  32,275         27,292
    Interest expense, net                              6,884          4,402
    Income before income taxes                        25,391         22,890
    Provision for income taxes                         9,606          9,041
    Net income                                       $15,785        $13,849

    Basic net income per common share                  $0.55          $0.49

    Diluted net income per common share                $0.52          $0.46

    Basic weighted average number of shares
     outstanding                                  28,854,517     28,466,734

    Diluted weighted average number of shares
     outstanding                                  30,567,639     30,181,110

                                CARTER'S, INC.
                         CONSOLIDATED BALANCE SHEETS
                (dollars in thousands, except for share data)

                                      April 1,    December 31,      April 2,
                                         2006            2005          2005
    Current assets:
      Cash and cash equivalents       $59,662         $84,276       $36,548
      Accounts receivable, net        108,014          96,144        75,806
      Inventories, net                154,341         188,454       106,842
      Prepaid expenses and other
       current assets                   8,741           6,262         5,647
      Deferred income taxes            21,818          23,909        10,950

        Total current assets          352,576         399,045       235,793

    Property, plant, and
     equipment, net                    76,166          79,458        51,155
    Tradenames                        322,233         322,233       220,233
    Cost in excess of fair value
     of net assets acquired           283,394         284,172       139,282
    Deferred debt issuance
     costs, net                         7,788           8,257         5,287
    Licensing agreements, net          16,086          17,150            --
    Leasehold interests, net            1,502           1,619            --
    Other assets                        6,154           4,793         2,260

        Total assets               $1,065,899      $1,116,727      $654,010


    Current liabilities:
      Current maturities of
       long-term debt                  $4,231          $3,241          $521
      Accounts payable                 24,511          63,735        18,111
      Other current liabilities        66,020          89,627        32,766

        Total current liabilities      94,762         156,603        51,398

    Long-term debt                    415,720         426,791       163,870
    Deferred income taxes             128,639         124,439        83,597
    Other long-term liabilities        20,917          22,250        12,125

        Total liabilities             660,038         730,083       310,990

    Commitments and contingencies

    Stockholders' equity:

      Preferred stock; par value
       $.01 per share; 100,000
       shares authorized; none
       issued or outstanding at
       April 1, 2006, December 31,
       2005, and April 2, 2005             --              --            --
      Common stock, voting; par value
       $.01 per share; 40,000,000
       shares authorized; 28,988,029
       shares, 28,909,729 shares, and
       28,506,652 shares issued and
       outstanding at April 1, 2006,
       December 31, 2005, and April
       2, 2005                            290             289           285
      Additional paid-in capital      260,054         260,414       248,838
      Deferred compensation                --          (2,749)          (86)
      Accumulated other comprehensive
       income                           2,396           1,354            --
      Retained earnings               143,121         127,336        93,983

        Total stockholders' equity    405,861         386,644       343,020

          Total liabilities and
           stockholders' equity    $1,065,899      $1,116,727      $654,010


SOURCE Carter's, Inc.
CONTACT: Eric Martin, Vice President, Investor Relations of Carter's,
Inc., +1-404-745-2889
Web site: