Release Details

• Fourth quarter fiscal 2018 results
  • Net sales $1.1 billion, growth of 6%
  • Diluted EPS $2.83; adjusted diluted EPS $2.84, growth of 22%
• Full year fiscal 2018 results
  • Net sales $3.5 billion, growth of 2%
  • Diluted EPS $6.00; adjusted diluted EPS $6.29, growth of 9%
• Returned $277 million to shareholders through share repurchases and dividends in fiscal 2018
• Board of Directors authorizes 11% increase in quarterly dividend to $0.50 per share
• Full year fiscal 2019 outlook: net sales growth of 1% to 2%; adjusted diluted EPS growth of 4% to 6%

ATLANTA--(BUSINESS WIRE)--Feb. 25, 2019-- Carter’s, Inc. (NYSE:CRI), the largest branded marketer in North America of apparel exclusively for babies and young children, today reported its fourth quarter and fiscal 2018 results.

“We saw good demand for our brands in the final months of 2018, with growth driven by our retail and wholesale businesses,” said Michael D. Casey, Chairman and Chief Executive Officer. “In the fourth quarter, our retail sales in the United States grew 7% reflecting, we believe, the strength of our brands and less discretionary nature of young children’s apparel purchases.

“For the year, Carter’s achieved its 30th consecutive year of sales growth, and a record level of profitability enabled by the significant benefits from the Tax Cuts and Jobs Act of 2017.

“We believe Carter’s is well-positioned to achieve good growth in sales and earnings in the years ahead. Carter’s is the market leader in young children’s apparel in North America, and we are extending the reach of our brands throughout the world through eCommerce capabilities and strategic relationships.

“Given our strong balance sheet and cash flow, we plan to continue investing in strategies which we believe will enable us to outperform market trends and deliver attractive returns to shareholders.”

Consolidated Results

Fourth Quarter of Fiscal 2018 compared to Fourth Quarter of Fiscal 2017

Consolidated net sales increased $58.5 million, or 5.7%, to $1.1 billion, principally driven by growth in the Company’s U.S. Retail and U.S. Wholesale segments. Changes in foreign currency exchange rates in the fourth quarter of fiscal 2018 compared to the fourth quarter of fiscal 2017 adversely affected consolidated net sales in the fourth quarter of fiscal 2017 by $3.9 million. On a constant currency basis (a non-GAAP measure), consolidated net sales increased 6.1% in the fourth quarter of fiscal 2018.

Operating income in the fourth quarter of fiscal 2018 increased $24.2 million, or 16.5%, to $170.6 million, compared to $146.4 million in the fourth quarter of fiscal 2017. Fourth quarter fiscal 2017 results include pre-tax expense of $21.2 million for special compensation and related payroll taxes awarded as a result of the Tax Cuts and Jobs Act of 2017 (“TCJA”). Operating margin in the fourth quarter of fiscal 2018 increased 150 basis points to 15.7%, compared to 14.2% in the fourth quarter of fiscal 2017.

Adjusted operating income (a non-GAAP measure) increased $2.5 million, or 1.5%, to $170.5 million, compared to $168.0 million in the fourth quarter of fiscal 2017. Adjusted operating margin (a non-GAAP measure) decreased 60 basis points to 15.7%, compared to 16.3% in the fourth quarter of fiscal 2017, reflecting higher eCommerce shipping costs and promotions, the adverse impact of the Toys “R” Us bankruptcy, and an increase in the mix of lower margin new businesses.

Net income in the fourth quarter of fiscal 2018 decreased $5.6 million, or 4.1%, to $130.6 million, or $2.83 per diluted share, compared to $136.1 million, or $2.85 per diluted share, in the fourth quarter of fiscal 2017. Fourth quarter fiscal 2017 results include a net tax benefit of $40.0 million related to TCJA and after-tax expense of $15.1 million for special compensation and related payroll taxes awarded as a result of this tax reform legislation.

Adjusted net income (a non-GAAP measure) increased $19.5 million, or 17.5%, to $130.9 million, compared to $111.4 million in the fourth quarter of fiscal 2017, reflecting the benefit of lower tax provisions resulting from TCJA. Adjusted earnings per diluted share (a non-GAAP measure) increased 21.8% to $2.84, compared to $2.33 in the fourth quarter of fiscal 2017.

Fiscal 2018 compared to Fiscal 2017

Consolidated net sales increased $61.8 million, or 1.8%, to $3.5 billion, reflecting growth in the Company’s U.S. Retail and International segments, partially offset by a decline in the U.S. Wholesale segment. The decline in U.S. Wholesale sales was largely attributable to the closures of Toys “R” Us and Bon-Ton. Changes in foreign currency exchange rates in fiscal 2018 compared to fiscal 2017 adversely affected consolidated net sales in fiscal 2017 by $2.6 million. On a constant currency basis, consolidated net sales increased 1.9% in fiscal 2018.

Operating income in fiscal 2018 decreased $28.2 million, or 6.7%, to $391.4 million, compared to $419.6 million in fiscal 2017. Fiscal 2018 results include pre-tax expenses totaling $16.2 million related to wholesale customer bankruptcy charges and the Company’s business model transition in China. Fiscal 2017 results include pre-tax expense of $21.2 million for special compensation and related payroll taxes awarded as a result of TCJA. Operating margin in fiscal 2018 decreased 100 basis points to 11.3%, compared to 12.3% in fiscal 2017.

Adjusted operating income decreased $37.6 million, or 8.4%, to $407.3 million, compared to $444.8 million in fiscal 2017. Adjusted operating margin decreased 130 basis points to 11.8%, compared to 13.1% in fiscal 2017, reflecting increased investments in marketing and eCommerce fulfillment capabilities, higher distribution expenses, the adverse impact of the Toys “R” Us and Bon-Ton bankruptcies, and an increase in the mix of lower margin new businesses.

Net income in fiscal 2018 decreased $20.8 million, or 6.9%, to $282.1 million, or $6.00 per diluted share, compared to $302.8 million, or $6.24 per diluted share, in fiscal 2017. Fiscal 2018 results include after-tax expenses totaling $13.6 million related to wholesale customer bankruptcy charges and the Company’s business model transition in China. Fiscal 2017 results include a net tax benefit of $40.0 million related to TCJA and after-tax expense of $15.1 million for special compensation and related payroll taxes awarded as a result of this tax reform legislation.

Adjusted net income increased $15.6 million, or 5.6%, to $295.4 million, compared to $279.8 million in fiscal 2017, reflecting the benefit of lower tax provisions resulting from TCJA. Adjusted earnings per diluted share increased 9.0%, to $6.29, compared to $5.77 in fiscal 2017.

Cash flow from operations in fiscal 2018 was $356.2 million compared to $329.6 million in fiscal 2017. The increase primarily reflected a reduction in federal income taxes, partially offset by unfavorable changes in net working capital.

See the “Reconciliation of GAAP to Adjusted Results” section of this release for additional disclosures and reconciliations regarding non-GAAP measures.

U.S. Retail Segment

Fourth Quarter of Fiscal 2018 compared to Fourth Quarter of Fiscal 2017

U.S. Retail segment sales increased $40.1 million, or 7.1%, to $606.3 million. U.S. Retail comparable sales increased 5.7%, reflecting growth in both eCommerce and retail store sales.

In the fourth quarter of fiscal 2018, the Company opened 19 stores and closed five stores in the United States.

Fiscal 2018 compared to Fiscal 2017

U.S. Retail segment sales increased $75.8 million, or 4.3%, to $1.9 billion. U.S. Retail comparable sales increased 2.8%, driven by growth in eCommerce sales.

In fiscal 2018, the Company opened 55 stores and closed 41 stores in the United States.

As of the end of the fourth quarter of fiscal 2018, the Company operated 844 retail stores¹ in the United States^.

¹ Excludes five temporary Skip Hop stores that were closed in January 2019.

U.S. Wholesale Segment

Fourth Quarter of Fiscal 2018 compared to Fourth Quarter of Fiscal 2017

U.S. Wholesale segment sales increased $21.6 million, or 6.5%, to $351.4 million, reflecting increased shipments of Carter’s products, partially offset by the loss of sales to Toys “R” Us and Bon-Ton. Toys “R” Us and Bon-Ton contributed $32 million to net sales in the fourth quarter of fiscal 2017.

Fiscal 2018 compared to Fiscal 2017

U.S. Wholesale segment sales decreased $29.0 million, or 2.4%, to $1.2 billion, reflecting lower shipments principally due to a decline in sales to Toys “R” Us and Bon-Ton. Toys “R” Us and Bon-Ton contributed $13 million and $107 million to net sales in fiscal years 2018 and 2017, respectively.

International Segment

Fourth Quarter of Fiscal 2018 compared to Fourth Quarter of Fiscal 2017

International segment sales decreased $3.2 million, or 2.4%, to $128.6 million. This decrease was principally driven by lower demand in China and unfavorable movements in foreign currency exchange rates, partially offset by increased demand in Mexico.

Changes in foreign currency exchange rates in the fourth quarter of fiscal 2018 as compared to the fourth quarter of fiscal 2017 adversely affected International segment net sales in the fourth quarter of fiscal 2018 by $3.9 million. On a constant currency basis, International segment net sales increased 0.6%.

Fiscal 2018 compared to Fiscal 2017

International segment sales increased $14.9 million, or 3.6%, to $430.4 million, driven by growth in Mexico, Canada, and various other markets outside of North America, partially offset by lower demand in China.

Changes in foreign currency exchange rates in fiscal 2018 as compared to fiscal 2017 adversely affected International segment net sales in fiscal 2018 by $2.6 million. On a constant currency basis, International segment net sales increased 4.2%.

As of the end of fiscal 2018, the Company operated 188 retail stores in Canada and 42 retail stores in Mexico.

Return of Capital

In the fourth quarter and fiscal year 2018, the Company returned to shareholders a total of $68.1 million and $276.7 million, respectively, through share repurchases and cash dividends as described below.

From the beginning of fiscal 2007 through fiscal 2018, the Company has returned a total of $1.8 billion to shareholders through share repurchases and dividends, and retired approximately 38% of its outstanding shares.

Stock Repurchase Activity

During the fourth quarter of fiscal 2018, the Company repurchased and retired 515,109 shares of its common stock for $47.5 million at an average price of $92.28 per share.

During fiscal 2018, the Company repurchased and retired 1,879,529 shares for $193.0 million at an average price of $102.70 per share.

Fiscal 2019 year-to-date through February 22, 2019, the Company has repurchased and retired a total of 303,611 shares for $25.0 million at an average price of $82.34 per share.

All shares were repurchased in open market transactions pursuant to applicable regulations for open market share repurchases. As of February 22, 2019, the total remaining capacity under the Company’s previously-announced repurchase authorizations was approximately $368 million.

Dividends

During the fourth quarter of fiscal 2018, the Company paid a cash dividend of $0.45 per share totaling $20.6 million.

In fiscal 2018, the Company paid quarterly cash dividends of $0.45 per share each quarter totaling $83.7 million.

On February 14, 2019, the Company’s Board of Directors authorized an 11% increase ($0.05 per share) to its quarterly cash dividend, to $0.50 per share, for payment on March 22, 2019, to shareholders of record at the close of business on March 12, 2019.

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.

2019 Business Outlook

For fiscal 2019, the Company projects net sales will increase approximately 1% to 2% and adjusted diluted earnings per share will increase approximately 4% to 6% compared to adjusted diluted earnings per share of $6.29 in fiscal 2018. This forecast for fiscal 2019 adjusted diluted earnings per share excludes anticipated expenses of approximately $2.5 million related to organizational restructuring.

Net sales and adjusted earnings growth in the first quarter of fiscal 2019 are expected to be affected by comparisons to discontinued sales to Toys “R” Us and Bon-Ton in the prior year and a later Easter holiday in 2019 than in 2018. As a result, the Company projects first quarter fiscal 2019 net sales will decline approximately 4% to 5% and adjusted diluted earnings per share to be approximately $0.65 to $0.70 compared to adjusted diluted earnings per share of $1.09 in the first quarter of fiscal 2018. This forecast for first quarter fiscal 2019 adjusted diluted earnings per share excludes anticipated expenses of approximately $2.5 million related to organizational restructuring.

The Company believes these non-GAAP measurements provide investors with a meaningful view of the Company’s core operating results, and are the same measurements used by the Company's executive management to assess the Company's performance. See the “Reconciliation of GAAP to Adjusted Results” section of this release for additional disclosures and reconciliations regarding non-GAAP measures.

Adoption of New Accounting Standards

Beginning in fiscal 2018, the Company adopted the Financial Accounting Standards Board’s Accounting Standards Codification No. 606, Revenue from Contracts with Customers, and related amendments (“ASC 606”) using the full retrospective adoption method. All periods in fiscal 2017 and fiscal 2016 were amended to reflect these provisions, and retained earnings at January 2, 2016 (beginning of fiscal 2016) were adjusted for the cumulative effect of periods prior to fiscal 2016. The adoption of ASC 606 had no material effect on the Company’s consolidated financial position, results of operations, or cash flows.

In fiscal 2019, the Company will adopt the Financial Accounting Standards Board’s Accounting Standards Codification No. 842, Leases (“ASC 842”), which will require substantially all leases to be recorded on the balance sheet as a right-of-use asset (“ROU asset”) and lease liability. The Company expects to recognize lease liabilities for its operating leases totaling between $800 million to $900 million and ROU assets totaling between $650 million to $750 million, upon adoption. The adoption of ASC 842 will not have a material effect on the Company’s consolidated results of operations or cash flows.

Conference Call

The Company will hold a conference call with investors to discuss fourth quarter and fiscal 2018 results and its business outlook on February 25, 2019 at 8:30 a.m. Eastern Standard Time. To participate in the call, please dial 323-794-2423. To listen to a live broadcast of the call on the internet, please visit ir.carters.com and select the “Fourth Quarter 2018 Earnings Conference Call” link in the “Upcoming Events” section. Presentation materials for the call can be accessed from the same page by selecting links for “News & Events” followed by “Webcasts & Presentations”. A replay of the call will be available shortly after the broadcast through March 6, 2019, at 888-203-1112 (U.S. / Canada) or 719-457-0820 (international), passcode 3216835. The replay will also be archived on the Company’s website under the “Investor Relations” tab.

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 more than 1,000 Company-operated stores in the United States, Canada, and Mexico and online at www.carters.com, www.oshkosh.com, and www.cartersoshkosh.ca. The Company’s Just One Youand Genuine Kids brands are available at Target, its Child of Mine brand is available at Walmart, 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.

Cautionary Language

This press release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 relating to the Company’s future performance, including, without limitation, statements with respect to the Company’s anticipated financial results for the first quarter of fiscal 2019 and fiscal year 2019, or any other future period, assessments of the Company’s performance and financial position, and drivers of the Company’s sales and earnings growth. 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 the risks and uncertainties that may impact future results are the risks of: financial difficulties for one or more of the Company’s major customers, vendors, or licensees, or an overall decrease in consumer spending; our products not being accepted in the marketplace due to quality concerns, changes in consumer preference and fashion trends, or otherwise; losing one or more major customers, vendors, or licensees due to competition, inadequate quality of the Company’s products, or otherwise; negative publicity, including as a result of product recalls or otherwise; a failure to protect the Company’s intellectual property; a failure to meet regulatory requirements, including those relating to product quality and safety; extreme or unseasonable weather conditions; various types of litigation, including class action litigation brought under various consumer protection, employment, and privacy and information security laws; a breach of the Company’s consumer databases, systems, or processes; deflationary pressures on our selling price and increases in production costs; unsuccessful expansion into international markets or failure to successfully manage legal, regulatory, political and economic risks of the Company’s existing operations, including unexpected changes in regulatory requirements and maintaining compliance with worldwide anti-bribery laws; disruptions, slow-downs, or strikes in the Company’s supply chain, including disruptions resulting from increases in the cost of raw materials or labor, foreign supply sources, the Company’s distribution centers, or in-sourcing capabilities; failure to successfully integrate acquired businesses; fluctuations in foreign currency exchange rates; the imposition of new regulations relating to imports, tariffs, duties, or taxes; and an inability to obtain additional financing on favorable terms. 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.

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 the footnotes (a) - (g) to the table above.

We present EBITDA and Adjusted EBITDA because we consider them to be 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 are used by the Company's executive management to assess the Company's 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.

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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20190225005445/en/

Source: Carter’s, Inc.

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