UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

 

 

Date of Report (Date of earliest event reported)

October 26, 2004

 

 

 

CARTER’S, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware

001-31829

13-3912933

(State or other jurisdiction

(Commission

(IRS Employer

of incorporation)

File Number)

Identification No.)

 

 

 

The Proscenium 1170 Peachtree Street NE, Suite 900 Atlanta, Georgia

30309

(Address of principal executive offices)

(Zip Code)

 

 

Registrant’s telephone number, including area code

(404) 745-2700

 

 

    

(Former name or former address, if changed since last report.)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o            Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 



 

Item 2.02

Results of Operations and Financial Condition.

 

On October 26, 2004, Carter’s, Inc. issued a press release announcing its financial results for its third quarter ended October 2, 2004.  A copy of that press release is attached as Exhibit 99.1 to this Current Report on Form 8-K.

 

The information in this Current Report on Form 8-K is being furnished and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section.  The information in this Current Report on Form 8-K shall not be incorporated by reference into any registration statement or other document filed pursuant to the Securities Act of 1933, as amended.

 

Item 9.01

Financial Statements and Exhibits.

 

(a)          Not applicable.

 

(b)         Not applicable.

 

(c)          Exhibits – The following exhibit is furnished as part of this Current Report on Form 8-K.

 

Exhibit Number

 

Description

99.1

 

Press Release of Carter’s, Inc. dated October 26, 2004

 

2



 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

CARTER’S, INC.

 

 

 

 

 

 

 

By:

/S/ MICHAEL D. CASEY

 

 

 

Name:

Michael D. Casey

 

 

Title:

Executive Vice President and
Chief Financial Officer

 

 

 

 

 

 

Dated:  October 26, 2004

 

 

 

 

 

 

3



 

EXHIBIT INDEX

 

Exhibit No.

 

Description of Exhibit

 

 

 

99.1

 

Press Release of Carter’s, Inc. dated October 26, 2004.

 

4


Exhibit 99.1

 

Contact:

 

Eric Martin, Director of Investor Relations

 

(404) 745-2889

 

CARTER’S REPORTS AN 18% INCREASE IN NET SALES FOR THE THIRD QUARTER OF 2004; NET INCOME INCREASES 45%

 

ATLANTA, October 26, 2004/ PRNewswire-FirstCall/ — Carter’s, Inc. (NYSE: CRI), the largest branded marketer of apparel for babies and young children in the United States, today reported its third quarter results for fiscal 2004.

 

Net sales in the third quarter of fiscal 2004 increased 18% to $251.4 million from $212.1 million in the third quarter of fiscal 2003. The increase in net sales for the third quarter of fiscal 2004 includes a $10.6 million, or 10%, increase in sales to the wholesale channel from $103.3 million to $113.9 million and a $19.9 million, or 64%, increase in sales to the mass channel from $31.3 million to $51.2 million.

 

The Company’s retail store sales in the third quarter of fiscal 2004 increased $8.7 million, or 11%, to $86.2 million from $77.5 million in the third quarter of fiscal 2003 due to an increase of 6.1% in comparable store sales and incremental sales from 13 new store openings since September of 2003.  As of October 2, 2004, Carter’s had a total of 177 retail stores, including three stores opened during the third quarter.  Carter’s plans to open three stores and close four stores in the fourth quarter of fiscal 2004.

 



 

Fred Rowan, Chairman of the Board of Directors and Chief Executive Officer of Carter’s said, “We are very pleased with our strong performance in the third quarter of 2004 in all channels of distribution.  We continue to produce great quality, essential core products at attractive price points that have enabled us to increase our market share.  We are on track to achieve our 2004 financial goals and our growth initiatives have positioned us for continued strong performance in 2005.”

 

In the third quarter of fiscal 2004, net income increased 45% to $18.4 million, or $0.62 per diluted share, from $12.7 million, or $0.52 per diluted share, in the third quarter of fiscal 2003.  Compared to pro forma net income of $14.2 million, or $0.48 per diluted share in the third quarter of fiscal 2003, further described below, pro forma net income in the third quarter of fiscal 2004 increased 30%.

 

Net sales in the first nine months of fiscal 2004 increased 14% to $590.4 million from $518.1 million in the first nine months of fiscal 2003.  In our wholesale channel, net sales increased $12.4 million, or 5%, in the first nine months of fiscal 2004 to $278.0 million from $265.6 million in the first nine months of fiscal 2003.

 

Net sales to the mass channel in the first nine months of fiscal 2004 increased $45.4 million to $106.9 million from $61.6 million in the first nine months of fiscal 2003.  This increase reflects growth in sales of our Child of Mine brand to Wal-Mart, which we began shipping in June of 2003, and growth of the Tykes brand sold to Target.

 

The Company’s retail store sales in the first nine months of fiscal 2004 increased $14.4 million, or 8%, to $205.4 million from $191.0 million in the first nine months of fiscal 2003 due to incremental sales from new store openings and a comparable store sales increase of 3.5%.  During the first nine months of fiscal 2004, the Company opened eight stores.

 

2



 

For the first nine months of fiscal 2004, net income increased 60% to $34.6 million, or $1.16 per diluted share, from $21.7 million, or $0.90 per diluted share for the first nine months of fiscal 2003.  Pro forma net income, further described below, increased 39% to $35.0 million, or $1.17 per diluted share for the first nine months of fiscal 2004 compared to pro forma net income of $25.2 million, or $0.86 per diluted share for the first nine months of fiscal 2003.

 

Net cash used in operations was $14.1 million in the first nine months of fiscal 2004 compared to net cash provided by operations of $9.4 million in the first nine months of fiscal 2003.  Net cash used in operations in the first nine months of fiscal 2004 reflects growth in accounts receivable driven by the timing of wholesale and mass channel sales and the growth in inventory to support higher levels of demand.

 

3



 

Carter’s Business Outlook

 

This outlook is based on 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.

 

($ in millions, except EPS)

 

Fourth Quarter 2004

 

Fiscal Year 2004

 

Net sales

 

$

210

 

+13

%(1)

$

800

 

+14

%(3)

Diluted EPS

 

$

0.45

 

+22

%(2)

$

1.63

 

+34

%(4)

 


(1)                                  Comparison to fourth quarter of fiscal 2003.

 

(2)                                  Estimated increase as compared to pro forma fourth quarter fiscal 2003 results adjusted to reflect $0.7 million in after-tax interest savings, $1.3 million in after-tax closure costs, $5.8 million in after-tax expenses related to the Initial Public Offering, and $1.6 million in after-tax management fee settlement charges.

 

(3)                                  Comparison to fiscal 2003.

 

(4)                                  Estimated increase in projected 2004 net income per share, as compared to pro forma fiscal 2003 results of $1.22 per diluted share as previously described in our earnings release filed March 1, 2004 on Form 8-K.

 

Carter’s will broadcast its quarterly conference call on October 27, 2004 at 8:30 a.m. EST.  To participate in the call, please dial 1-800-289-0493.  For international calls, please dial 1-913-981-5510.  To listen to the live broadcast over the internet, please log on to www.carters.com, go to “Investor Relations” and then click on the link, “Third Quarter Conference Call.”  A replay of the call will be available shortly after the broadcast through midnight EDT, November 5, at 1-888-203-1112, pass code 826187, and archived on the Company’s website at the same location as the live webcast.

 

For more information on Carter’s, please visit www.carters.com.

 

4



 

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 2004 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, deflationary trends in prices, disruptions in foreign supply sources, negative publicity, the loss of one or more of the Company’s major suppliers for raw materials, competition in the baby and young children’s apparel market, the Company’s leverage which increases the Company’s exposure to interest rate risk and could require the Company to dedicate a substantial portion of its cash flow to repay principal, the impact of governmental regulations and environmental risks applicable to the Company’s business, and seasonal fluctuations in the children’s apparel business.  These risks are described in the Company’s prospectus dated September 23, 2004 under the headings “Risk Factors,”  “Business-Competition; Certain Risks,” 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.

 

5



 

Pro forma Net Income

 

Pro forma results for the first nine months of fiscal 2004 exclude $0.4 million in after-tax restructuring charges related to the closures of the Company’s sewing facilities in Costa Rica and a distribution facility in Leola, Pennsylvania.  Pro forma results for the third quarter and first nine months of fiscal 2003 exclude $0.9 million and $3.0 million, net of tax, respectively, to reflect pro forma interest savings associated with the Company’s debt reduction completed in the fourth quarter of fiscal 2003 as if it had occurred at the beginning of fiscal 2003.  Also included in the pro forma results for the third quarter and first nine months of fiscal 2003 are $0.6 million in after-tax costs related to the closure of the Company’s offshore operations in Costa Rica, including accelerated depreciation.  These adjustments are set forth in the reconciliation of results in accordance with generally accepted accounting principles (GAAP) to the pro forma results shown in the table below.  The number of weighted average shares in the third quarter and first nine months of fiscal 2003 has been adjusted in the pro forma earnings per share calculations to give effect to the initial public offering and to treat the incremental shares sold as if they were outstanding for the periods presented.  The Company believes that the pro forma information in this release provides a meaningful comparison of its operational and financial results.

 

In addition to the results provided in this earnings release in accordance with GAAP, the Company has provided pro forma, non-GAAP financial measurements that present net income and net income on a per share basis excluding certain adjustments discussed above.  Details of these items are presented in the table below, which reconciles the GAAP results to pro forma net income and pro forma net income per share.  The pro forma, 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 pro forma, non-GAAP financial information is presented for informational purposes only and is not necessarily indicative of our future condition or results of operations.  Also, this earnings release and the reconciliation from GAAP results to pro forma results can be found on the Company’s website at www.carters.com.

 

6



 

CARTER’S, INC.

GAAP VS. PRO FORMA RESULTS

(dollars in thousands, except for share data)

(unaudited)

 

 

 

Three-month
periods ended

 

Nine-month
periods ended

 

 

 

October 2,
2004

 

October 4,
2003

 

October 2,
2004

 

October 4,
2003

 

 

 

 

 

 

 

 

 

 

 

Net income (GAAP)

 

$

18,412

 

$

12,655

 

$

34,642

 

$

21,653

 

 

 

 

 

 

 

 

 

 

 

Pro forma adjustments (net of tax):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Closure costs

 

29

 

609

 

358

 

609

 

 

 

 

 

 

 

 

 

 

 

Pro forma interest expense savings

 

 

923

 

 

2,953

 

 

 

 

 

 

 

 

 

 

 

Pro forma net income

 

$

18,441

 

$

14,187

 

$

35,000

 

$

25,215

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding, as reported

 

29,902,137

 

24,236,255

 

29,887,853

 

24,084,183

 

 

 

 

 

 

 

 

 

 

 

Adjustment for initial public offering

 

 

5,390,625

 

 

5,390,625

 

 

 

 

 

 

 

 

 

 

 

Pro forma diluted weighted average shares outstanding

 

29,902,137

 

29,626,880

 

29,887,853

 

29,474,808

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per share, as reported

 

$

0.62

 

$

0.52

 

$

1.16

 

$

0.90

 

 

 

 

 

 

 

 

 

 

 

Pro forma diluted net income per share

 

$

0.62

 

$

0.48

 

$

1.17

 

$

0.86

 

 

7



 

CARTER’S, INC.

CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands, except for share data)

(unaudited)

 

 

 

Three-month
periods ended

 

Nine-month
periods ended

 

 

 

October 2,
2004

 

October 4,
2003

 

October 2,
2004

 

October 4,
2003

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

251,357

 

$

212,135

 

$

590,384

 

$

518,136

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

163,490

 

136,451

 

376,656

 

331,993

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

87,867

 

75,684

 

213,728

 

186,143

 

Selling, general, and administrative expenses

 

56,280

 

51,896

 

151,674

 

138,660

 

 

 

 

 

 

 

 

 

 

 

Closure costs

 

49

 

115

 

589

 

115

 

 

 

 

 

 

 

 

 

 

 

Royalty income

 

(3,589

)

(3,692

)

(9,257

)

(8,149

)

 

 

 

 

 

 

 

 

 

 

Operating income

 

35,127

 

27,365

 

70,722

 

55,517

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

4,666

 

6,788

 

13,654

 

20,309

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

30,461

 

20,577

 

57,068

 

35,208

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

12,049

 

7,922

 

22,426

 

13,555

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

18,412

 

$

12,655

 

$

34,642

 

$

21,653

 

 

 

 

 

 

 

 

 

 

 

Basic net income per common share

 

$

0.65

 

$

0.56

 

$

1.24

 

$

0.96

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per common share

 

$

0.62

 

$

0.52

 

$

1.16

 

$

0.90

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average number of shares outstanding

 

28,109,978

 

22,564,856

 

28,032,520

 

22,560,872

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average number of shares outstanding

 

29,902,137

 

24,236,255

 

29,887,853

 

24,084,183

 

 

8



 

CARTER’S, INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except for share data)

(unaudited)

 

 

 

October 2, 2004

 

January 3, 2004

 

October 4, 2003

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

12,004

 

$

36,061

 

$

7,055

 

Accounts receivable, net

 

103,108

 

65,318

 

70,893

 

Inventories, net

 

148,414

 

104,760

 

118,080

 

Prepaid expenses and other current assets

 

2,680

 

6,575

 

2,583

 

Assets held for sale

 

864

 

50

 

250

 

Deferred income taxes

 

10,692

 

9,045

 

8,425

 

 

 

 

 

 

 

 

 

Total current assets

 

277,762

 

221,809

 

207,286

 

 

 

 

 

 

 

 

 

Property, plant, and equipment, net

 

51,177

 

50,502

 

47,679

 

Tradename

 

220,233

 

220,233

 

220,233

 

Cost in excess of fair value of net assets acquired

 

139,282

 

139,282

 

139,282

 

Licensing agreements, net

 

 

3,125

 

4,375

 

Deferred debt issuance costs, net

 

6,486

 

7,666

 

10,783

 

Other assets

 

2,881

 

3,485

 

3,703

 

 

 

 

 

 

 

 

 

Total assets

 

$

697,821

 

$

646,102

 

$

633,341

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Current maturities of long-term debt

 

$

927

 

$

3,336

 

$

1,180

 

Accounts payable

 

42,371

 

30,436

 

32,991

 

Other current liabilities

 

37,274

 

37,405

 

36,100

 

 

 

 

 

 

 

 

 

Total current liabilities

 

80,572

 

71,177

 

70,271

 

 

 

 

 

 

 

 

 

Long-term debt

 

213,788

 

209,377

 

292,401

 

Deferred income taxes

 

82,078

 

83,196

 

83,717

 

Other long-term liabilities

 

9,816

 

9,816

 

9,977

 

 

 

 

 

 

 

 

 

Total liabilities

 

386,254

 

373,566

 

456,366

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock; par value $.01 per share; 100,000 shares authorized; none issued or outstanding at October 2, 2004, January 3, 2004, and October 4, 2003

 

 

 

 

Common stock, voting; par value $.01 per share; 40,000,000 shares authorized; 28,331,337 issued and outstanding at October 2, 2004; 27,985,360 issued and outstanding at January 3, 2004; 22,594,735 issued and outstanding at October 4, 2003

 

283

 

280

 

226

 

Additional paid-in capital

 

246,166

 

241,780

 

147,898

 

Retained earnings

 

65,118

 

30,476

 

28,851

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

311,567

 

272,536

 

176,975

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

697,821

 

$

646,102

 

$

633,341

 

 

9