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): February 26, 2008
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Carter’s,
Inc.
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(Exact
name of Registrant as specified in its
charter)
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Delaware
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001-31829
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13-3912933
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(State
or other jurisdiction
of
incorporation)
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(Commission
File Number)
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(I.R.S.
Employer
Identification
No.)
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||
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The
Proscenium,
1170
Peachtree Street NE, Suite 900
Atlanta,
Georgia 30309
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||||
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(Address
of principal executive offices, including zip code)
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||||
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(404)
745-2700
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||||
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(Registrant’s
telephone number, including area code)
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||||
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(Former
name or former address, if changed since last
report.)
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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:
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o
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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o
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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o
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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o
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Item
2.02. Results
of Operations and Financial Condition.
On
February 26, 2008, Carter’s, Inc. issued a press release announcing its
financial results for its fourth quarter and fiscal year ended December 29,
2007. 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.
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Exhibits
– The following exhibit is furnished as part of this Current Report on
Form 8-K.
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|||
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Exhibit
Number
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Description
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99.1
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Press
Release of Carter’s, Inc., dated February 26,
2008
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Signature
Pursuant
to the requirements of the Securities Exchange Act of 1934, Carter’s, Inc. has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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February 26,
2008
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CARTER’S,
INC.
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By:
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/s/ MICHAEL
D. CASEY
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Name:
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Michael
D. Casey
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Title:
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Executive
Vice President and
Chief
Financial Officer
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| Exhibit 99.1 |
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Contact:
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Eric Martin
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Vice
President, Investor Relations
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(404)
745-2889
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CARTER’S,
INC. REPORTS
FOURTH QUARTER AND FISCAL 2007 RESULTS
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*
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FOURTH
QUARTER NET SALES INCREASED $16 MILLION, UP 4%
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*
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FISCAL
2007 NET SALES INCREASED $69 MILLION, UP
5%
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Atlanta,
Georgia, February 26, 2008 / PRNewswire -- FirstCall / -- Carter’s, Inc.
(NYSE:CRI), the largest branded marketer in the United
States of apparel exclusively for babies and young children, reported its fourth
quarter and fiscal 2007 results.
Fourth
Quarter of Fiscal 2007 compared to Fourth Quarter of Fiscal 2006
Consolidated
net sales increased 4.2% to $393.4 million. Net sales of the
Company’s Carter’s brands increased 4.0% to $294.0 million. Net sales
of the Company’s OshKosh brand increased 4.8% to $99.4 million.
Consolidated
retail store sales increased 9.6% to $189.0 million. Carter’s retail
store sales increased 13.8% to $112.8 million, driven by a comparable store
sales increase of $8.5 million, or 8.9%, and sales of $5.4 million from new
stores. OshKosh retail store sales increased 3.9% to $76.2 million,
driven by sales of $5.1 million from new stores, partially offset by a
comparable store sales decrease of $2.2 million, or 3.0%.
In the
fourth quarter of fiscal 2007, the Company opened seven Carter’s and four
OshKosh retail stores. The Company also closed one Carter’s and three
OshKosh retail stores. As of December 29, 2007, the Company had 228
Carter’s and 163 OshKosh retail stores.
1
The
Company’s mass channel sales, which are comprised of sales of its Child of Mine brand to
Wal-Mart and Just One
Year brand to Target, increased 11.8% to $54.8 million. This
increase was driven by a $4.7 million, or 20.4%, increase in sales of our Just One Year brand and a
$1.1 million, or 4.2%, increase in sales of our Child of Mine
brand.
The
Company’s wholesale sales decreased 4.1% to $149.6 million. Carter’s
wholesale sales decreased 6.0% to $126.5 million. OshKosh wholesale
sales increased 7.7% to $23.1 million.
In the
fourth quarter of fiscal 2007, net income increased 4.2%, or $1.2 million, to
$28.6 million, or $0.48 per diluted share, compared to net income of $27.4
million, or $0.45 per diluted share, in the fourth quarter of fiscal
2006.
Included
in fourth quarter fiscal 2007 earnings is a $2.4 million benefit from reversing
previously recorded charges for certain performance-based stock
awards. In the fourth quarter of fiscal 2007, the Company determined
that the performance objectives for these stock awards would not likely be
achieved. Excluding
the benefit from reversing these expenses, adjusted net income for the
fourth quarter of fiscal 2007 decreased $0.5 million to $26.9
million, or $0.45 per diluted share. The reconciliation of
income as reported under accounting principles generally accepted in the United
States of America (“GAAP”) to income adjusted for the benefit from
reversing certain stock-based compensation expenses is shown
below.
2
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(dollars
in millions, except EPS)
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||||||||||||
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Three-month
period ended December
29, 2007
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||||||||||||
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Income
Before
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Net
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Diluted
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||||||||||
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Taxes
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Income
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EPS
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||||||||||
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Income,
as reported (GAAP)
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$ | 45.1 | $ | 28.6 | $ | 0.48 | ||||||
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Stock-based
compensation expenses (a)
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(2.7 | ) | (1.7 | ) | (0.03 | ) | ||||||
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Income, as adjusted
(b)
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$ | 42.4 | $ | 26.9 | $ | 0.45 | ||||||
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(a)
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Reversal
of $2.4 million of previously recorded stock-based compensation expenses
and a reduction of $0.3 million in fourth quarter stock-based compensation
expenses associated with certain performance-based stock
awards.
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(b)
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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 the adjustments discussed
above. We believe these adjustments provide a more meaningful
comparison of the Company’s results. The 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.
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“Our
fourth quarter results fell short of our expectations, having been heavily
impacted by higher than expected requests for markdown support from our
wholesale customers and higher provisions for slow-moving inventories in our
OshKosh retail stores,” noted Fred Rowan, Chairman and CEO. “While
the macro-economic trends and overall slowdown in consumer spending have
negatively affected our results, we are encouraged by the strong progress of our
new retail team, whose initiatives delivered a 9% comp store sales increase at
our Carter’s stores," added Mr. Rowan.
“Given
the very challenging retail environment, our wholesale and mass channel
customers are being more cautious in their 2008 growth plans, and, therefore, we
must be too. It is very difficult to project growth in this current
environment. We will continue to focus on improving our product
competitiveness, lowering our costs, and investing in our growth initiatives, so
that when the market improves, we’ll be well positioned to grow and gain
share.”
3
Fiscal
2007 compared to Fiscal 2006
Consolidated
net sales increased 5.1% to $1.4 billion. Net sales of the Company’s
Carter’s brands increased 7.3% to $1.1 billion. Net sales of the
Company’s OshKosh brand decreased 1.6% to $320.3 million.
Consolidated
retail store sales increased 6.7% to $600.1 million. Carter’s retail store sales
increased 10.0% to $366.3 million, driven by sales of $22.8 million from new
stores and a comparable store sales increase of $13.3 million, or 4.1%,
partially offset by the impact of store closures of $2.8
million. OshKosh retail store sales increased 2.0% to $233.8 million,
driven by sales of $15.2 million from new stores, partially offset by a
comparable store sales decrease of $9.8 million, or 4.3%, and the impact of
store closures of $0.8 million.
In fiscal
2007, the Company opened ten Carter’s and nine OshKosh retail
stores. The Company also closed one Carter’s and three OshKosh
retail stores.
The
Company’s mass channel sales increased 10.4% to $243.3 million. This
was driven by an $11.9 million, or 8.8%, increase in sales of our Child of Mine brand and an
$11.0 million, or 12.9%, increase in sales of our Just One Year
brand.
The
Company’s wholesale sales increased 1.4% to $568.9 million. Carter’s
wholesale sales increased 3.8% to $482.4 million. OshKosh wholesale
sales decreased 10.2% to $86.6 million.
Including the
charges described below, the Company’s net loss in fiscal 2007 was $70.6
million, or $1.22 per diluted share, compared to net income of $87.2 million, or
$1.42 per diluted share, in fiscal 2006.
During
the second quarter of fiscal 2007, the Company conducted a review of the value
of the intangible assets that the Company recorded in connection with the
acquisition of OshKosh B'Gosh, Inc. As a result of this analysis, the
OshKosh Tradename was adjusted from $102 million to $90 million and the OshKosh
Cost in Excess of Fair Value of Net Assets Acquired of $142.9 million was
written off. Accordingly, results for fiscal 2007 include non-cash,
pre-tax asset impairment charges of approximately $154.9 million, or $2.60 per
diluted share.
In
connection with the closure of the OshKosh distribution facility located in
White House, Tennessee, the Company recorded total pre-tax charges of
approximately $7.4 million, or $0.08 per diluted share, during fiscal
2007. These charges include accelerated depreciation of $2.1
million.
4
Excluding
the charges related to the impairment of the OshKosh assets and costs related to
the closure of the OshKosh distribution facility and excluding
the benefit from the reversal of stock-based compensation expenses related
to certain performance-based stock awards, adjusted net income for fiscal 2007
decreased 5.0% to $82.9 million, and adjusted diluted earnings per share
decreased 3.5% to $1.37. The reconciliation of the loss as reported
under GAAP to income adjusted for the impairment charges, closure costs, and
certain stock-based compensation expenses is shown below.
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(dollars
in millions, except EPS)
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||||||||||||
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Twelve-month
period ended December
29, 2007
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||||||||||||
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(Loss)
Income
Before
Taxes
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Net
(Loss)
Income
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Diluted
EPS
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||||||||||
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Loss,
as reported (GAAP)
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$ | (29.1 | ) | $ | (70.6 | ) | $ | (1.22 | ) | |||
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Intangible
asset impairment (a)
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154.9 | 150.5 | 2.60 | |||||||||
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Distribution
facility closure costs (b)
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5.3 | 3.4 | 0.06 | |||||||||
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Accelerated
depreciation (c)
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2.1 | 1.3 | 0.02 | |||||||||
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Stock-based
compensation expenses (d)
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(2.7 | ) | (1.7 | ) | (0.03 | ) | ||||||
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Diluted
share count impact (e)
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-- | -- | (0.06 | ) | ||||||||
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Income, as adjusted
(f)
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$ | 130.5 | $ | 82.9 | $ | 1.37 | ||||||
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(a)
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OshKosh-related
intangible asset impairment charges, including $142.9 million of goodwill
which is not deductible for tax
purposes.
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(b)
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Costs
associated with the closure of the OshKosh distribution
facility.
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(c)
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Accelerated
depreciation charges (included in selling, general, and administrative
expenses) related to the closure of the OshKosh distribution
facility.
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(d)
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Reversal
of $2.4 million of previously recorded stock-based compensation expenses
and a reduction of $0.3 million in fourth quarter stock-based compensation
expenses associated with certain performance-based stock
awards.
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(e)
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When
reporting a loss in accordance with GAAP, the number of diluted
weighted-average shares is equal to the number of basic weighted-average
shares. This adjustment reflects the impact of the difference
between the number of diluted shares used for calculating GAAP EPS (57.9
million shares) and the number of diluted shares used for calculating
adjusted EPS (60.3 million shares).
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(f)
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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 the adjustments discussed
above. We believe these adjustments provide a more meaningful
comparison of the Company’s results. The 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.
|
Net cash
provided by operating activities during fiscal 2007 was $52.0 million compared
to net cash provided by operating activities of $88.2 million in fiscal
2006. Net cash flow provided by operations in fiscal 2007 was
impacted primarily by growth in inventory levels, particularly in the Company’s
retail stores.
In
connection with the Company’s $100 million share repurchase program, during
fiscal 2007, the Company repurchased 2,473,219 shares of its common stock for
approximately $57.5 million at an average price of $23.24 per
share.
Quarterly Conference
Call
The
Company will broadcast its quarterly conference call on February 27, 2008 at
8:30 a.m.
Eastern Time. To participate in the call, please dial
1-913-312-9303. To listen to the live broadcast over the internet,
please log on to www.carters.com, go to “About Carter’s,” click on “Investor
Relations,” and then click on the link “Fourth Quarter Conference
Call.” A replay of the call will be available shortly after the
broadcast through March 7, 2008, at 1-719-457-0820, passcode
5965436. This replay will be archived on the Company’s website at the
same location.
For more
information on Carter’s, Inc., please visit www.carters.com.
5
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 2008 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; increased competition in the baby and young children’s
apparel market; the acceptance of our products in the marketplace; deflationary
pressures on our prices; disruptions in foreign supply sources; negative
publicity; our 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
adequately forecast demand, which could create significant levels of excess
inventory; our ability to identify new retail store locations, and negotiate
appropriate lease terms for our retail stores; our ability to improve the
performance of our retail and OshKosh wholesale segments; our ability to attract
and retain key individuals within the organization; failure to realize the
revenue growth, cost savings and other benefits that we expect from our
acquisition of OshKosh B’Gosh, Inc., which could impact the carrying value of
our intangible assets; and seasonal fluctuations in the children’s apparel
business. These risks are further described in our most recently
filed Quarterly Report on Form 10-Q and other reports filed with the Securities
and Exchange Commission under the headings “Risk Factors” and “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.
6
CARTER’S,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(dollars
in thousands, except for share data)
(unaudited)
|
Three-month
period ended
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Fiscal
year ended
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|||||||||||||||
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December
29,
2007
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December
30,
2006
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December
29,
2007
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December
30,
2006
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|||||||||||||
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Net
sales:
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||||||||||||||||
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Wholesale:
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||||||||||||||||
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Carter’s
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$ | 126,485 | $ | 134,556 | $ | 482,350 | $ | 464,636 | ||||||||
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OshKosh
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23,138 | 21,481 | 86,555 | 96,351 | ||||||||||||
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Total
Wholesale Sales
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149,623 | 156,037 | 568,905 | 560,987 | ||||||||||||
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Retail:
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||||||||||||||||
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Carter’s
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112,766 | 99,094 | 366,296 | 333,050 | ||||||||||||
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OshKosh
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76,243 | 73,349 | 233,776 | 229,103 | ||||||||||||
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Total
Retail Sales
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189,009 | 172,443 | 600,072 | 562,153 | ||||||||||||
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Mass
Channel
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54,762 | 48,986 | 243,269 | 220,327 | ||||||||||||
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Total
net sales
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393,394 | 377,466 | 1,412,246 | 1,343,467 | ||||||||||||
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Cost
of goods sold
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257,798 | 241,588 | 928,996 | 854,970 | ||||||||||||
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Gross
profit
|
135,596 | 135,878 | 483,250 | 488,497 | ||||||||||||
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Selling,
general, and administrative expenses
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92,704 | 93,515 | 359,826 | 352,459 | ||||||||||||
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Intangible
asset impairment
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-- | -- | 154,886 | -- | ||||||||||||
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Closure
costs
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52 | -- | 5,285 | 91 | ||||||||||||
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Royalty
income
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(7,844 | ) | (7,554 | ) | (30,738 | ) | (29,164 | ) | ||||||||
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Operating
income (loss)
|
50,684 | 49,917 | (6,009 | ) | 165,111 | |||||||||||
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Interest
expense, net
|
5,626 | 6,556 | 23,079 | 26,923 | ||||||||||||
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Income
(loss) before income taxes
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45,058 | 43,361 | (29,088 | ) | 138,188 | |||||||||||
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Provision
for income taxes
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16,456 | 15,922 | 41,530 | 50,968 | ||||||||||||
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Net
income (loss)
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$ | 28,602 | $ | 27,439 | $ | (70,618 | ) | $ | 87,220 | |||||||
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Basic
net income (loss) per common share
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$ | 0.50 | $ | 0.47 | $ | (1.22 | ) | $ | 1.50 | |||||||
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Diluted
net income (loss) per common share
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$ | 0.48 | $ | 0.45 | $ | (1.22 | ) | $ | 1.42 | |||||||
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Basic
weighted-average number of shares outstanding
|
57,453,294 | 58,448,388 | 57,871,235 | 57,996,241 | ||||||||||||
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Diluted
weighted-average number of shares outstanding
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59,633,724 | 61,409,867 | 57,871,235 | 61,247,122 | ||||||||||||
7
CARTER’S,
INC.
CONSOLIDATED BALANCE
SHEETS
(dollars
in thousands, except for share data)
(unaudited)
|
December 29, 2007
|
December 30, 2006
|
|||||||
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ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 49,012 | $ | 68,545 | ||||
|
Accounts
receivable, net
|
119,707 | 110,615 | ||||||
|
Inventories,
net
|
225,494 | 193,588 | ||||||
|
Prepaid
expenses and other current assets
|
9,093 | 7,296 | ||||||
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Assets
held for sale
|
6,109 | -- | ||||||
|
Deferred
income taxes
|
24,234 | 22,377 | ||||||
|
Total
current assets
|
433,649 | 402,421 | ||||||
|
Property,
plant, and equipment, net
|
75,053 | 87,940 | ||||||
|
Tradenames
|
308,233 | 322,233 | ||||||
|
Cost
in excess of fair value of net assets acquired
|
136,570 | 279,756 | ||||||
|
Deferred
debt issuance costs, net
|
4,743 | 5,903 | ||||||
|
Licensing
agreements, net
|
8,915 | 12,895 | ||||||
|
Leasehold
interests, net
|
684 | 1,151 | ||||||
|
Other
assets
|
6,821 | 10,892 | ||||||
|
Total
assets
|
$ | 974,668 | $ | 1,123,191 | ||||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
|
Current
liabilities:
|
||||||||
|
Current
maturities of long-term debt
|
$ | 3,503 | $ | 2,627 | ||||
|
Accounts
payable
|
56,589 | 70,310 | ||||||
|
Other
current liabilities
|
46,666 | 63,580 | ||||||
|
Total
current liabilities
|
106,758 | 136,517 | ||||||
|
Long-term
debt
|
338,026 | 342,405 | ||||||
|
Deferred
income taxes
|
113,706 | 125,784 | ||||||
|
Other
long-term liabilities
|
34,049 | 22,994 | ||||||
|
Total
liabilities
|
592,539 | 627,700 | ||||||
|
Commitments
and contingencies
|
||||||||
|
Stockholders’
equity:
|
||||||||
|
Preferred
stock; par value $.01 per share; 100,000 shares authorized; none issued or
outstanding at December 29, 2007 and December 30, 2006
|
-- | -- | ||||||
|
Common
stock, voting; par value $.01 per share; 150,000,000 shares authorized;
57,663,315 and 58,927,280 shares issued and outstanding at December 29,
2007 and December 30, 2006, respectively
|
576 | 589 | ||||||
|
Additional
paid-in capital
|
232,356 | 275,045 | ||||||
|
Accumulated
other comprehensive income
|
2,671 | 5,301 | ||||||
|
Retained
earnings
|
146,526 | 214,556 | ||||||
|
Total
stockholders’ equity
|
382,129 | 495,491 | ||||||
|
Total
liabilities and stockholders’ equity
|
$ | 974,668 | $ | 1,123,191 | ||||
8