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     140  0 Kommentare Carter’s, Inc. Reports Second Quarter Fiscal 2020 Results

    Carter’s, Inc. (NYSE:CRI), the largest branded marketer in North America of apparel exclusively for babies and young children, today reported its second quarter fiscal 2020 results.

    “We had a strong finish to the second quarter. Thankfully, the disruption to our business due to the pandemic and related store closures was less meaningful than we expected,” said Michael D. Casey, Chairman and Chief Executive Officer. “In the second quarter, we continued to see good demand from our largest wholesale customers whose stores remained open, and we were also able to serve the needs of families with young children through our very profitable eCommerce operations.

    “By the end of June, substantially all of our stores in the United States had reopened and we saw strong demand for our brands over the July 4th holiday shopping period.

    “In the second quarter, we strengthened our brand marketing, improved price realization with more effective promotions, controlled spending, reduced our exposure to excess inventories and improved liquidity.

    “We are now entering the largest portion of our year with respect to sales and earnings contribution. Given the strength of our brands and extensive market presence, we believe we are well-positioned to weather the current market challenges. We expect gradually improving trends in the performance of our Company, relative to the second quarter, in the balance of the year.”

    Adjustments to Reported GAAP Results

    In addition to the results provided in this earnings release in accordance with GAAP, the Company has provided adjusted, non-GAAP financial measurements, as presented below. These adjusted, non-GAAP financial measurements are presented for informational purposes only and are not necessarily indicative of the Company’s future condition or results of operations. See “Reconciliation of GAAP to Adjusted Results” section of this release for additional disclosures and reconciliations regarding these non-GAAP financial measures.

     

    Second Fiscal Quarter

     

    2020

     

     

    2019

    (In millions, except earnings per share)

    Operating
    Income

     

    %
    Net
    Sales

     

    Net
    Income

     

    Diluted
    EPS

     

     

    Operating
    Income

     

    %
    Net
    Sales

     

    Net
    Income

     

    Diluted
    EPS

    As reported (GAAP)

    $

    21.0

     

     

    4.1

    %

     

    $

    8.2

     

     

    $

    0.19

     

     

     

    $

    64.5

     

     

    8.8%

     

    $

    43.9

     

     

    $

    0.97

     

    COVID-19 expenses

    13.0

     

     

     

     

    9.9

     

     

    0.23

     

     

     

     

     

     

     

     

     

     

    Retail store operating leases and other long-lived asset impairments

    3.7

     

     

     

     

    2.8

     

     

    0.06

     

     

     

     

     

     

     

     

     

     

    Organizational restructuring costs

    3.5

     

     

     

     

    2.7

     

     

    0.06

     

     

     

     

     

     

     

     

     

     

    Store restructuring costs

     

     

     

     

     

     

     

     

     

    (0.7

    )

     

     

     

    (0.6

    )

     

    (0.01

    )

    As adjusted

    $

    41.1

     

     

    8.0

    %

     

    $

    23.6

     

     

    $

    0.54

     

     

     

    $

    63.8

     

     

    8.7

    %

     

    $

    43.4

     

     

    $

    0.95

     

     

    First Half

     

    2020

     

     

    2019

    (In millions, except earnings per share)

    Operating
    (Loss)
    Income

     

    %
    Net
    Sales

     

    Net
    (Loss)

     

    Diluted
    EPS

     

     

    Operating
    Income

     

    %
    Net
    Sales

     

    Net
    Income

     

    Diluted
    EPS

    As reported (GAAP)

    $

    (57.5

    )

     

    (4.9

    )%

     

    $

    (70.5

    )

     

    $

    (1.64

    )

     

     

    $

    125.2

     

     

    8.5

    %

     

    $

    78.4

     

     

    $

    1.72

     

    Intangible asset impairment

    26.5

     

     

     

     

    20.2

     

     

    0.47

     

     

     

     

     

     

     

     

     

     

    Goodwill impairment

    17.7

     

     

     

     

    17.7

     

     

    0.41

     

     

     

     

     

     

     

     

     

     

    COVID-19 expenses

    15.7

     

     

     

     

    12.0

     

     

    0.28

     

     

     

     

     

     

     

     

     

     

    Organizational restructuring costs

    7.4

     

     

     

     

    5.6

     

     

    0.13

     

     

     

    1.6

     

     

     

     

    1.3

     

     

    0.03

     

    Retail store operating leases and other long-lived asset impairments

    5.0

     

     

     

     

    3.8

     

     

    0.09

     

     

     

     

     

     

     

     

     

     

    Debt extinguishment loss

     

     

     

     

     

     

     

     

     

     

     

     

     

    6.0

     

     

    0.13

     

    Store restructuring costs

     

     

     

     

     

     

     

     

     

    (0.7

    )

     

     

     

    (0.6

    )

     

    (0.01

    )

    China business model change

     

     

     

     

     

     

     

     

     

    (2.1

    )

     

     

     

    (2.1

    )

     

    (0.05

    )

    As adjusted

    $

    14.8

     

     

    1.3

    %

     

    $

    (11.2

    )

     

    $

    (0.26

    )

     

     

    $

    124.1

     

     

    8.4

    %

     

    $

    83.0

     

     

    $

    1.82

     

     

    Note: Results may not be additive due to rounding.

    Consolidated Results

    The discussion of results below is presented on an adjusted (non-GAAP) basis where noted.

    Second Quarter of Fiscal 2020 compared to Second Quarter of Fiscal 2019

    Net sales decreased $219.5 million, or 29.9%, to $514.9 million. The decline was driven by the closure of the Company’s retail stores in the second quarter of fiscal 2020, particularly during the months of April and May, and decreased sales to certain wholesale customers as a result of disruptions related to COVID-19, partially offset by strong eCommerce channel growth. Comparable eCommerce sales in the U.S. and Canada grew 101% and 194%, respectively. As of the end of the second quarter, approximately 97% of the Company’s stores in the U.S. and 90% in Canada had reopened.

    Operating income was $21.0 million, compared to $64.5 million in the second quarter of fiscal 2019. Adjusted operating income (a non-GAAP measure) was $41.1 million, compared to $63.8 million in the second quarter of fiscal 2019. The decrease reflects the decline in net sales and lower royalty income, partially offset by improved gross margin and lower selling, general, and administrative expenses.

    Net income was $8.2 million, or $0.19 per diluted share, compared to $43.9 million, or $0.97 per diluted share, in the second quarter of fiscal 2019. Adjusted net income (a non-GAAP measure) was $23.6 million, compared to $43.4 million in the second quarter of fiscal 2019. Adjusted earnings per diluted share (a non-GAAP measure) was $0.54, compared to $0.95 in the second quarter of fiscal 2019.

    First Half of Fiscal 2020 compared to First Half of Fiscal 2019

    Net sales decreased $306.1 million, or 20.7%, to $1.17 billion. The decline was driven by the closure of the Company’s retail stores in the first half of fiscal 2020, particularly during the months of March, April and May, and decreased sales to certain wholesale customers as a result of disruptions related to COVID-19, partially offset by strong eCommerce channel growth. Comparable eCommerce sales in the U.S. and Canada increased 53% and 110%, respectively.

    The Company posted an operating loss of $57.5 million, compared to operating income of $125.2 million in the first half of fiscal 2019. In addition to lower net sales, the Company recorded incremental inventory-related charges of $41.9 million in the first half of fiscal 2020, primarily due to disruptions related to COVID-19. Adjusted operating income (a non-GAAP measure) was $14.8 million, compared to $124.1 million in the first half of fiscal 2019. The decrease reflects the decline in net sales and higher inventory provisions, partially offset by lower selling, general, and administrative expenses.

    The Company’s net loss was $70.5 million, or $1.64 per diluted share, compared to net income of $78.4 million, or $1.72 per diluted share, in the first half of fiscal 2019. The Company posted an adjusted net loss (a non-GAAP measure) of $11.2 million, compared to adjusted net income of $83.0 million in the first half of fiscal 2019. Adjusted loss per diluted share (a non-GAAP measure) was $0.26, compared to adjusted earnings per diluted share of $1.82 in the first half of fiscal 2019.

    Net cash provided by operations in the first half of fiscal 2020 was $238.8 million compared to $104.5 million in the first half of fiscal 2019. The increase reflects deferrals of retail store lease and other cash payments, partially offset by lower earnings related to COVID-19.

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

    Liquidity and Financial Position

    The Company’s total liquidity at the end of the second quarter of fiscal 2020 was $1.5 billion, comprised of cash and cash equivalents of $1.0 billion and $501 million in unused borrowing capacity on the Company’s $750 million secured revolving credit facility.

    As previously disclosed, on May 4, 2020, the Company, through its wholly-owned subsidiary The William Carter Company, entered into an agreement with its lenders to amend its secured revolving credit facility. Under the terms of the amendment, financial maintenance covenants under the credit facility were waived for the balance of fiscal year 2020 and relaxed for much of fiscal year 2021.

    Also as previously disclosed, on May 11, 2020, The William Carter Company completed the sale of $500 million aggregate principal amount of 5.500% senior unsecured notes due 2025. During the second quarter of fiscal 2020, the net proceeds from this offering, along with cash on hand, were used to repay $500 million of borrowings under the Company’s secured revolving credit facility.

    Consistent with the Company’s previously-announced temporary suspensions of share repurchases and quarterly cash dividends, no distributions of capital occurred in the second quarter of fiscal 2020. The Company’s Board of Directors will evaluate future distributions of capital, including share repurchases and dividends, based on a number of factors, including business conditions, the Company’s financial performance, and other considerations.

    The Company believes it has sufficient liquidity for the foreseeable future to maintain its operations and manage through the disruption caused by the COVID-19 pandemic.

    2020 Business Outlook

    Given the market disruption caused by the COVID-19 pandemic, recent spikes in confirmed cases of the coronavirus, and related uncertainty on timing and extent of the market recovery, the Company is not providing fiscal 2020 sales and earnings guidance at this time.

    Conference Call

    The Company will hold a conference call with investors to discuss second quarter fiscal 2020 results and its business outlook on July 24, 2020 at 8:30 a.m. Eastern Daylight Time. To participate in the call, please dial 334-777-6978. To listen to a live broadcast via the internet and view the accompanying presentation materials, please visit ir.carters.com and select links for “News & Events” followed by “Webcasts & Presentations”. A replay of the call will be available shortly after the broadcast through August 7, 2020, at 888-203-1112 (U.S. / Canada) or 719-457-0820 (international), passcode 8105031. The replay will also be archived online on the “Webcasts & Presentations” page noted above.

    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 approximately 1,100 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 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

    This press release contains forward-looking statements within the meaning of the federal securities laws relating to our future performance, including statements with respect to the potential effects of the COVID-19 pandemic and the Company’s liquidity. 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, Quarterly Report on Form 10-Q for the quarter ended March 28, 2020, and other reports filed with the Securities and Exchange Commission from time to time under the headings “Risk Factors”. Included among those risks are those related to: the effects of the current coronavirus outbreak; 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; the management and expansion of our business domestically and internationally; the acquisition and integration of other brands and businesses; and changes in our tax obligations, including additional customs, duties or tariffs. 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.

    CARTER’S, INC.

    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

    (dollars in thousands, except per share data)

    (unaudited)

     

     

    Fiscal Quarter Ended

     

    Two Fiscal Quarters Ended

     

    June 27, 2020

     

    June 29, 2019

     

    June 27, 2020

     

    June 29, 2019

    Net sales

    $

    514,885

     

     

    $

    734,384

     

     

    $

    1,169,357

     

     

    $

    1,475,442

     

    Cost of goods sold

    284,073

     

     

    410,390

     

     

    687,445

     

     

    835,528

     

    Adverse purchase commitments (inventory and raw materials)

    (4,703

    )

     

    998

     

     

    18,134

     

     

    1,051

     

    Gross profit

    235,515

     

     

    322,996

     

     

    463,778

     

     

    638,863

     

    Royalty income, net

    3,588

     

     

    9,635

     

     

    10,926

     

     

    18,179

     

    Selling, general, and administrative expenses

    218,149

     

     

    268,155

     

     

    487,986

     

     

    531,807

     

    Goodwill impairment

     

     

     

     

    17,742

     

     

     

    Intangible asset impairment

     

     

     

     

    26,500

     

     

     

    Operating income (loss)

    20,954

     

     

    64,476

     

     

    (57,524

    )

     

    125,235

     

    Interest expense

    15,312

     

     

    9,072

     

     

    24,176

     

     

    18,701

     

    Interest income

    (423

    )

     

    (509

    )

     

    (887

    )

     

    (737

    )

    Other expense (income), net

    587

     

     

    202

     

     

    5,405

     

     

    (9

    )

    Loss on extinguishment of debt

     

     

     

     

     

     

    7,823

     

    Income (loss) before income taxes

    5,478

     

     

    55,711

     

     

    (86,218

    )

     

    99,457

     

    Income tax (benefit) provision

    (2,678

    )

     

    11,774

     

     

    (15,680

    )

     

    21,054

     

    Net income (loss)

    $

    8,156

     

     

    $

    43,937

     

     

    $

    (70,538

    )

     

    $

    78,403

     

     

     

     

     

     

     

     

     

    Basic net income (loss) per common share

    $

    0.19

     

     

    $

    0.97

     

     

    $

    (1.64

    )

     

    $

    1.73

     

    Diluted net income (loss) per common share

    $

    0.19

     

     

    $

    0.97

     

     

    $

    (1.64

    )

     

    $

    1.72

     

    Dividend declared and paid per common share

    $

     

     

    $

    0.50

     

     

    $

    0.60

     

     

    $

    1.00

     

    CARTER’S, INC.

    BUSINESS SEGMENT RESULTS

    (dollars in thousands)

    (unaudited)

     

     

    Fiscal Quarter Ended

     

     

    Two Fiscal Quarters Ended

     

    June 27, 2020

     

    % of
    Total Net
    Sales

     

    June 29, 2019

     

    % of
    Total Net
    Sales

     

     

    June 27, 2020

     

    % of
    Total Net
    Sales

     

    June 29, 2019

     

    % of
    Total Net
    Sales

    Net sales:

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    U.S. Retail

    $

    316,016

     

     

    61.4

    %

     

    $

    423,128

     

     

    57.6

    %

     

     

    $

    636,733

     

     

    54.5

    %

     

    $

    800,182

     

     

    54.2

    %

    U.S. Wholesale

    151,744

     

     

    29.5

    %

     

    229,091

     

     

    31.2

    %

     

     

    403,874

     

     

    34.5

    %

     

    504,458

     

     

    34.2

    %

    International

    47,125

     

     

    9.1

    %

     

    82,165

     

     

    11.2

    %

     

     

    128,750

     

     

    11.0

    %

     

    170,802

     

     

    11.6

    %

    Total net sales

    $

    514,885

     

     

    100.0

    %

     

    $

    734,384

     

     

    100.0

    %

     

     

    $

    1,169,357

     

     

    100.0

    %

     

    $

    1,475,442

     

     

    100.0

    %

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Operating income (loss):

     

     

    % of
    Segment
    Net Sales

     

     

     

    % of
    Segment
    Net Sales

     

     

     

     

    % of
    Segment
    Net Sales

     

     

     

    % of
    Segment
    Net Sales

    U.S. Retail

    $

    23,720

     

     

    7.5

    %

     

    $

    51,146

     

     

    12.1

    %

     

     

    $

    (8,656

    )

     

    (1.4

    )%

     

    $

    75,095

     

     

    9.4

    %

    U.S. Wholesale

    21,192

     

     

    14.0

    %

     

    35,335

     

     

    15.4

    %

     

     

    23,423

     

     

    5.8

    %

     

    90,791

     

     

    18.0

    %

    International

    (5,514

    )

     

    (11.7

    )%

     

    4,257

     

     

    5.2

    %

     

     

    (33,219

    )

     

    (25.8

    )%

     

    9,216

     

     

    5.4

    %

    Corporate expenses (*)

    (18,444

    )

     

    (3.6

    )%

     

    (26,262

    )

     

    (3.6

    )%

     

     

    (39,072

    )

     

    (3.3

    )%

     

    (49,867

    )

     

    (3.4

    )%

    Total operating income (loss)

    $

    20,954

     

     

    4.1

    %

     

    $

    64,476

     

     

    8.8

    %

     

     

    $

    (57,524

    )

     

    (4.9

    )%

     

    $

    125,235

     

     

    8.5

    %

    (*) Corporate expenses include expenses related to incentive compensation, stock-based compensation, executive management, severance and relocation, finance, office occupancy, information technology, certain legal fees, consulting fees, and audit fees. Two fiscal quarters ended June 27, 2020 and June 29, 2019 each include $1.6 million in charges related to organizational restructuring, respectively.

     

    Fiscal Quarter Ended June 27, 2020

     

     

    Two Fiscal Quarters Ended June 27, 2020

    Charges:

    U.S.
    Retail

     

    U.S.
    Wholesale

     

    International

     

     

    U.S.
    Retail

     

    U.S.
    Wholesale

     

    International

    Organizational restructuring

    $

    1.6

     

     

    $

    0.7

     

     

    $

    1.1

     

     

     

    $

    3.0

     

     

    $

    1.3

     

     

    $

    1.4

     

    Goodwill impairment

     

     

     

     

     

     

     

     

     

     

     

    17.7

     

    Skip Hop tradename impairment charge

     

     

     

     

     

     

     

    0.5

     

     

    6.8

     

     

    3.7

     

    OshKosh tradename impairment charge

     

     

     

     

     

     

     

    13.6

     

     

    1.6

     

     

    0.3

     

    Incremental costs associated with COVID-19 pandemic

    4.4

     

     

    6.9

     

     

    1.7

     

     

     

    6.6

     

     

    7.1

     

     

    2.0

     

    Retail store operating leases and other long-lived asset impairments

    3.7

     

     

     

     

     

     

     

    5.0

     

     

     

     

     

    Total charges

    $

    9.7

     

     

    $

    7.6

     

     

    $

    2.9

     

     

     

    $

    28.7

     

     

    $

    16.8

     

     

    $

    25.2

     

     

    Fiscal Quarter Ended June 29, 2019

     

     

    Two Fiscal Quarters Ended June 29, 2019

    Charges:

    U.S.
    Retail

     

    U.S.
    Wholesale

     

    International

     

     

    U.S.
    Retail

     

    U.S.
    Wholesale

     

    International

    Organizational restructuring

    $

     

     

    $

     

     

    $

     

     

     

    $

     

     

    $

     

     

    $

     

    Benefit related to sale of inventory previously reserved in China

     

     

     

     

     

     

     

     

     

     

     

    (2.1

    )

    Reversal of store restructuring costs previously recorded during the third quarter of fiscal 2017

    (0.7

    )

     

     

     

     

     

     

    (0.7

    )

     

     

     

     

    Total charges

    $

    (0.7

    )

     

    $

     

     

    $

     

     

     

    $

    (0.7

    )

     

    $

     

     

    $

    (2.1

    )

     

    Note: Results may not be additive due to rounding.

    CARTER’S, INC.

    CONDENSED CONSOLIDATED BALANCE SHEETS

    (dollars in thousands, except per share data)

    (unaudited)

     

     

    June 27, 2020

     

    December 28, 2019

     

    June 29, 2019

    ASSETS

     

     

     

     

     

    Current assets:

     

     

     

     

     

    Cash and cash equivalents

    $

    1,000,581

     

     

    $

    214,311

     

     

    $

    118,458

     

    Accounts receivable, net of allowance for credit losses of $9,242, $6,354, $3,786, respectively

    165,578

     

     

    251,005

     

     

    168,176

     

    Finished goods inventories, net of inventory reserves of $32,092, $9,283, and $14,119, respectively

    672,205

     

     

    593,987

     

     

    697,559

     

    Prepaid expenses and other current assets

    51,180

     

     

    48,454

     

     

    56,813

     

    Total current assets

    1,889,544

     

     

    1,107,757

     

     

    1,041,006

     

    Property, plant, and equipment, net of accumulated depreciation of $559,142, $523,848, and $486,319, respectively

    287,941

     

     

    320,168

     

     

    333,600

     

    Operating lease assets

    648,505

     

     

    687,024

     

     

    705,631

     

    Tradenames, net

    308,017

     

     

    334,642

     

     

    365,567

     

    Goodwill

    208,573

     

     

    229,026

     

     

    228,860

     

    Customer relationships, net

    38,950

     

     

    41,126

     

     

    42,825

     

    Other assets

    31,104

     

     

    33,374

     

     

    29,671

     

    Total assets

    $

    3,412,634

     

     

    $

    2,753,117

     

     

    $

    2,747,160

     

     

     

     

     

     

     

    LIABILITIES AND STOCKHOLDERS' EQUITY

     

     

     

     

     

    Current liabilities:

     

     

     

     

     

    Accounts payable

    $

    458,075

     

     

    $

    183,641

     

     

    $

    232,869

     

    Current operating lease liabilities

    163,665

     

     

    160,228

     

     

    154,719

     

    Other current liabilities

    80,634

     

     

    131,631

     

     

    85,483

     

    Total current liabilities

    702,374

     

     

    475,500

     

     

    473,071

     

     

     

     

     

     

     

    Long-term debt, net

    1,232,649

     

     

    594,672

     

     

    604,377

     

    Deferred income taxes

    63,850

     

     

    74,370

     

     

    91,190

     

    Long-term operating lease liabilities

    620,063

     

     

    664,372

     

     

    688,650

     

    Other long-term liabilities

    60,420

     

     

    64,073

     

     

    61,975

     

    Total liabilities

    $

    2,679,356

     

     

    $

    1,872,987

     

     

    $

    1,919,263

     

     

     

     

     

     

     

    Commitments and contingencies

     

     

     

     

     

     

     

     

     

     

     

    Stockholders' equity:

     

     

     

     

     

    Preferred stock; par value $.01 per share; 100,000 shares authorized; none issued or outstanding at June 27, 2020, December 28, 2019, and June 29, 2019

    $

     

     

    $

     

     

    $

     

    Common stock, voting; par value $.01 per share; 150,000,000 shares authorized; 43,636,176, 43,963,103 and 44,868,563 shares issued and outstanding at June 27, 2020, December 28, 2019, and June 29, 2019, respectively

    436

     

     

    440

     

     

    449

     

    Additional paid-in capital

    5,539

     

     

     

     

     

    Accumulated other comprehensive loss

    (45,045

    )

     

    (35,634

    )

     

    (36,561

    )

    Retained earnings

    772,348

     

     

    915,324

     

     

    864,009

     

    Total stockholders' equity

    733,278

     

     

    880,130

     

     

    827,897

     

    Total liabilities and stockholders' equity

    $

    3,412,634

     

     

    $

    2,753,117

     

     

    $

    2,747,160

     

    CARTER’S, INC.

    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

    (dollars in thousands)

    (unaudited)

     

     

    Two Fiscal Quarters Ended

     

    June 27, 2020

     

    June 29, 2019

    Cash flows from operating activities:

     

     

     

    Net (loss) income

    $

    (70,538

    )

     

    $

    78,403

     

    Adjustments to reconcile net (loss) income to net cash provided by operating activities:

     

     

     

    Depreciation of property, plant, and equipment

    43,774

     

     

    44,991

     

    Amortization of intangible assets

    1,858

     

     

    1,874

     

    Provisions for (recoveries of) excess and obsolete inventory

    23,058

     

     

    (938

    )

    Goodwill impairment

    17,742

     

     

     

    Intangible asset impairments

    26,500

     

     

     

    Other asset impairments and loss on disposal of property, plant and equipment, net of recoveries

    7,332

     

     

    385

     

    Amortization of debt issuance costs

    916

     

     

    737

     

    Stock-based compensation expense

    6,485

     

     

    9,807

     

    Unrealized foreign currency exchange loss (gain), net

    1,621

     

     

    (142

    )

    Provisions for (recoveries of) doubtful accounts receivable from customers

    3,036

     

     

    (2,869

    )

    Loss on extinguishment of debt

     

     

    7,823

     

    Deferred income taxes (benefit) expense

    (10,559

    )

     

    4,268

     

    Effect of changes in operating assets and liabilities:

     

     

     

    Accounts receivable

    80,566

     

     

    93,315

     

    Finished goods inventories

    (106,922

    )

     

    (119,508

    )

    Prepaid expenses and other assets

    (852

    )

     

    (18,298

    )

    Accounts payable and other liabilities

    214,796

     

     

    4,617

     

    Net cash provided by operating activities

    238,813

     

     

    104,465

     

     

     

     

     

    Cash flows from investing activities:

     

     

     

    Capital expenditures

    (16,708

    )

     

    (24,992

    )

    Disposals and recoveries from property, plant, and equipment

     

     

    749

     

    Net cash used in investing activities

    (16,708

    )

     

    (24,243

    )

     

     

     

     

    Cash flows from financing activities:

     

     

     

    Proceeds from senior notes due 2025

    500,000

     

     

     

    Proceeds from senior notes due 2027

     

     

    500,000

     

    Payment of senior notes due 2021

     

     

    (400,000

    )

    Premiums paid to extinguish debt

     

     

    (5,252

    )

    Payment of debt issuance costs

    (7,639

    )

     

    (5,793

    )

    Borrowings under secured revolving credit facility

    644,000

     

     

    80,000

     

    Payments on secured revolving credit facility

    (500,000

    )

     

    (166,000

    )

    Repurchases of common stock

    (45,255

    )

     

    (92,443

    )

    Dividends paid

    (26,260

    )

     

    (45,260

    )

    Withholdings from vestings of restricted stock

    (4,789

    )

     

    (4,126

    )

    Proceeds from exercises of stock options

    2,916

     

     

    6,346

     

    Net cash provided by (used in) financing activities

    562,973

     

     

    (132,528

    )

     

     

     

     

    Effect of exchange rate changes on cash and cash equivalents

    1,192

     

     

    687

     

    Net increase (decrease) in cash and cash equivalents

    786,270

     

     

    (51,619

    )

    Cash and cash equivalents, beginning of period

    214,311

     

     

    170,077

     

    Cash and cash equivalents, end of period

    $

    1,000,581

     

     

    $

    118,458

     

     

    CARTER’S, INC.

    RECONCILIATION OF GAAP TO ADJUSTED RESULTS

    (dollars in millions, except earnings per share)

    (unaudited)

     

     

    Fiscal Quarter Ended June 27, 2020

     

    Gross
    Margin

     

    % Net
    Sales

     

    SG&A

     

    % Net
    Sales

     

    Operating
    Income

     

    % Net
    Sales

     

    Income
    Taxes
    (Benefit)

     

    Net
    Income

     

    Diluted EPS

    As reported (GAAP)

    $

    235.5

     

     

    45.7

    %

     

    $

    218.1

     

     

    42.4

    %

     

    $

    21.0

     

     

    4.1

    %

     

    $

    (2.7

    )

     

    $

    8.2

     

     

    $

    0.19

     

    COVID-19 expenses (b)

     

     

     

     

    (13.0

    )

     

     

     

    13.0

     

     

     

     

    3.1

     

     

    9.9

     

     

    0.23

     

    Retail store operating leases and other long-lived asset impairments (c)

     

     

     

     

    (3.7

    )

     

     

     

    3.7

     

     

     

     

    0.9

     

     

    2.8

     

     

    0.06

     

    Organizational restructuring costs (d)

     

     

     

     

    (3.5

    )

     

     

     

    3.5

     

     

     

     

    0.8

     

     

    2.7

     

     

    0.06

     

    As adjusted (a)

    $

    235.5

     

     

    45.7

    %

     

    $

    198.0

     

     

    38.5

    %

     

    $

    41.1

     

     

    8.0

    %

     

    $

    2.1

     

     

    $

    23.6

     

     

    $

    0.54

     

     

    Two Fiscal Quarters Ended June 27, 2020

     

    Gross
    Margin

     

    % Net
    Sales

     

    SG&A

     

    % Net
    Sales

     

    Operating
    (Loss)
    Income

     

    % Net
    Sales

     

    Income
    Taxes
    (Benefit)

     

    Net
    (Loss)

     

    Diluted EPS

    As reported (GAAP)

    $

    463.8

     

     

    39.7

    %

     

    $

    488.0

     

     

    41.7

    %

     

    $

    (57.5

    )

     

    (4.9

    )%

     

    $

    (15.7

    )

     

    $

    (70.5

    )

     

    $

    (1.64

    )

    Intangible asset impairment (e)

     

     

     

     

     

     

     

     

    26.5

     

     

     

     

    6.3

     

     

    20.2

     

     

    0.47

     

    Goodwill impairment (f)

     

     

     

     

     

     

     

     

    17.7

     

     

     

     

     

     

    17.7

     

     

    0.41

     

    COVID-19 expenses (b)

     

     

     

     

    (15.7

    )

     

     

     

    15.7

     

     

     

     

    3.7

     

     

    12.0

     

     

    0.28

     

    Organizational restructuring costs (d)

     

     

     

     

    (7.4

    )

     

     

     

    7.4

     

     

     

     

    1.7

     

     

    5.6

     

     

    0.13

     

    Retail store operating leases and other long-lived asset impairments (c)

     

     

     

     

    (5.0

    )

     

     

     

    5.0

     

     

     

     

    1.2

     

     

    3.8

     

     

    0.09

     

    As adjusted (a)

    $

    463.8

     

     

    39.7

    %

     

    $

    459.9

     

     

    39.3

    %

     

    $

    14.8

     

     

    1.3

    %

     

    $

    (2.7

    )

     

    $

    (11.2

    )

     

    $

    (0.26

    )

     

    Fiscal Quarter Ended June 29, 2019

     

    Gross
    Margin

     

    % Net
    Sales

     

    SG&A

     

    % Net
    Sales

     

    Operating
    Income

     

    % Net
    Sales

     

    Income
    Taxes

     

    Net
    Income

     

    Diluted EPS

    As reported (GAAP)

    $

    323.0

     

     

    44.0

    %

     

    $

    268.2

     

     

    36.5

    %

     

    $

    64.5

     

     

    8.8

    %

     

    $

    11.8

     

     

    $

    43.9

     

     

    $

    0.97

     

    Store restructuring costs (g)

     

     

     

     

    0.7

     

     

     

     

    (0.7

    )

     

     

     

    (0.2

    )

     

    (0.6

    )

     

    (0.01

    )

    As adjusted (a)

    $

    323.0

     

     

    44.0

    %

     

    $

    268.9

     

     

    36.6

    %

     

    $

    63.8

     

     

    8.7

    %

     

    $

    11.6

     

     

    $

    43.4

     

     

    $

    0.95

     

     

    Two Fiscal Quarters Ended June 29, 2019

     

    Gross
    Margin

     

    % Net
    Sales

     

    SG&A

     

    % Net
    Sales

     

    Operating
    Income

     

    % Net
    Sales

     

    Income
    Taxes

     

    Net
    Income

     

    Diluted EPS

    As reported (GAAP)

    $

    638.9

     

     

    43.3

    %

     

    $

    531.8

     

     

    36.0

    %

     

    $

    125.2

     

     

    8.5

    %

     

    $

    21.1

     

     

    $

    78.4

     

     

    $

    1.72

     

    Debt extinguishment loss (h)

     

     

     

     

     

     

     

     

     

     

     

     

    1.8

     

     

    6.0

     

     

    0.13

     

    Organizational restructuring costs (d)

     

     

     

     

    (1.6

    )

     

     

     

    1.6

     

     

     

     

    0.4

     

     

    1.3

     

     

    0.03

     

    Store restructuring costs (g)

     

     

     

     

    0.7

     

     

     

     

    (0.7

    )

     

     

     

    (0.2

    )

     

    (0.6

    )

     

    (0.01

    )

    China business model change (i)

    (2.1

    )

     

     

     

     

     

     

     

    (2.1

    )

     

     

     

     

     

    (2.1

    )

     

    (0.05

    )

    As adjusted (a)

    $

    636.8

     

     

    43.2

    %

     

    $

    530.9

     

     

    36.0

    %

     

    $

    124.1

     

     

    8.4

    %

     

    $

    23.1

     

     

    $

    83.0

     

     

    $

    1.82

     

    (a)

    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 gross margin, SG&A, operating income (loss), income tax (benefit), net income (loss), and net income (loss) on a diluted share basis excluding the adjustments discussed above. The Company believes these adjustments provide a meaningful comparison of the Company’s results and afford investors a view of what management considers to be the Company's core performance. The adjusted, non-GAAP financial measurements included in this earnings release should not be considered as an alternative to net (loss) income or as any other measurement of performance derived in accordance with GAAP. The adjusted, non-GAAP financial measurements are presented for informational purposes only and are not necessarily indicative of the Company’s future condition or results of operations.

    (b)

    Expenses incurred due to the COVID-19 pandemic, including incremental employee-related costs, costs associated with additional protective equipment and cleaning supplies, restructuring costs, and a payroll tax benefit.

    (c)

    Principally related to U.S. Retail store lease assets.

    (d)

    Certain severance and related costs resulting from organizational restructurings (not related to COVID-19).

    (e)

    Intangible impairment charges related to the OshKosh and Skip Hop tradename assets.

    (f)

    Goodwill impairment charge recorded in the International segment.

    (g)

    Reversal of retail store restructuring costs previously recorded during the third quarter of fiscal 2017.

    (h)

    Related to the redemption of the $400 million aggregate principal amount of senior notes due 2021 in March 2019 that were previously issued by a wholly-owned subsidiary of the Company.

    (i)

    Benefit related to the sale of inventory previously reserved in China.

    Note: Results may not be additive due to rounding.

    CARTER’S, INC.

    RECONCILIATION OF NET INCOME (LOSS) ALLOCABLE TO COMMON SHAREHOLDERS

    (unaudited)

     

     

    Fiscal Quarter Ended

     

    Two Fiscal Quarters Ended

     

    June 27,
    2020

     

    June 29,
    2019

     

    June 27,
    2020

     

    June 29,
    2019

    Weighted-average number of common and common equivalent shares outstanding:

     

     

     

     

     

     

     

    Basic number of common shares outstanding

     

    43,162,571

     

     

     

    44,706,307

     

     

     

    43,259,103

     

     

     

    44,888,552

     

    Dilutive effect of equity awards (a)

     

    147,480

     

     

    332,070

     

     

     

     

     

    310,479

     

    Diluted number of common and common equivalent shares outstanding

     

    43,310,051

     

     

     

    45,038,377

     

     

     

    43,259,103

     

     

     

    45,199,031

     

    As reported on a GAAP Basis:

     

     

     

     

     

     

     

    (dollars in thousands, except per share data)

     

     

     

     

     

     

     

    Basic net income (loss) per common share:

     

     

     

     

     

     

     

    Net income (loss)

    $

    8,156

     

     

    $

    43,937

     

     

    $

    (70,538

    )

     

    $

    78,403

     

    Income allocated to participating securities

     

    (86

    )

     

     

    (396

    )

     

     

    (252

    )

     

     

    (685

    )

    Net income (loss) available to common shareholders

    $

    8,070

     

     

    $

    43,541

     

     

    $

    (70,790

    )

     

    $

    77,718

     

    Basic net income (loss) per common share

    $

    0.19

     

     

    $

    0.97

     

     

    $

    (1.64

    )

     

    $

    1.73

     

    Diluted net income (loss) per common share:

     

     

     

     

     

     

     

    Net income (loss)

    $

    8,156

     

     

    $

    43,937

     

     

    $

    (70,538

    )

     

    $

    78,403

     

    Income allocated to participating securities

     

    (86

    )

     

     

    (395

    )

     

     

    (252

    )

     

     

    (683

    )

    Net income (loss) available to common shareholders

    $

    8,070

     

     

    $

    43,542

     

     

    $

    (70,790

    )

     

    $

    77,720

     

    Diluted net income (loss) per common share

    $

    0.19

     

     

    $

    0.97

     

     

    $

    (1.64

    )

     

    $

    1.72

     

    As adjusted (b):

     

     

     

     

     

     

     

    Basic net income (loss) per common share:

     

     

     

     

     

     

     

    Net income (loss)

    $

    23,559

     

     

    $

    43,382

     

     

    $

    (11,203

    )

     

    $

    83,005

     

    Income allocated to participating securities

     

    (249

    )

     

     

    (391

    )

     

     

    (253

    )

     

     

    (728

    )

    Net income (loss) available to common shareholders

    $

    23,310

     

     

    $

    42,991

     

     

    $

    (11,456

    )

     

    $

    82,277

     

    Basic net income (loss) per common share

    $

    0.54

     

     

    $

    0.96

     

     

    $

    (0.26

    )

     

    $

    1.83

     

    Diluted net income (loss) per common share:

     

     

     

     

     

     

     

    Net income (loss)

    $

    23,559

     

     

    $

    43,382

     

     

    $

    (11,203

    )

     

    $

    83,005

     

    Income allocated to participating securities

     

    (248

    )

     

     

    (390

    )

     

     

    (253

    )

     

     

    (725

    )

    Net income (loss) available to common shareholders

    $

    23,311

     

     

    $

    42,992

     

     

    $

    (11,456

    )

     

    $

    82,280

     

    Diluted net income (loss) per common share

    $

    0.54

     

     

    $

    0.95

     

     

    $

    (0.26

    )

     

    $

    1.82

     

    (a)

    For the two fiscal quarters ended June 27, 2020, there were 230,286 potentially dilutive equity awards that were excluded from the diluted earnings per share calculation because the Company incurred a net loss for this period and their inclusion would be anti-dilutive.

    (b)

    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 per share data excluding the adjustments discussed above. The Company has excluded $15.4 million and $59.3 million in after-tax expenses from these results for the fiscal quarter and two fiscal quarters ended June 27, 2020, respectively. The Company has excluded ($0.6) million and $4.6 million in after-tax (benefit) expenses from these results for the fiscal quarter and two fiscal quarters ended June 29, 2019, respectively.

    Note: Results may not be additive due to rounding.

    RECONCILIATION OF U.S. GAAP AND NON-GAAP INFORMATION

    (dollars in millions)

    (unaudited)

    The following table provides a reconciliation of net income (loss) to EBITDA and Adjusted EBITDA for the periods indicated:

     

     

     

    Fiscal Quarter Ended

     

    Two Fiscal Quarters Ended

     

    Four Fiscal
    Quarters Ended

     

     

    June 27, 2020

     

    June 29, 2019

     

    June 27, 2020

     

    June 29, 2019

     

    June 27, 2020

    Net income (loss)

     

    $

    8.2

     

     

    $

    43.9

     

     

    $

    (70.5

    )

     

    $

    78.4

     

     

    $

    114.9

     

    Interest expense

     

    15.3

     

     

    9.1

     

     

    24.2

     

     

    18.7

     

     

    43.1

     

    Interest income

     

    (0.4

    )

     

    (0.5

    )

     

    (0.9

    )

     

    (0.7

    )

     

    (1.5

    )

    Income tax expense (benefit)

     

    (2.7

    )

     

    11.8

     

     

    (15.7

    )

     

    21.1

     

     

    27.4

     

    Depreciation and amortization

     

    22.3

     

     

    23.3

     

     

    45.6

     

     

    46.9

     

     

    94.7

     

    EBITDA

     

    $

    42.6

     

     

    $

    87.6

     

     

    $

    (17.3

    )

     

    $

    164.3

     

     

    $

    278.6

     

     

     

     

     

     

     

     

     

     

     

     

    Adjustments to EBITDA

     

     

     

     

     

     

     

     

     

     

    Intangible asset impairment (a)

     

    $

     

     

    $

     

     

    $

    26.5

     

     

    $

     

     

    $

    57.3

     

    Goodwill impairment (b)

     

     

     

     

     

    17.7

     

     

     

     

    17.7

     

    COVID-19 expenses (c)

     

    12.9

     

     

     

     

    15.7

     

     

     

     

    15.7

     

    Organizational restructuring costs (d)

     

    3.5

     

     

     

     

    7.4

     

     

    1.6

     

     

    7.4

     

    Retail store operating leases and other long-lived asset impairments (e)

     

    3.7

     

     

     

     

    5.0

     

     

     

     

    5.0

     

    Customer bankruptcy charges, net (f)

     

     

     

     

     

     

     

     

     

    (0.6

    )

    Debt extinguishment loss (g)

     

     

     

     

     

     

     

    7.8

     

     

     

    Store restructuring costs (h)

     

     

     

    (0.7

    )

     

     

     

    (0.7

    )

     

     

    China business model change, net (i)

     

     

     

     

     

     

     

    (2.1

    )

     

     

    Adjusted EBITDA

     

    $

    62.7

     

     

    $

    86.8

     

     

    $

    54.9

     

     

    $

    170.9

     

     

    $

    381.1

     

    (a)

    Related to the write-down of the OshKosh and Skip Hop tradename assets.

    (b)

    Goodwill impairment charge recorded in the International segment.

    (c)

    Expenses incurred due to the COVID-19 pandemic. Amounts exclude less than $0.1 million of depreciation expense that is included in the corresponding depreciation and amortization line item.

    (d)

    Severance and related costs resulting from organizational restructurings (not related to COVID-19).

    (e)

    Principally related to U.S. Retail store lease assets.

    (f)

    Recovery related to the Toys "R" Us bankruptcy.

    (g)

    Related to the redemption of the $400 million aggregate principal amount of senior notes due 2021 in March 2019 that were previously issued by a wholly-owned subsidiary of the Company.

    (h)

    Reversal of retail store restructuring costs previously recorded during the third quarter of fiscal 2017.

    (i)

    Benefit related to the sale of inventory previously reserved in China.

    Note: Results may not be additive due to rounding.

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

    We present EBITDA and Adjusted EBITDA because we consider them 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 also afford investors a view of what management considers to be the Company's core 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.

    RECONCILIATION OF U.S. GAAP AND NON-GAAP INFORMATION

    (dollars in millions)

    (unaudited)

     

    The table below reflects the calculation of constant currency net sales on a consolidated and International segment basis for the fiscal quarter and two fiscal quarters ended June 27, 2020:

     

    Fiscal Quarter Ended

     

    Reported Net
    Sales
    June 27, 2020

     

    Impact of
    Foreign
    Currency
    Translation

     

    Constant-
    Currency Net
    Sales

    June 27, 2020

     

    Reported Net
    Sales

    June 29, 2019

     

    Reported
    Net Sales
    % Change

     

    Constant-
    Currency
    Net Sales
    % Change

     

     

     

     

     

     

     

     

     

     

     

     

    Consolidated net sales

    $

    514.9

     

     

    $

    (2.0

    )

     

    $

    516.9

     

     

    $

    734.4

     

     

    (29.9

    )%

     

    (29.6

    )%

    International segment net sales

    $

    47.1

     

     

    $

    (2.0

    )

     

    $

    49.1

     

     

    $

    82.2

     

     

    (42.6

    )%

     

    (40.2

    )%

     

    Two Fiscal Quarters Ended

     

    Reported Net
    Sales
    June 27, 2020

     

    Impact of
    Foreign
    Currency
    Translation

     

    Constant-
    Currency Net
    Sales
    June 27, 2020

     

    Reported Net
    Sales
    June 29, 2019

     

    Reported
    Net Sales
    % Change

     

    Constant-
    Currency
    Net Sales
    % Change

     

     

     

     

     

     

     

     

     

     

     

     

    Consolidated net sales

    $

    1,169.4

     

     

    $

    (2.7

    )

     

    $

    1,172.0

     

     

    $

    1,475.4

     

     

    (20.7

    )%

     

    (20.6

    )%

    International segment net sales

    $

    128.8

     

     

    $

    (2.7

    )

     

    $

    131.4

     

     

    $

    170.8

     

     

    (24.6

    )%

     

    (23.0

    )%

    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.



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    Carter’s, Inc. Reports Second Quarter Fiscal 2020 Results Carter’s, Inc. (NYSE:CRI), the largest branded marketer in North America of apparel exclusively for babies and young children, today reported its second quarter fiscal 2020 results. “We had a strong finish to the second quarter. Thankfully, the …