Carters, Inc. Reports First Quarter Fiscal 2023 Results

  • Net sales $696 million
  • Diluted EPS $0.95; adjusted diluted EPS $0.98
  • Returned $38 million to shareholders through share repurchases and dividends
  • Company reaffirms full year fiscal 2023 outlook1:
    • Net sales of $3.0 billion
    • Adjusted operating income of $350 million
    • Adjusted diluted EPS of $6.15

ATLANTA--()--Carter’s, Inc. (NYSE:CRI), the largest branded marketer in North America of apparel exclusively for babies and young children, today reported its first quarter fiscal 2023 results.

We exceeded our first quarter sales and earnings objectives,” said Michael D. Casey, Chairman and Chief Executive Officer. “We saw higher than planned demand from some of our largest wholesale customers eager to receive our new Spring product offerings in preparation for the shift to warmer weather outfitting. Our retail and international sales were in line with our plans.

On-time deliveries of our product offerings sourced from Asia improved to the best performance we have experienced since the pandemic began and enabled us to support earlier than planned demand.

As expected, our first quarter sales and earnings were lower than last year. Historic inflation began to meaningfully weigh on families with young children and their demand for our brands last year.

To mitigate the effects of lower consumer demand, we have focused on reducing discretionary spending and improving price realization, largely driven through better inventory management. As a result, earnings and cash flow from operations exceeded our expectations in the first quarter.

Given a good start to the year, we are reaffirming our previous guidance for sales and earnings for 2023. With time, we expect inflation will decrease to more acceptable levels, the burden of lower real wages affecting families with young children will moderate, and demand for our brands will improve.

Carter’s is the best-selling brand in young children’s apparel with unparalleled market share and distribution capabilities. We believe our multi-brand, multi-channel business model, and leading market position in essential core products will enable Carter’s to benefit from the market recovery in the years ahead.”

____________________________

1 Refer to “Business Outlook” section of this release for additional information regarding reconciliations of forward-looking non-GAAP financial measures.

Adjustments to Reported GAAP Results

In addition to the results presented in this earnings release in accordance with GAAP, the Company has provided adjusted, non-GAAP financial measurements, as presented below. The Company believes these non-GAAP financial measurements provide a meaningful comparison of the Company’s results and afford investors a view of what management considers to be the Company’s underlying performance. These measures are presented for informational purposes only. See “Reconciliation of Adjusted Results to GAAP” section of this release for additional disclosures and reconciliations regarding these non-GAAP financial measures. Adjustments made to Q1 fiscal 2023 results reflect costs related to organizational restructuring. There were no adjustments to Q1 fiscal 2022 results.

 

Fiscal Quarter Ended

 

April 1, 2023

 

 

April 2, 2022

(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)

$

56.4

 

8.1

%

 

$

36.0

 

$

0.95

 

 

$

102.6

 

13.1

%

 

$

67.9

 

$

1.66

Organizational restructuring

 

1.2

 

 

 

 

0.9

 

 

0.03

 

 

 

 

 

 

 

 

 

As adjusted

$

57.5

 

8.3

%

 

$

36.9

 

$

0.98

 

 

$

102.6

 

13.1

%

 

$

67.9

 

$

1.66

 

Note: Results may not be additive due to rounding.

Consolidated Results

First Quarter of Fiscal 2023 compared to First Quarter of Fiscal 2022

Net sales decreased $85.4 million, or 10.9%, to $695.9 million, compared to $781.3 million in the first quarter of fiscal 2022. Macroeconomic factors, including inflation, drove lower demand from consumers and wholesale customers. U.S. Retail comparable net sales declined 12.9%. Changes in foreign currency exchange rates used for translation in the first quarter fiscal 2023, as compared to the first quarter of fiscal 2022, had an unfavorable effect on consolidated net sales of approximately $2.2 million, or 0.3%.

Operating income decreased $46.3 million, or 45.1%, to $56.4 million, compared to $102.6 million in the first quarter of fiscal 2022. Operating margin decreased to 8.1%, compared to 13.1% in the prior year period, principally due to fixed cost deleverage on lower sales, channel mix of sales, and higher inbound freight costs, partly offset by lower air freight expenses.

Adjusted operating income (a non-GAAP measure) decreased $45.1 million, or 44.0%, to $57.5 million, compared to $102.6 million in the first quarter of fiscal 2022. Adjusted operating margin was 8.3%, compared to 13.1% in the prior year period, principally due to the factors discussed above.

Net income decreased $31.9 million to $36.0 million, or $0.95 per diluted share, compared to $67.9 million, or $1.66 per diluted share, in the first quarter of fiscal 2022.

Adjusted net income (a non-GAAP measure) decreased $31.1 million to $36.9 million, compared to $67.9 million in the first quarter of fiscal 2022. Adjusted earnings per diluted share (a non-GAAP measure) was $0.98, compared to $1.66 in the first quarter of fiscal 2022.

Net cash provided by operations in the first quarter of fiscal 2023 was $42.2 million, compared to net cash used in operations of $163.8 million in the prior year period. The improved operating cash flow principally reflects favorable changes in working capital, including the reduction in inventories, and lower payments of performance-based compensation, partially offset by decreased net income.

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

Return of Capital Activity

In the first quarter of fiscal 2023, the Company returned a total of $38.1 million to shareholders through share repurchases and cash dividends as described below.

  • Share repurchases: During the first quarter, the Company repurchased and retired approximately 136 thousand shares of its common stock for $9.6 million at an average price of $70.55 per share. Fiscal year-to-date through April 27, 2023, the Company repurchased and retired approximately 272 thousand shares for $19.2 million at an average price of $70.54 per share. As of April 27, 2023, the total remaining capacity under the Company’s previously-announced repurchase authorizations was approximately $730 million.
  • Dividends: In the first quarter, the Company paid a cash dividend of $0.75 per common share totaling $28.5 million. Future payments of quarterly dividends will be at the discretion of the Company’s Board of Directors based on a number of factors, including the Company’s future financial performance and other considerations.

2023 Business Outlook

We do not reconcile forward-looking adjusted operating income or adjusted diluted earnings per share to their most directly comparable GAAP measures because we cannot predict with reasonable certainty the ultimate outcome of certain components of such reconciliations that are not within our control due to factors described above, or others that may arise, without unreasonable effort. For these reasons, we are unable to assess the probable significance of the unavailable information, which could materially impact the amount of future operating income or diluted EPS, the most directly comparable GAAP metrics to adjusted operating income and adjusted diluted earnings per share, respectively.

For the second quarter of fiscal 2023, the Company expects approximately:

  • $590 million to $605 million in net sales (compared to $700.7 million in the second quarter of fiscal 2022);
  • $30 million to $35 million in adjusted operating income (compared to $75.4 million in the second quarter of fiscal 2022); and
  • $0.40 to $0.50 in adjusted diluted earnings per share (compared to $1.30 in the second quarter of fiscal 2022).

Our forecast for the second quarter of fiscal 2023 assumes:

  • Shift of previously planned U.S. Wholesale demand from the second quarter to the first quarter of 2023;
  • Continued inflationary pressure on consumer demand;
  • Improved gross margin, reflecting lower inventory-related costs and lower inbound freight costs;
  • Comparable SG&A;
  • Higher interest expense and tax rate; and
  • Lower shares outstanding.

For fiscal year 2023, the Company is reaffirming its prior guidance and projects approximately:

  • $3.0 billion in net sales (compared to $3,212.7 million in fiscal 2022);
  • $350 million in adjusted operating income (compared to $388.2 million in fiscal 2022);
  • $6.15 in adjusted diluted earnings per share (compared to $6.90 in fiscal 2022);
  • Operating cash flow of over $300 million; and
  • Capital expenditures of approximately $75 million.

Our forecast for fiscal year 2023 assumes:

  • Improvement in demand trend as inflation moderates;
  • Gross margin expansion, driven by lower transportation costs, improved price realization, and favorable changes in channel mix;
  • Comparable SG&A;
  • Higher interest expense and tax rate; and
  • Lower shares outstanding.

Our adjusted operating income and diluted earnings per share outlooks for fiscal year 2023 exclude a pre-tax net charge of $1.2 million related to organizational restructuring recorded in the first fiscal quarter.

Conference Call

The Company will hold a conference call with investors to discuss first quarter fiscal 2023 results and its business outlook on April 28, 2023 at 8:30 a.m. Eastern Daylight Time. To listen to a live webcast and view the accompanying presentation materials, please visit ir.carters.com and select links for “News & Events” followed by “Webcasts & Presentations.” To access the call by phone, please preregister on https://register.vevent.com/register/BI8a4d7c8d0bba49e3ac509567ccbd80ce to receive your dial-in number and unique passcode.

A webcast replay will be available shortly after the conclusion of the call at ir.carters.com.

About Carter’s, Inc.

Carter’s, Inc. is the largest branded marketer of young children’s apparel in North America. 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 nearly 1,000 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 Little Planet, a brand focused on organic fabrics and sustainable materials, and 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

Statements contained in this press release that are not historical fact and use predictive words such as “estimates”, “outlook”, “guidance”, “expect”, “believe”, “intend”, “designed”, “target”, “plans”, “may”, “will”, “are confident” and similar words are forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). These forward-looking statements and related assumptions involve risks and uncertainties that could cause actual results and outcomes to differ materially from any forward-looking statements or views expressed in this press release. These risks and uncertainties include, but are not limited to, the factors disclosed in Part I, Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and otherwise in our reports and filings with the Securities and Exchange Commission, as well as the following factors: the continuing effects of the novel coronavirus (COVID-19) pandemic; macroeconomic factors, including inflationary pressures; the impact of supply chain delays; 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, including increased transportation and freight costs; the management and expansion of our business domestically and internationally; the acquisition and integration of other brands and businesses; changes in our tax obligations, including additional customs, duties or tariffs; our ability to achieve our forecasted financial results for the fiscal year; our continued ability to declare and pay a dividend and conduct share repurchases in future periods; our planned opening and closing of stores during the fiscal year; and other risks detailed in the Company’s periodic reports as filed in accordance with the Securities Exchange Act of 1934, as amended. 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

 

April 1, 2023

 

April 2, 2022

Net sales

$

695,880

 

 

$

781,284

 

Cost of goods sold

 

386,413

 

 

 

426,242

 

Gross profit

 

309,467

 

 

 

355,042

 

Royalty income, net

 

6,519

 

 

 

7,474

 

Selling, general, and administrative expenses

 

259,632

 

 

 

259,893

 

Operating income

 

56,354

 

 

 

102,623

 

Interest expense

 

9,644

 

 

 

15,132

 

Interest income

 

(700

)

 

 

(338

)

Other income, net

 

(258

)

 

 

(512

)

Income before income taxes

 

47,668

 

 

 

88,341

 

Income tax provision

 

11,672

 

 

 

20,408

 

Net income

$

35,996

 

 

$

67,933

 

 

 

 

 

Basic net income per common share

$

0.95

 

 

$

1.66

 

Diluted net income per common share

$

0.95

 

 

$

1.66

 

Dividend declared and paid per common share

$

0.75

 

 

$

0.75

 

CARTER’S, INC.

BUSINESS SEGMENT RESULTS

(dollars in thousands)

(unaudited)

 

 

Fiscal Quarter Ended

 

April 1, 2023

 

% of
Consolidated
Net Sales

 

April 2, 2022

 

% of
Consolidated
Net Sales

Net sales:

 

 

 

 

 

 

 

U.S. Retail

$

323,721

 

 

46.5

%

 

$

366,358

 

 

46.9

%

U.S. Wholesale

 

279,990

 

 

40.3

%

 

 

307,301

 

 

39.3

%

International

 

92,169

 

 

13.2

%

 

 

107,625

 

 

13.8

%

Consolidated net sales

$

695,880

 

 

100.0

%

 

$

781,284

 

 

100.0

%

 

 

 

 

 

 

 

 

Operating income:

 

 

% of
Segment
Net Sales

 

 

 

% of
Segment
Net Sales

U.S. Retail

$

26,939

 

 

8.3

%

 

$

49,994

 

 

13.6

%

U.S. Wholesale

 

52,092

 

 

18.6

%

 

 

60,506

 

 

19.7

%

International

 

3,124

 

 

3.4

%

 

 

10,388

 

 

9.7

%

Corporate expenses(*)

 

(25,801

)

 

n/a

 

 

 

(18,265

)

 

n/a

 

Consolidated operating income

$

56,354

 

 

8.1

%

 

$

102,623

 

 

13.1

%

(*)

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.

 

Fiscal Quarter Ended April 1, 2023

(dollars in millions)

U.S. Retail

 

U.S. Wholesale

 

International

Organizational restructuring(*)

$

(0.8)

 

$

(0.5)

 

$

(0.1)

(*)

Relates to gains for organizational restructuring and related corporate office lease amendment actions. Additionally, the first fiscal quarter ended April 1, 2023 includes a corporate charge of $2.4 million related to organizational restructuring and related corporate office lease amendment actions.

CARTER’S, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

(unaudited)

 

 

April 1, 2023

 

December 31, 2022

 

April 2, 2022

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

157,685

 

 

$

211,748

 

 

$

702,266

 

Accounts receivable, net of allowance for credit losses of $7,425, $7,189, and $5,766, respectively

 

223,939

 

 

 

198,587

 

 

 

265,694

 

Finished goods inventories, net of inventory reserves of $18,076, $19,268, and $11,307, respectively

 

613,921

 

 

 

744,573

 

 

 

679,729

 

Prepaid expenses and other current assets (*)

 

47,173

 

 

 

33,812

 

 

 

51,186

 

Total current assets

 

1,042,718

 

 

 

1,188,720

 

 

 

1,698,875

 

Property, plant, and equipment, net of accumulated depreciation of $577,183, $569,528, and $536,580, respectively

 

180,383

 

 

 

189,822

 

 

 

197,515

 

Operating lease assets

 

494,969

 

 

 

492,335

 

 

 

469,354

 

Tradenames, net

 

298,331

 

 

 

298,393

 

 

 

307,581

 

Goodwill

 

209,601

 

 

 

209,333

 

 

 

212,518

 

Customer relationships, net

 

29,801

 

 

 

30,564

 

 

 

33,151

 

Other assets

 

27,524

 

 

 

30,548

 

 

 

29,084

 

Total assets

$

2,283,327

 

 

$

2,439,715

 

 

$

2,948,078

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

180,181

 

 

$

264,078

 

 

$

284,034

 

Current portion of long-term debt, net

 

 

 

 

 

 

 

495,743

 

Current operating lease liabilities (*)

 

139,350

 

 

 

142,432

 

 

 

133,620

 

Other current liabilities

 

91,104

 

 

 

122,439

 

 

 

111,078

 

Total current liabilities

 

410,635

 

 

 

528,949

 

 

 

1,024,475

 

 

 

 

 

 

 

Long-term debt, net

 

576,803

 

 

 

616,624

 

 

 

496,104

 

Deferred income taxes

 

46,090

 

 

 

41,235

 

 

 

48,450

 

Long-term operating lease liabilities

 

417,012

 

 

 

421,741

 

 

 

419,493

 

Other long-term liabilities

 

34,894

 

 

 

34,757

 

 

 

44,266

 

Total liabilities

$

1,485,434

 

 

$

1,643,306

 

 

$

2,032,788

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

Preferred stock; par value $0.01 per share; 100,000 shares authorized; none issued or outstanding at April 1, 2023, December 31, 2022, and April 2, 2022

$

 

 

$

 

 

$

 

Common stock, voting; par value $0.01 per share; 150,000,000 shares authorized; 37,799,251, 37,692,132, and 40,555,922 shares issued and outstanding at April 1, 2023, December 31, 2022, and April 2, 2022, respectively

 

378

 

 

 

377

 

 

 

406

 

Additional paid-in capital

 

 

 

 

 

 

 

 

Accumulated other comprehensive loss

 

(30,412

)

 

 

(34,338

)

 

 

(26,115

)

Retained earnings

 

827,927

 

 

 

830,370

 

 

 

940,999

 

Total stockholders' equity

 

797,893

 

 

 

796,409

 

 

 

915,290

 

Total liabilities and stockholders' equity

$

2,283,327

 

 

$

2,439,715

 

 

$

2,948,078

 

(*)

Prepaid expense and other current assets and Current operating lease liabilities as of April 2, 2022 were revised to reflect the presentation for payments of rent before payment due date of $13 million.

CARTER’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

 

 

Fiscal Quarter Ended

 

April 1, 2023

 

April 2, 2022

Cash flows from operating activities:

 

 

 

Net income

$

35,996

 

 

$

67,933

 

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

 

 

 

Depreciation of property, plant, and equipment

 

14,799

 

 

 

13,282

 

Amortization of intangible assets

 

939

 

 

 

932

 

Recoveries of excess and obsolete inventory, net

 

(1,256

)

 

 

(3,109

)

Gain on partial termination of corporate lease

 

(4,366

)

 

 

 

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

 

2,632

 

 

 

190

 

Amortization of debt issuance costs

 

393

 

 

 

787

 

Stock-based compensation expense

 

4,343

 

 

 

5,859

 

Unrealized foreign currency exchange gain, net

 

(240

)

 

 

(189

)

Provisions for (recoveries of) doubtful accounts receivable from customers

 

235

 

 

 

(1,513

)

Unrealized (gain) loss on investments

 

(433

)

 

 

935

 

Deferred income taxes

 

5,031

 

 

 

7,759

 

Effect of changes in operating assets and liabilities:

 

 

 

Accounts receivable

 

(24,944

)

 

 

(32,484

)

Finished goods inventories

 

134,147

 

 

 

(27,720

)

Prepaid expenses and other assets (1)

 

(12,678

)

 

 

(42

)

Accounts payable and other liabilities (1)

 

(112,401

)

 

 

(196,427

)

Net cash provided by (used in) operating activities

$

42,197

 

 

$

(163,807

)

 

 

 

 

Cash flows from investing activities:

 

 

 

Capital expenditures

$

(13,827

)

 

$

(7,652

)

Net cash used in investing activities

$

(13,827

)

 

$

(7,652

)

 

 

 

 

Cash flows from financing activities:

 

 

 

Payment of debt issuance costs

$

 

 

$

(3

)

Payments on secured revolving credit facility

 

(40,000

)

 

 

 

Repurchases of common stock

 

(9,586

)

 

 

(74,496

)

Dividends paid

 

(28,483

)

 

 

(30,573

)

Withholdings from vesting of restricted stock

 

(4,776

)

 

 

(6,623

)

Proceeds from exercises of stock options

 

83

 

 

 

222

 

Net cash used in financing activities

$

(82,762

)

 

$

(111,473

)

 

 

 

 

Net effect of exchange rate changes on cash and cash equivalents

 

329

 

 

 

904

 

Net decrease in cash and cash equivalents

$

(54,063

)

 

$

(282,028

)

Cash and cash equivalents, beginning of period

 

211,748

 

 

 

984,294

 

Cash and cash equivalents, end of period

$

157,685

 

 

$

702,266

 

(1)

Cash flows for the fiscal quarter April 2, 2022 were revised to reflect the presentation for payments of rent before payment due date of $13 million.

CARTER’S, INC.

RECONCILIATION OF ADJUSTED RESULTS TO GAAP

(dollars in millions, except earnings per share)

(unaudited)

 

 

Fiscal Quarter Ended April 1, 2023

 

Gross
Profit

 

% Net
Sales

 

SG&A

 

% Net
Sales

 

Operating
Income

 

% Net
Sales

 

Income
Taxes

 

Net
Income

 

Diluted
EPS

As reported (GAAP)

$

309.5

 

44.5

%

 

$

259.6

 

 

37.3

%

 

$

56.4

 

8.1

%

 

$

11.7

 

$

36.0

 

 

0.95

Organizational restructuring (b)

 

 

 

 

 

(1.2

)

 

 

 

 

1.2

 

 

 

 

0.3

 

 

0.9

 

 

0.03

As adjusted (a)

$

309.5

 

44.5

%

 

$

258.5

 

 

37.1

%

 

$

57.5

 

8.3

%

 

$

12.0

 

$

36.9

 

$

0.98

 

Fiscal Quarter Ended July 2, 2022

 

Gross
Profit

 

% Net
Sales

 

SG&A

 

% Net
Sales

 

Operating
Income

 

% Net
Sales

 

Income
Taxes

 

Net
Income

 

Diluted
EPS

As reported (GAAP)

$

331.2

 

47.3

%

 

$

261.4

 

37.3

%

 

$

75.4

 

10.8

%

 

$

10.1

 

$

37.0

 

$

0.93

Loss on extinguishment of debt (c)

 

 

 

 

 

 

 

 

 

 

 

 

 

4.8

 

 

15.2

 

 

0.38

As adjusted (a)

$

331.2

 

47.3

%

 

$

261.4

 

37.3

%

 

$

75.4

 

10.8

%

 

$

14.9

 

$

52.1

 

$

1.30

 

Fiscal Year Ended December 31, 2022

 

Gross
Profit

 

% Net
Sales

 

SG&A

 

% Net
Sales

 

Operating
Income

 

% Net
Sales

 

Income
Taxes

 

Net
Income

 

Diluted
EPS

As reported (GAAP)

$

1,472.4

 

45.8

%

 

$

1,110.0

 

34.6

%

 

$

379.2

 

11.8

%

 

$

66.7

 

$

250.0

 

$

6.34

Intangible asset impairment (d)

 

 

 

 

 

 

 

 

 

9.0

 

 

 

 

2.1

 

 

6.9

 

 

0.17

Loss on extinguishment of debt (c)

 

 

 

 

 

 

 

 

 

 

 

 

 

4.8

 

 

15.2

 

 

0.38

As adjusted (a)

$

1,472.4

 

45.8

%

 

$

1,110.0

 

34.6

%

 

$

388.2

 

12.1

%

 

$

73.6

 

$

272.0

 

$

6.90

(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 profit, SG&A, operating income, income taxes, net income, and net income 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 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)

Net expenses related to organizational restructuring and related corporate office lease amendment actions.

(c)

Related to the redemption of the $500 million aggregate principal amount of senior notes due 2025 in April 2022 that were previously issued by a wholly-owned subsidiary of the Company.

(d)

Related to the write-down of the Skip Hop tradename asset.

Note: No adjustments were made to GAAP results in the first quarter of fiscal 2022. Results may not be additive due to rounding.

CARTER’S, INC.

RECONCILIATION OF NET INCOME ALLOCABLE TO COMMON SHAREHOLDERS

(unaudited)

 

 

Fiscal Quarter Ended

 

April 1, 2023

 

April 2, 2022

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

 

 

 

Basic number of common shares outstanding

 

37,104,527

 

 

 

40,270,895

 

Dilutive effect of equity awards

 

8,063

 

 

 

77,437

 

Diluted number of common and common equivalent shares outstanding

 

37,112,590

 

 

 

40,348,332

 

As reported on a GAAP Basis:

 

 

 

(dollars in thousands, except per share data)

 

 

 

Basic net income per common share:

 

 

 

Net income

$

35,996

 

 

$

67,933

 

Income allocated to participating securities

 

(576

)

 

 

(921

)

Net income available to common shareholders

$

35,420

 

 

$

67,012

 

Basic net income per common share

$

0.95

 

 

$

1.66

 

Diluted net income per common share:

 

 

 

Net income

$

35,996

 

 

$

67,933

 

Income allocated to participating securities

 

(576

)

 

 

(920

)

Net income available to common shareholders

$

35,420

 

 

$

67,013

 

Diluted net income per common share

$

0.95

 

 

$

1.66

 

As adjusted (a):

 

 

 

Basic net income per common share:

 

 

 

Net income

$

36,879

 

 

$

67,933

 

Income allocated to participating securities

 

(592

)

 

 

(921

)

Net income available to common shareholders

$

36,287

 

 

$

67,012

 

Basic net income per common share

$

0.98

 

 

$

1.66

 

Diluted net income per common share:

 

 

 

Net income

$

36,879

 

 

$

67,933

 

Income allocated to participating securities

 

(592

)

 

 

(920

)

Net income available to common shareholders

$

36,287

 

 

$

67,013

 

Diluted net income per common share

$

0.98

 

 

$

1.66

 

(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 per share data excluding the adjustments discussed above. The Company has excluded $0.9 million in after-tax expenses from these results for the fiscal quarter ended April 1, 2023.

Note: Results may not be additive due to rounding.

RECONCILIATION OF ADJUSTED RESULTS TO GAAP

(dollars in millions)

(unaudited)

 

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

 

 

 

Fiscal Quarter Ended

 

Four Fiscal Quarters Ended

 

 

April 1, 2023

 

April 2, 2022

 

April 1, 2023

Net income

 

$

36.0

 

 

$

67.9

 

 

$

218.1

 

Interest expense

 

 

9.6

 

 

 

15.1

 

 

 

37.3

 

Interest income

 

 

(0.7

)

 

 

(0.3

)

 

 

(1.6

)

Income tax provision

 

 

11.7

 

 

 

20.4

 

 

 

58.0

 

Depreciation and amortization

 

 

15.7

 

 

 

14.2

 

 

 

66.8

 

EBITDA

 

$

72.4

 

 

$

117.3

 

 

$

378.5

 

 

 

 

 

 

 

 

Adjustments to EBITDA

 

 

 

 

 

 

Organizational restructuring (a)

 

$

1.2

 

 

$

 

 

$

1.2

 

Loss on extinguishment of debt (b)

 

 

 

 

 

 

 

 

19.9

 

Intangible asset impairment (c)

 

 

 

 

 

 

 

 

9.0

 

Total adjustments

 

 

1.2

 

 

 

 

 

 

30.1

 

Adjusted EBITDA

 

$

73.5

 

 

$

117.3

 

 

$

408.6

 

(a)

Net expenses related to organizational restructuring and related corporate office lease amendment actions.

(b)

Related to the redemption of the $500 million aggregate principal amount of senior notes due 2025 in April 2022 that were previously issued by a wholly-owned subsidiary of the Company.

(c)

Related to the write-down of the Skip Hop tradename asset.

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) - (c) 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 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 ended April 1, 2023:

 

 

Fiscal Quarter Ended

 

Reported Net
Sales

April 1, 2023

 

Impact of
Foreign
Currency
Translation

 

Constant-
Currency Net
Sales

April 1, 2023

 

Reported Net
Sales
April 2, 2022

 

Reported
Net Sales %
Change

 

Constant-
Currency
Net Sales %
Change

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated net sales

$

695.9

 

$

(2.2

)

 

$

698.0

 

$

781.3

 

(10.9

)%

 

(10.7

)%

International segment net sales

$

92.2

 

$

(2.2

)

 

$

94.3

 

$

107.6

 

(14.4

)%

 

(12.3

)%

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.
 

Note: Results may not be additive due to rounding.

 

Contacts

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

Contacts

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