8-K: Carter's Inc. Reports Mixed Q1 Results, Exceeds Earnings Expectations but Sales Decline

Carter's Inc. exceeded earnings expectations in the first quarter of fiscal 2024, but experienced a decline in net sales compared to the same period last year.

Summary

• Carter's Inc. reported its first quarter fiscal 2024 results, with net sales decreasing by 4.9% to $661.5 million compared to $695.9 million in the first quarter of fiscal 2023.
• Diluted earnings per share (EPS) increased to $1.04, up from $0.95 in the same quarter last year, while adjusted diluted EPS was $1.04, compared to $0.98 in the prior year.
• The company returned $38.3 million to shareholders through dividends and share repurchases.
• The decline in sales was attributed to the persistent effects of inflation on families with young children and the late arrival of spring weather.
• U.S. Retail, U.S. Wholesale, and International segment net sales declined by 5.0%, 5.7%, and 2.7%, respectively.
• The company expects full-year net sales to be between $2.95 billion and $3.0 billion, with comparable mid-single-digit growth in adjusted operating income and low to mid-single-digit growth in adjusted diluted EPS.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to exceeding earnings expectations and returning capital to shareholders, but tempered by the sales decline and cautious outlook for the next quarter. The company is facing headwinds but is managing them reasonably well.

Positives

• The company exceeded its sales and earnings objectives for the first quarter.
• Diluted earnings per share increased year-over-year.
• The company returned a significant amount of capital to shareholders through dividends and share repurchases.
• The company saw higher and earlier than planned demand from its largest wholesale customers.
• The company expects an improving trend in sales throughout the year.
• The company anticipates improved gross margin for the second quarter of fiscal 2024.
• The company expects lower net interest expense and effective tax rate for the second quarter of fiscal 2024.

Negatives

• Net sales decreased by 4.9% compared to the same quarter last year.
• U.S. Retail comparable net sales declined by 6.8%.
• Operating income decreased by 2.3% compared to the same quarter last year.
• Net cash used in operations was $25.6 million, compared to net cash provided by operations of $42.2 million in the prior year period.
• The company experienced lower demand due to inflation and late arrival of spring weather.
• The company expects lower net sales, adjusted operating income, and adjusted diluted earnings per share for the second quarter of fiscal 2024 compared to the second quarter of fiscal 2023.

Risks

• The company faces risks related to public health crises, such as the COVID-19 pandemic.
• Changes in global economic and financial conditions could impact consumer confidence and spending.
• Continued inflationary pressures on labor and raw materials could affect costs.
• Geopolitical conflicts and disruptions in the supply chain pose risks to the company's operations.
• The company faces risks related to a shutdown of the U.S. government.
• Financial difficulties for major customers could impact the company's sales.
• Decreases in birth rates could affect the demand for the company's products.
• Increased competition in the marketplace could impact the company's market share.
• Unseasonable or extreme weather conditions could affect sales.
• Breaches of information technology systems and loss of personal data pose a risk.
• Fluctuations in foreign currency exchange rates could impact financial results.
• The company's ability to achieve its forecasted financial results for the fiscal year is not guaranteed.

Future Outlook

The company expects an improving trend in sales throughout the year, with full-year net sales between $2.95 billion and $3.0 billion, comparable mid-single-digit growth in adjusted operating income, and low to mid-single-digit growth in adjusted diluted EPS. They also anticipate improved macroeconomic conditions and consumer demand as the year progresses.

Management Comments

• We exceeded our sales and earnings objectives in the first quarter, said Michael D. Casey, Chairman and Chief Executive Officer.
• We continued to see higher and earlier than planned demand from our largest wholesale customers.
• We believe this demand reflects the leaner inventory positions at many retailers, and their need for our new seasonal product offerings in preparation for the warmer weather ahead.
• With the largest months of sales and earnings contribution ahead of us, we expect that the collective benefit of our product innovation, fleet optimization, and brand marketing strategies will enable an improving trend in our sales this year.
• Given the strength of our multi-channel model, brand portfolio, and financial resources, we believe we are well-positioned to achieve our growth objectives this year.

Industry Context

The results reflect a mixed performance in the children's apparel market, with Carter's experiencing both positive demand from wholesale customers and challenges in retail sales due to weather and inflation. The company's focus on product innovation and brand marketing aligns with industry trends to drive sales and maintain market share.

Comparison to Industry Standards

• Carter's is the largest branded marketer in North America of apparel exclusively for babies and young children, giving it a strong market position.
• The company's relationships with major retailers like Target, Walmart, Amazon, Kohls, and Macys are a significant advantage.
• While the company's sales declined, the increase in diluted EPS suggests effective cost management and operational efficiency.
• The company's performance is being impacted by similar factors affecting other retailers, such as inflation and weather patterns.
• Comparable companies like The Children's Place and Gap (which also has a children's division) are likely facing similar challenges in the current economic environment.

Stakeholder Impact

• Shareholders will benefit from dividends and share repurchases.
• Employees may be impacted by cost control measures and productivity initiatives.
• Customers may experience changes in product offerings and availability.
• Suppliers may be affected by the company's inventory management and sourcing decisions.
• Creditors may be impacted by the company's financial performance and debt management.

Next Steps

• The company will hold a conference call with investors on April 26, 2024, to discuss the results and business outlook.
• The company plans to continue its focus on product innovation, fleet optimization, and brand marketing strategies.
• The company will continue to control discretionary expenses and reduce inventory.
• The company will continue to return capital to shareholders.

Key Dates

Keywords

Carters, apparel, children, retail, wholesale, earnings, sales, EPS, dividends, share repurchases, inflation, inventory, operating income