10-K: Carters Inc. Reports FY24 Results: Sales Dip, Strategic Investments Underway

Carters Inc. reports a decrease in net sales for fiscal year 2024, while focusing on strategic initiatives to elevate product offerings and improve marketing effectiveness.

Summary

• Carters Inc. reported a decrease in consolidated net sales by 3.4% to $2.84 billion for fiscal year 2024.
• The decline was attributed to lower U.S. Retail and International sales, partially offset by growth in exclusive Carters brands and Mexican retail stores.
• Consolidated gross profit decreased by 2.2% to $1.37 billion, while gross margin increased by 60 bps to 48.0% due to lower unit costs and customer mix.
• SG&A expenses increased slightly by 0.5% to $1.10 billion, with the SG&A rate increasing to 38.7% of net sales.
• Operating income decreased by 21.2% to $254.7 million, impacted by a $30.0 million non-cash impairment charge on the OshKosh tradename.
• Net income decreased by 20.2% to $185.5 million, with diluted earnings per share at $5.12.
• The company invested $65.0 million to strengthen the value proposition of direct-to-consumer product offerings.
• Inventories decreased by 6.5% to $502.3 million.
• The company opened 41 new stores and closed 29 in the U.S. during fiscal year 2024.
• The company returned $166.7 million to shareholders through dividends and share repurchases.
• Michael D. Casey retired as Chief Executive Officer on January 3, 2025, with Richard F. Westenberger appointed as Interim CEO.

Sentiment

Score: 5

Explanation: The document presents a mixed sentiment. While there are positive aspects such as increased gross margin and inventory reduction, the overall tone is weighed down by decreased sales and operating income, as well as the impairment charge. The strategic investments and future outlook provide some optimism, but the current results are concerning.

Positives

• Gross margin increased by 60 bps to 48.0%.
• Inventories decreased by 6.5% to $502.3 million.
• The company returned $166.7 million to shareholders through dividends and share repurchases.
• The company opened 41 new stores in the U.S. during fiscal year 2024.
• U.S. Wholesale segment operating income increased $18.0 million, or 9.1%, to $217.0 million.
• The company is projecting a greater number of net store openings in future years.

Negatives

• Consolidated net sales decreased by 3.4% to $2.84 billion.
• Operating income decreased by 21.2% to $254.7 million, impacted by a $30.0 million non-cash impairment charge on the OshKosh tradename.
• Net income decreased by 20.2% to $185.5 million, with diluted earnings per share at $5.12.
• U.S. Retail comparable net sales decreased 6.9%.
• International segment net sales decreased $23.6 million, or 5.5%, to $405.6 million.

Risks

• Macroeconomic factors, including inflation and interest rates, may continue to negatively impact consumer demand.
• Disruptions in the Red Sea region could affect transit times and shipping costs.
• Uncertainty regarding U.S. trade policy could impact the supply chain and cost structure.
• The company may not achieve sales growth plans and profitability objectives to support the carrying value of intangible assets.
• The company is dependent on retaining key individuals within the organization to execute its strategic plan.
• The company may face adverse regulatory, investor, media, or public scrutiny that may adversely affect our business, results of operations, or financial condition.

Future Outlook

The company expects growth to be driven by elevating product offerings, improving marketing, and leveraging its multichannel market presence. The company is projecting approximately 30 new store openings and 19 store closures in fiscal 2025, with a greater number of net store openings in future years.

Management Comments

• We have taken actions to mitigate the impact of decreased consumer demand, including strengthening our product offerings through a focus on style and value, increasing our mix of opening price and premium price offerings, including through our Little Planet brand and our PurelySoft collection, optimizing our fleet of retail stores, improving our marketing effectiveness to drive traffic, including through the relaunch of our loyalty program in the second quarter of fiscal 2024, and investing in our exclusive wholesale brands, our international omnichannel capabilities, and the talent in our organization.

Industry Context

The baby and young childrens apparel market is highly competitive, with both national brands and private label manufacturers vying for market share. The company faces challenges from macroeconomic factors and shifts in consumer demand.

Comparison to Industry Standards

• Competitors include Gap, Old Navy, The Childrens Place, Cat & Jack, Garanimals, Disney, Nike, Adidas, and Under Armour.
• Carters brands hold the #1 position with approximately 10% market share in the zero to 10-year-old market in the U.S.
• OshKosh brand has less than 1% market share in the zero to 10-year-old apparel market in the United States.
• Skip Hop was the #1 brand in diaper bags in 2024.

Management Changes

Stakeholder Impact

• Shareholders will be impacted by the decrease in net income and diluted earnings per share.
• Employees may be affected by organizational restructuring and cost management efforts.
• Customers may benefit from strategic investments in product offerings and the shopping experience.
• Suppliers may be impacted by changes in sourcing and trade policies.

Next Steps

• The company intends to pursue improvements to its operating model, including product and brand development processes.
• The company plans to continue to pursue opportunities to improve productivity throughout the business and to manage spending prudently.
• The company is projecting approximately 30 new store openings and 19 store closures in fiscal 2025, with a greater number of net store openings in future years.

Key Dates