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Carter’s, Inc. Reports Third Quarter Fiscal 2021 Results

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  • Net sales $891 million, growth of 3%

    • U.S. Retail comparable sales grew 5.9%

    • Global supply chain delays affected sales

  • Strong third quarter profitability

    • Record gross profit margin

    • Operating margin 13.9% vs. 13.1% in Q3 2020; adjusted operating margin 13.9% vs. 13.8% in Q3 2020

  • Diluted EPS $1.93 vs. $1.85 in Q3 2020; adjusted diluted EPS $1.93 vs. $1.96 in Q3 2020

  • Returned $128 million to shareholders through dividends and share repurchases in Q3 2021; returned $228 million year-to-date through October

  • Company raising full year profit outlook; record earnings forecasted for 2021

ATLANTA, October 29, 2021--(BUSINESS WIRE)--Carter’s, Inc. (NYSE:CRI), the largest branded marketer in North America of apparel exclusively for babies and young children, today reported its third quarter fiscal 2021 results.

"We meaningfully exceeded our earnings objectives for the third quarter," said Michael D. Casey, Chairman and Chief Executive Officer. "While supply chain delays impacted our ability to support the strong demand for our brands in the quarter, our continued progress with price realization, productivity improvements, and expense management enabled us to offset higher transportation costs and improve profit margins.

"Given our strong liquidity and favorable outlook for the business, we resumed share repurchases in August which, together with our dividend, returned $128 million of capital to our shareholders in the quarter.

"Our forecast for the year reflects materially better performance than we envisioned possible earlier this year. Given the expected continued benefit of structural changes made in our business to respond to pandemic-related challenges, together with the strength of our product offerings and marketing strategies, we are raising our earnings objectives for the year and forecasting record profitability for 2021."

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.

Third Fiscal Quarter

2021

2020

(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)

$

124.0

13.9

%

$

85.0

$

1.93

$

113.5

13.1

%

$

81.2

$

1.85

COVID-19 expenses

0.3

0.2

3.3

2.5

0.06

Retail store operating leases and other long-lived asset impairments, net of gain

(0.3

)

(0.2

)

1.5

1.1

0.03

Restructuring costs

(0.2

)

(0.1

)

1.2

1.0

0.02

As adjusted

$

123.9

13.9

%

$

84.9

$

1.93

$

119.5

13.8

%

$

85.9

$

1.96

First Three Fiscal Quarters

2021

2020

(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)

$

359.1

14.8

%

$

242.8

$

5.51

$

56.0

2.8

%

$

10.7

$

0.24

COVID-19 expenses

3.5

2.6

0.06

18.8

14.3

0.33

Restructuring costs

2.5

1.9

0.04

8.8

6.8

0.16

Retail store operating leases and other long-lived asset impairments, net of gain

(2.2

)

(1.7

)

(0.04

)

6.5

4.9

0.11

Intangible asset impairment

26.5

20.2

0.46

Goodwill impairment

17.7

17.7

0.40

As adjusted

$

362.9

15.0

%

$

245.6

$

5.58

$

134.3

6.6

%

$

74.7

$

1.70

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.

Third Quarter of Fiscal 2021 compared to Third Quarter of Fiscal 2020

Net sales increased $25.5 million, or 2.9%, to $890.6 million, driven by growth in the Company’s International and U.S. Retail business segments. International and U.S. Retail segment sales grew 15% and 4%, respectively, while U.S. Wholesale sales declined 3%. U.S. Retail comparable sales increased 5.9%. U.S. Wholesale sales were affected by late arriving product due to supply chain disruptions. Favorable changes in foreign currency exchange rates improved consolidated net sales in the third quarter of fiscal 2021 by $5.6 million.

Operating income increased $10.5 million to $124.0 million, compared to $113.5 million in the third quarter of fiscal 2020. Operating margin improved to 13.9%, compared to 13.1% in the prior year period. Adjusted operating income (a non-GAAP measure) increased $4.4 million to $123.9 million, compared to $119.5 million in the third quarter of fiscal 2020. Adjusted operating margin increased to 13.9%, compared to 13.8% in the prior year period, reflecting strong product demand, including improved price realization, offset by higher transportation costs, increased compensation provisions, and investments in marketing and omnichannel capabilities.

The effective tax rate was 21.6%, compared to 19.0% in the third quarter of fiscal 2020.

Net income was $85.0 million, or $1.93 per diluted share, compared to $81.2 million, or $1.85 per diluted share, in the third quarter of fiscal 2020. Adjusted net income (a non-GAAP measure) was $84.9 million, compared to $85.9 million in the third quarter of fiscal 2020. Adjusted earnings per diluted share (a non-GAAP measure) was $1.93, compared to $1.96 in the third quarter of fiscal 2020.

First Three Quarters of Fiscal 2021 compared to First Three Quarters of Fiscal 2020

Net sales increased $389.9 million, or 19.2%, to $2,424.3 million, driven by growth in all segments. The Company’s U.S. Retail, U.S. Wholesale, and International segment net sales grew 19%, 15%, and 31%, respectively. Favorable changes in foreign currency exchange rates improved consolidated net sales in the first three quarters of fiscal 2021 by $16.8 million.

Operating income was $359.1 million, compared to $56.0 million in the first three quarters of fiscal 2020. Operating margin improved to 14.8%, compared to 2.8% in the prior year period. Adjusted operating income (a non-GAAP measure) increased $228.6 million to $362.9 million, compared to $134.3 million in the first three quarters of fiscal 2020. Adjusted operating margin increased to 15.0%, compared to 6.6% in the prior year period, reflecting strong product demand, including improved price realization, the absence of COVID-related inventory provisions, higher transportation costs, and expense leverage.

The effective tax rate was 22.9%, compared to 23.8% in the first three quarters of fiscal 2020.

Net income was $242.8 million, or $5.51 per diluted share, compared to $10.7 million, or $0.24 per diluted share, in the first three quarters of fiscal 2020. Adjusted net income (a non-GAAP measure) was $245.6 million, compared to $74.7 million in the first three quarters of fiscal 2020. Adjusted earnings per diluted share (a non-GAAP measure) was $5.58, compared to $1.70 in the first three quarters of fiscal 2020.

Cash flow from operations in the first three quarters of fiscal 2021 was $7.3 million compared to $318.7 million in the first three quarters of fiscal 2020. While net income was meaningfully higher in 2021 versus last year, cash flow has been affected by changes in working capital, including higher inventory levels due to supply chain disruptions and lower payables, reflecting improved vendor payment terms which were extended during the early days of the pandemic last year.

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 third quarter of fiscal 2021 was $1.69 billion, comprised of cash and cash equivalents of $943 million and $746 million in unused borrowing capacity on the Company’s $750 million secured revolving credit facility.

Return of Capital

As previously announced, the Board of Directors reinstated the Company’s common stock share repurchase program in the third quarter of fiscal 2021. In the third quarter and first three quarters of fiscal 2021, the Company returned to shareholders a total of $127.8 million and $145.4 million, respectively, through share repurchases and cash dividends as described below.

  • During the third quarter of fiscal 2021, the Company repurchased and retired 1.1 million shares of its common stock for $110.3 million at an average price of $100.61 per share. Fiscal year-to-date through October 28, 2021, the Company repurchased and retired a total of 1.9 million shares for $193.0 million at an average price of $99.42 per share. All shares were repurchased in open market transactions. As of October 28, 2021, the total remaining capacity under the Company’s previously announced repurchase authorizations was approximately $457 million.

  • In the third quarter of fiscal 2021, the Company paid a cash dividend of $0.40 per share totaling $17.5 million. In the first three quarters of fiscal 2021, the Company paid quarterly cash dividends totaling $35.1 million.

The Company’s Board of Directors will evaluate future distributions of capital, including dividends and share repurchases, based on a number of factors, including restrictions under the Company’s revolving credit facility, business conditions, the Company’s financial performance, and other considerations.

2021 Business Outlook

"We are raising our previous sales outlook for the fourth quarter and flowing through the stronger third quarter earnings to the full year," said Michael D. Casey. "This improved outlook reflects the benefit of wholesale customer shipments shifting from the third quarter to the fourth quarter, favorable trends in international demand, and expected continued progress in improving price realization."

For the fourth quarter of fiscal 2021 (a 13 week fiscal quarter), the Company projects net sales will be approximately $1,025 million, adjusted operating income will be approximately $127 million (compared to adjusted operating income of $145.5 million in the fourth quarter of fiscal 2020), and adjusted diluted earnings per share will be approximately $2.00 (compared to adjusted diluted earnings per share of $2.46 in the prior year period). Factors affecting the comparability to the fourth quarter of fiscal 2020 include a 14 week fiscal quarter in 2020, higher transportation costs, and the benefit of the release of inventory reserves in the prior year period. The forecast for adjusted operating income and adjusted diluted earnings per share excludes approximately $0.2 million of expenses related to the COVID-19 pandemic, including costs associated with additional protective equipment and cleaning supplies, and a benefit of approximately $0.1 million related to a gain on modifications of previously-impaired leases.

For fiscal 2021 (a 52 week fiscal year), the Company projects net sales will be approximately $3.45 billion, adjusted operating income will be approximately $490 million (compared to adjusted operating income of $279.8 million in fiscal 2020), and adjusted diluted earnings per share will be approximately $7.57 (compared to adjusted diluted earnings per share of $4.16 in fiscal 2020). The forecast for adjusted operating income and adjusted diluted earnings per share excludes approximately $3.7 million of expenses related to the COVID-19 pandemic, including costs associated with additional protective equipment and cleaning supplies, approximately $2.5 million of restructuring costs, and a benefit of approximately $2.3 million related to a gain on modifications of previously-impaired leases.

Conference Call

The Company will hold a conference call with investors to discuss third quarter fiscal 2021 results and its business outlook on October 29, 2021 at 8:30 a.m. Eastern Daylight Time. 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." To participate in the call, please dial 334-777-6978. A replay of the call will be available shortly after the broadcast through November 28, 2021, at 888-203-1112 (U.S. / Canada) or +1 719-457-0820 (international), passcode 9590642. 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 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 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, supply chain challenges and our responses thereto and the Company’s future outlook, earnings, and strategy. 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 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 marketplace; 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

Three Fiscal Quarters Ended

October 2, 2021

September 26, 2020

October 2, 2021

September 26, 2020

Net sales

$

890,586

$

865,080

$

2,424,347

$

2,034,437

Cost of goods sold

481,298

483,333

1,262,822

1,170,778

Adverse purchase commitments (inventory and raw materials), net

507

(1,968

)

(7,923

)

16,166

Gross profit

408,781

383,715

1,169,448

847,493

Royalty income, net

8,442

9,063

22,550

19,989

Selling, general, and administrative expenses

293,192

279,251

832,889

767,237

Goodwill impairment

17,742

Intangible asset impairment

26,500

Operating income

124,031

113,527

359,109

56,003

Interest expense

15,196

16,347

45,839

40,523

Interest income

(335

)

(330

)

(761

)

(1,217

)

Other expense (income), net

844

(2,758

)

(796

)

2,647

Income before income taxes

108,326

100,268

314,827

14,050

Income tax provision

23,350

19,027

72,052

3,347

Net income

$

84,976

$

81,241

$

242,775

$

10,703

Basic net income per common share

$

1.94

$

1.86

$

5.53

$

0.25

Diluted net income per common share

$

1.93

$

1.85

$

5.51

$

0.24

Dividend declared and paid per common share

$

0.40

$

$

0.80

$

0.60

CARTER’S, INC.

BUSINESS SEGMENT RESULTS

(dollars in thousands)

(unaudited)

Fiscal Quarter Ended

Three Fiscal Quarters Ended

October 2,
2021

% of
Total Net
Sales

September 26,
2020

% of
Total Net
Sales

October 2,
2021

% of
Total Net
Sales

September 26,
2020

% of
Total Net
Sales

Net sales:

U.S. Retail

$

465,711

52.3

%

$

449,150

51.9

%

$

1,296,405

53.5

%

$

1,085,883

53.4

%

U.S. Wholesale

294,180

33.0

%

302,135

34.9

%

809,186

33.4

%

706,009

34.7

%

International

130,695

14.7

%

113,795

13.2

%

318,756

13.1

%

242,545

11.9

%

Consolidated net sales

$

890,586

100.0

%

$

865,080

100.0

%

$

2,424,347

100.0

%

$

2,034,437

100.0

%

Operating income (loss):

% of
Segment
Net Sales

% of
Segment
Net Sales

% of
Segment
Net Sales

% of
Segment
Net Sales

U.S. Retail

$

87,151

18.7

%

$

47,559

10.6

%

$

250,751

19.3

%

$

38,902

3.6

%

U.S. Wholesale

40,074

13.6

%

65,718

21.8

%

150,724

18.6

%

89,141

12.6

%

International

17.4

%

17,400

15.3

%

41,495

13.0

%

(15,819

)

(6.5

)%

...

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