Carter’s Q3 net sales up 6.4 percent, reaffirms profit guidance

Thursday, 29 October 2015

REPORT

Carter’s net sales increased 50.9 million dollars, or 6.4 percent, to 849.8 million dollars, principally driven by growth in the company's Carter’s wholesale and US Carter’s and OshKosh direct-to-consumer businesses.

“We continued to outperform the market, with good growth in sales and earnings in the third quarter,” said Michael D. Casey, Chairman and Chief Executive Officer, adding, “The strength of our brands, broad market distribution, and expense discipline enabled us to achieve our profit objectives and mitigate the effects of foreign currency fluctuations. Given the progress with our growth initiatives this year and current business trends, we are reaffirming our profit objectives for fiscal 2015.”

Consolidated third quarter highlights

The company said that changes in foreign currency exchange rates in the third quarter negatively impacted consolidated net sales by 12.7 million dollars, or 1.6 percent. On a constant currency basis, consolidated net sales increased 8.0 percent.

Operating income increased 19.8 million dollars, or 17.9 percent, to 130.2 million dollars, compared to 110.5 million dollars in the third quarter of fiscal 2014. Operating margin increased 150 basis points to 15.3 percent, compared to 13.8 percent in the third quarter of fiscal 2014. Adjusted operating income increased 17.7 million dollars, or 15.6 percent, to 131.2 million dollars, compared to 113.4 million dollars in the third quarter of fiscal 2014. Adjusted operating margin increased 120 basis points to 15.4 percent driven by improved gross margin and expense leverage.

Net income increased 13.4 million dollars, or 20.4 percent, to 79.3 million dollars, or 1.51 dollars per diluted share, compared to 65.9 million dollars, or 1.23 dollars per diluted share, in the third quarter of fiscal 2014. Adjusted net income (a non-GAAP measure) increased 12 million dollars, or 17.7 percent, to 79.9 million dollars. Adjusted earnings per diluted share increased 19.5 percent to 1.52 dollars, compared to 1.27 dollars in the third quarter of fiscal 2014.

Carter’s retail segment sales increase

Carter’s retail segment sales increased 13.5 million dollars, or 4.8 percent, to 294.9 million dollars. Carter’s DTC comparable sales decreased 3.2 percent, comprised of a retail stores comparable sales decline of 5.6 percent, partially offset by ecommerce comparable sales growth of 6.2 percent. In the third quarter, the company opened 15 Carter’s retail stores in the United States and operated 577 Carter’s retail stores in the United States as of October 3, 2015.

For the first three quarters of fiscal 2015, Carter’s retail segment sales increased 54.2 million dollars, or 7.3 percent, to 799.6 million dollars. Carter’s DTC comparable sales decreased 0.7 percent, comprised of a retail stores comparable sales decline of 3.7 percent, partially offset by ecommerce comparable sales growth of 12 percent. The company opened 48 Carter’s retail stores in the United States and closed two stores in the first three quarters.

Carter’s wholesale segment sales increased 33.8 million dollars, or 10.9 percent, to 343.6 million dollars, reflecting increased product demand, in part due to timing, and a new playwear initiative. Wholesale segment sales in the first three quarters increased 43.1 million dollars, or 5.5 percent, to 824.6 million dollars.

OshKosh retail and wholesale segment results

In the third quarter, OshKosh retail segment sales increased 7.5 percent, to 98.3 million dollars. OshKosh DTC comparable sales decreased 2 percent, comprised of a retail stores comparable sales decline of 5.4 percent, partially offset by ecommerce comparable sales growth of 14.1 percent. The company opened 12 OshKosh retail stores in the United States and closed one store and operated 232 OshKosh retail stores in the United States as of October 3, 2015.

For the first three quarters, OshKosh retail segment sales increased 10 percent, to 244.8 million dollars. OshKosh DTC comparable sales increased 1.7 percent, comprised of ecommerce comparable sales growth of 21.9 percent, partially offset by a retail stores comparable sales decline of 2.6 percent. In the first three quarters of fiscal 2015, the company opened 36 OshKosh retail stores in the United States and closed four stores.

Third quarter OshKosh wholesale segment sales decreased 6.3 million dollars, or 25.1 percent, to 18.8 million dollars. In the first three quarters, wholesale segment sales decreased 3.2 million dollars, or 6.1 percent, to 49.2 million dollars, reflecting a decline in sales to the off-price channel and lower seasonal bookings.

International segment sales rise 3.4 percent

International segment sales increased 3.1 million dollars, or 3.4 percent, to 94.2 million dollars, driven by growth in the company’s DTC business in Canada and new ecommerce sales in China. This growth was partially offset by unfavorable foreign currency exchange rates and the impact of the Target Canada bankruptcy in early 2015. Changes in foreign currency exchange rates negatively impacted international segment net sales by 12.7 million dollars, or 14 percent. On a constant currency basis, international segment net sales increased 17.3 percent.

Canadian comparable retail stores sales increased 4.8 percent. In the third quarter, the company opened seven retail stores in Canada and operated 140 retail stores in Canada as of October 3, 2015. In the first three quarters, international segment sales increased 6.3 million dollars, or 2.8 percent, to 229.2 million dollars. This increase reflects growth in the company’s DTC business in Canada, increased wholesale demand in other international markets, and new ecommerce sales in China. On a constant currency basis, international segment net sales increased 13.5 percent. Canadian comparable retail stores sales increased 3.9 percent in the first three quarters of fiscal 2015. The company opened 16 retail stores in Canada during the period.

Declares dividend, updates outlook

During the third quarter of fiscal 2015, the company paid a cash dividend of 0.22 dollar per share totaling 11.5 million dollars. The Company paid cash dividends totaling 34.6 million dollars in the first three quarters of fiscal 2015.

The company estimates that the additional week in fiscal 2014 contributed approximately 44.1 million dollars in consolidated net sales and approximately 0.05 dollar in adjusted diluted earnings per share. For the fourth quarter of fiscal 2015, the company projects net sales to decline approximately 2 percent and adjusted diluted earnings per share in the range of 1.22 dollars to 1.30 dollars.

For fiscal 2015, the company projects net sales to increase approximately 4 percent over fiscal 2014 and adjusted diluted earnings per share to increase approximately 13 percent to 15 percent.