Carter’s(US:CRI)2024-02-26 16:00Market Overview - The U.S. baby and young children's apparel market is approximately $28 billion as of December 2023, with Carter's brands holding over 9% market share and OshKosh approximately 1%[23]. - Carter's brands maintained a leading market position with approximately 20% in the zero to two-year-old baby market and about 10% in the three to four-year-old toddler market as of December 2023[30]. - Approximately 34% of consolidated net sales in fiscal 2023 were derived from the U.S. Wholesale segment[99]. - The top ten wholesale customers accounted for approximately 33% of consolidated net sales in fiscal 2023[99]. - The largest wholesale customer accounted for approximately 10.4% of consolidated net sales in fiscal 2023[48]. Financial Performance - The company generated $3.5 billion in operating cash flow over the past 10 years, invested approximately $0.7 billion in capital expenditures, and returned $2.5 billion to shareholders through dividends and share repurchases[27]. - Consolidated net sales decreased by $267.1 million, or 8.3%, to $2.95 billion due to macroeconomic factors impacting consumer demand[215]. - Operating income decreased by $55.8 million, or 14.7%, to $323.4 million, impacted by lower sales and increased fixed costs[215]. - SG&A expenses decreased by $16.1 million, or 1.4%, to $1.09 billion, with SG&A as a percentage of consolidated net sales increasing by 250 basis points to 37.1%[215]. - The effective tax rate increased by 200 basis points to 23.1%[216]. Store Operations - As of the end of fiscal 2023, the company operated 1,034 retail stores and approximately 19,350 wholesale locations in North America, with international operations in over 1,100 locations across 90 countries[24]. - As of the end of fiscal 2023, the average store size was approximately 5,000 square feet, with a focus on high-traffic locations to attract consumers[42]. - The company expects approximately 40 new store openings and 30 store closures in fiscal 2024, with a focus on net store openings in future years[212]. - The company operates 792 retail stores in the United States, 188 in Canada, and 54 in Mexico, with an average remaining lease term of approximately 3.2 years[180]. Supply Chain and Sourcing - In fiscal 2023, approximately 74% of products were sourced from Cambodia, Vietnam, Bangladesh, and India, with 66% of fabric sourced from China[55]. - The company’s sourcing operations are based in Hong Kong to manage manufacturing volume and ensure quality control[56]. - The company has not entered into long-term contracts with manufacturers, believing that production capacity is adequate for future needs[59]. - Approximately 65% of the company's products are shipped through the Red Sea, with current delays adding an additional 7 to 10 days of transit time due to regional hostilities[130]. Environmental and Social Responsibility - The Little Planet brand, launched in 2021, focuses on sustainable clothing using mostly organic cotton, catering to the growing consumer demand for eco-friendly products[21]. - The company has established targets to reduce Scope 1 and 2 greenhouse gas emissions, validated by the Science-Based Target Initiative[62]. - The company is subject to increasing scrutiny regarding environmental, social, and governance (ESG) practices, which may lead to additional compliance costs and reputational risks[116]. Customer Engagement and Marketing - The company plans to relaunch its My Rewarding Moments customer loyalty program in 2024 to deepen customer loyalty and increase visit frequency[52][53]. - The company’s marketing strategy focuses on acquiring new customers and enhancing relationships with existing customers through digital and social media[51]. - The Carter's credit card program, launched in 2019, provides benefits to loyalty program members and generates revenue through new credit account establishment and usage royalties[54]. Risks and Challenges - The company is sensitive to overall levels of consumer spending, particularly in the young children's apparel market[86]. - Financial difficulties or loss of major wholesale customers could result in a material loss of revenues[99]. - The company operates in a highly competitive market, with some competitors having greater financial resources[98]. - The business could be adversely affected by public health crises, such as the COVID-19 pandemic, which disrupts operations and consumer demand[89]. - The company may face challenges in expanding into international markets, as it lacks significant experience outside of North America, which could adversely affect sales and profitability[141]. Cybersecurity and Data Management - The company has implemented security measures to protect IT and data security infrastructure, but the effectiveness of these measures against evolving cybersecurity threats remains uncertain[124]. - The company has conducted annual assessments of its cybersecurity framework and penetration tests by third parties to mitigate risks[171]. - Cybersecurity risks related to data breaches could result in adverse publicity and costly legal actions, impacting the company's financial condition[121]. Shareholder Returns - The company returned $212.0 million to shareholders, consisting of $100.0 million in share repurchases and $112.0 million in cash dividends[215]. - The company repurchased a total of 471,149 shares during the fourth quarter of fiscal 2023, with an average price paid per share of $69.17[185]. - The total aggregate remaining capacity under outstanding share repurchase authorizations as of December 30, 2023, was $649.5 million[187]. - The company declared a quarterly cash dividend payment of $0.80 per common share on February 26, 2024, payable on March 29, 2024[190]. - The company paid a cash dividend per common share of $0.75 for each quarter of fiscal 2023, totaling $3.00 for the year[191].