Carter’s(CRI) - 2024 Q1 - Quarterly Results

Q1 2024 Performance Overview & CEO Commentary Carter's, Inc. exceeded Q1 2024 sales and earnings targets, driven by strong wholesale demand and shareholder returns, despite mixed retail and international performance Q1 2024 Key Financial Metrics | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Sales | $661 million | $696 million | | Diluted EPS | $1.04 | $0.95 | | Adjusted Diluted EPS | $1.04 | $0.98 | - The company exceeded its Q1 sales and earnings objectives, primarily due to higher and earlier than planned demand from its largest wholesale customers, attributed to leaner inventory positions at many retailers[2] - Cooler weather in many parts of the United States negatively impacted demand for Spring product offerings in the U.S. Retail business[2] - International sales were in line with plans, as stronger demand in Mexico compensated for lower, weather-impacted sales in Canada[7] - A total of $38 million was returned to shareholders through dividends and share repurchases during the first quarter[1] Consolidated Financial Results Consolidated net sales declined in Q1 2024 due to inflation and late spring, yet operating margin and net income improved Consolidated Financial Performance | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $661.5M | $695.9M | -4.9% | | Operating Income | $55.0M | $56.4M | -2.3% | | Operating Margin | 8.3% | 8.1% | +20 bps | | Net Income | $38.0M | $36.0M | +5.6% | | Diluted EPS | $1.04 | $0.95 | +9.5% | - The decline in net sales was driven by the persistent effects of inflation on families and the late arrival of spring weather, which contributed to lower demand across all segments[12] - Operating margin increased primarily due to lower inbound freight and product costs, partially offset by fixed cost deleverage on lower sales and new store expenses[14] - Net cash used in operations was $25.6 million, a significant change from the $42.2 million provided by operations in the prior year, mainly due to smaller reductions in inventory balances[20] Business Segment Results All segments saw sales declines in Q1 2024, with U.S. Wholesale profitability rising while U.S. Retail and International declined Segment Net Sales | Segment Net Sales | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | U.S. Retail | $307.6M | $323.7M | -5.0% | | U.S. Wholesale | $264.1M | $280.0M | -5.7% | | International | $89.7M | $92.2M | -2.7% | Segment Operating Income | Segment Operating Income | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | U.S. Retail | $14.3M | $26.9M | -46.8% | | U.S. Wholesale | $63.3M | $52.1M | +21.5% | | International | $2.2M | $3.1M | -29.0% | - The U.S. Wholesale segment's operating margin expanded significantly to 24.0% from 18.6% in the prior year[63] - The U.S. Retail segment's operating margin contracted sharply to 4.6% from 8.3% in the prior year[63] Return of Capital Carter's returned $38.3 million to shareholders in Q1 2024 through dividends and share repurchases - In Q1 2024, the company returned a total of $38.3 million to shareholders[17] - A cash dividend of $0.80 per common share was paid, totaling $29.3 million[21] - The company repurchased and retired approximately 108,000 shares for $9.0 million at an average price of $83.48 per share[55] - As of April 25, 2024, the total remaining capacity under the Company's share repurchase authorizations was approximately $631 million[55] Business Outlook Carter's provides Q2 2024 guidance reflecting sales and earnings declines, while affirming an optimistic full-year outlook Q2 2024 Outlook Q2 2024 outlook projects lower net sales and adjusted diluted EPS due to ongoing inflation and slow spring sales Q2 2024 Guidance | Q2 2024 Outlook | Guidance | Q2 2023 Actual | | :--- | :--- | :--- | | Net Sales | $560M - $570M | $600M | | Adjusted Operating Income | $25M - $30M | $38M | | Adjusted Diluted EPS | $0.35 - $0.45 | $0.64 | - The Q2 forecast assumes continued inflationary pressure on families, a slow start to Spring selling, and conservative inventory commitments by some wholesale customers[57][58] Full Year 2024 Outlook Full-year 2024 outlook forecasts stable to increased net sales and growth in adjusted operating income and EPS Full Year 2024 Guidance | Full Year 2024 Outlook | Guidance | Fiscal 2023 Actual | | :--- | :--- | :--- | | Net Sales | $2.95B - $3.0B | $2.95B | | Adjusted Operating Income | Comparable to mid-single-digit growth | $328M | | Adjusted Diluted EPS | Low to mid-single-digit growth | $6.19 | - Key assumptions for the full year include an improved macroeconomic environment and consumer demand in the second half, gross margin expansion, and operating cash flow in excess of $250 million[25][53][57] - Projected capital expenditures for the full year are approximately $80 million[31] Financial Statements This section presents Carter's unaudited condensed consolidated financial statements, including Statements of Operations, Balance Sheets, and Cash Flows Condensed Consolidated Statements of Operations Q1 2024 net sales decreased, but gross profit and net income increased due to reduced cost of goods sold Condensed Consolidated Statements of Operations (in thousands) | (In thousands) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net sales | $661,492 | $695,880 | | Gross profit | $315,190 | $309,467 | | Operating income | $55,035 | $56,354 | | Net income | $38,033 | $35,996 | | Diluted net income per common share | $1.04 | $0.95 | Condensed Consolidated Balance Sheets As of March 30, 2024, total assets were $2.286 billion, with decreases in cash, inventories, and liabilities Condensed Consolidated Balance Sheets (in thousands) | (In thousands) | March 30, 2024 | Dec 30, 2023 | April 1, 2023 | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $267,575 | $351,213 | $157,685 | | Finished goods inventories, net | $473,362 | $537,125 | $613,921 | | Total current assets | $1,016,787 | $1,101,243 | $1,042,718 | | Total assets | $2,285,518 | $2,378,613 | $2,283,327 | | Total liabilities | $1,444,165 | $1,533,363 | $1,485,434 | | Total stockholders' equity | $841,353 | $845,250 | $797,893 | Condensed Consolidated Statements of Cash Flows Q1 2024 saw a net cash outflow from operations, primarily due to working capital changes, resulting in an overall cash decrease Condensed Consolidated Statements of Cash Flows (in thousands) | (In thousands) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(25,551) | $42,197 | | Net cash used in investing activities | $(12,017) | $(13,827) | | Net cash used in financing activities | $(45,348) | $(82,762) | | Net decrease in cash and cash equivalents | $(83,638) | $(54,063) | Non-GAAP Reconciliations This section reconciles non-GAAP financial measures to GAAP, including adjusted results, EBITDA, and constant currency net sales Reconciliation of Adjusted Results to GAAP Q1 2024 GAAP results required no adjustments, while Q1 2023 adjustments are detailed for comparison - No adjustments were made to GAAP results in the first quarter of fiscal 2024[10][72] Q1 2023 Reconciliation (in millions) | Q1 2023 Reconciliation (in millions) | As Reported (GAAP) | Adjustments | As Adjusted (Non-GAAP) | | :--- | :--- | :--- | :--- | | Operating Income | $56.4 | $1.2 | $57.5 | | Net Income | $36.0 | $0.9 | $36.9 | | Diluted EPS | $0.95 | $0.03 | $0.98 | Reconciliation of Net Income to EBITDA and Adjusted EBITDA Q1 2024 EBITDA and Adjusted EBITDA were $69.6 million, with no adjustments, compared to Q1 2023 figures Reconciliation of Net Income to EBITDA and Adjusted EBITDA (in millions) | (In millions) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Income | $38.0 | $36.0 | | EBITDA | $69.6 | $72.4 | | Total Adjustments | $— | $1.2 | | Adjusted EBITDA | $69.6 | $73.5 | Constant Currency Net Sales Reconciliation Constant currency net sales reconciliation shows a 5.2% decline in Q1 2024, slightly higher than the reported 4.9% Net Sales % Change (Q1'24 vs Q1'23) | Net Sales % Change (Q1'24 vs Q1'23) | Reported % Change | Constant Currency % Change | | :--- | :--- | :--- | | Consolidated Net Sales | (4.9)% | (5.2)% | | International Segment Net Sales | (2.7)% | (4.8)% |