Carter’s(CRI) - 2023 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported net sales of $696 million, a decline of 11% year-over-year, but exceeded previous guidance due to stronger-than-planned demand in the U.S. Wholesale business [81][98] - Adjusted operating income was $58 million, representing an adjusted operating margin of 8.3%, down from 13.1% in the prior year [85][90] - Adjusted diluted earnings per share were $0.98 compared to $1.66 in the prior year [87] Business Line Data and Key Metrics Changes - U.S. Retail sales declined 12%, with comparable sales down 13%, in line with expectations [120] - Wholesale sales decreased by 9%, reflecting a conservative stance from customers regarding inventory commitments [107][72] - International sales declined by 14%, with a mid-single-digit decrease in Canada, while Mexico saw double-digit growth [121][76] Market Data and Key Metrics Changes - The company noted that the birth trends in the U.S. are stable, with an improving outlook for births, which supports demand for baby apparel [34][135] - The company is the largest supplier of young children's apparel in North America, holding a significant market share compared to private label brands [46][70] Company Strategy and Development Direction - The company plans to focus on productivity, earnings, and cash flow, with expectations for improved performance in the second half of the year [128] - There is a strategic emphasis on maintaining lean inventories to improve sell-throughs and reduce promotional activity [116][155] - The company aims to expand its presence in international markets, particularly in Mexico and Brazil, through co-branded stores and e-commerce [76][78] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the second half of the year, anticipating better trends in sales and profitability due to lower product and freight costs [130][65] - The company acknowledged the impact of inflation and high interest rates on consumer demand but remains confident in the resilience of consumers [79][149] - Management noted that the market for baby apparel is expected to stabilize, with a potential for improvement as inflation moderates [135][79] Other Important Information - The company has successfully reduced inventories, leading to improved cash flow, and expects to continue this trend throughout the year [63][88] - The company has reaffirmed its sales and earnings outlook for 2023, targeting approximately $3 billion in sales and adjusted EPS of $6.15 [139] Q&A Session All Questions and Answers Question: Can you provide insights on the impact of ocean freight costs? - Management indicated that ocean freight costs were up in the first quarter but not as significantly as the previous year, with expectations for substantial relief in the second half [146][142] Question: How does the size of the kids' market in Mexico compare to Canada? - The market in Mexico is larger, with significant growth potential as the company expands its co-branded stores [157] Question: What are the expectations for retail sales outlook adjustments? - The company reduced its retail sales outlook by 1%, reflecting a slower start to spring sales, with adjustments primarily affecting the second quarter [148]