Carter’s(CRI) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported net sales of $600 million in the second quarter, a decline of 13$0.64, down from $1.30 in the prior year [7] - The effective tax rate increased to 23.6$38 million, ahead of forecasts due to lower spending [62] Business Line Data and Key Metrics Changes - U.S. retail sales declined 15% in the second quarter, with comparable sales down 16% [44][37] - U.S. wholesale sales decreased by 17%, although this was better than forecasted [8] - International sales were down 8%, primarily due to lower demand in Canada [93] - The company expects a high single-digit percentage growth in sales to its wholesale partner in Brazil, Riachuelo [10] Market Data and Key Metrics Changes - The company forecasts U.S. wholesale sales of $1 billion, down 7$75,000, with many families pulling back on spending due to inflation [17] Company Strategy and Development Direction - The company plans to focus on margin preservation and cash flow while investing in growth strategies [35] - There is an emphasis on expanding the distribution of the new Little Planet brand and opening about 50 retail stores in high-traffic areas [52][73] - The company aims to maintain a competitive pricing strategy, keeping prices within $1 or$2 of private label competitors [51] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for the second half of the year, expecting improved sales and earnings trends compared to the first half [15][34] - The company is cautious about the impact of inflation and higher interest rates on consumer demand [106] - Management noted that the inventory position is in good shape to support second-half demand [104] Other Important Information - The company has reduced borrowings and interest expenses, returning over $100 million to shareholders through dividends and share repurchases [22] - The supply chain has been a source of strength, with excellent on-time shipping performance and lower ocean freight rates benefiting second-half earnings [31] Q&A Session Summary Question: Can you elaborate on the gross margin outlook for the fourth quarter? - Management indicated that over half of the gross margin expansion is related to lower inbound transportation costs, with improved margins expected in the retail business [83][135] Question: What is the expectation for the wholesale replenishment business in the second half? - Management stated that replenishment sales are planned to be up over 10% in the second half, contrasting with a planned decline in seasonal demand [84] Question: How does the current inventory situation compare to competitors? - Management noted that larger retailers are running leaner inventories, which has led to better sell-throughs and improved price realization [114][116] Question: What is the outlook for the wholesale business moving forward? - Management expressed confidence in the wholesale business, expecting to resume growth in early 2024 based on current bookings [123]