CARTERS INC quarterly report, Q3 FY2019

Vollständiges Dokument

Carter’s, Inc. — Form 10-Q Summary

Period: The filing covers the fiscal quarter ended September 28, 2019, and the first three fiscal quarters of fiscal 2019. The request says 2018 Q3, but the supplied filing is for 2019 Q3.

Business context

Carter’s designs, sources, and markets children’s apparel and related products under Carter’s, OshKosh B’gosh, Skip Hop, and other brands. It sells through U.S. and international retail and eCommerce operations, wholesale customers, and licensees; it operated 1,087 retail stores as of quarter-end.

Financial performance

  • Q3 revenue: $943.3 million, up 2.1% year over year. First three quarters: $2.419 billion, up 1.8%.
  • Q3 gross profit and margin: $402.2 million and 42.6%, versus $387.5 million and 41.9% a year earlier. Year-to-date gross profit was $1.041 billion, with a 43.0% margin versus 43.3%.
  • Q3 operating income: $83.9 million, down 19.0%; operating margin was 8.9%, versus 11.2%. Year-to-date operating income was $209.1 million, down 5.3%, with an 8.6% margin versus 9.3%.
  • Q3 net income and diluted EPS: $60.3 million and $1.34, versus $71.8 million and $1.53. Year-to-date net income was $138.7 million and diluted EPS was $3.06, versus $151.5 million and $3.20.
  • Cash flow: Year-to-date operating cash flow was $73.4 million, compared with $21.4 million. Investing cash outflow was $45.4 million, including $46.1 million of capital expenditures; financing cash outflow was $44.4 million. Cash ended at $153.9 million.
  • Debt and liquidity: Long-term debt was $769.5 million, comprising $500 million principal amount of senior notes and $275 million drawn on the revolving facility. Approximately $470 million remained available under the facility, and the company reported covenant compliance. Cash plus revolver availability was approximately $623.9 million, before other considerations.
  • Other balance-sheet items: Inventory was $723.2 million, up 4.4% from September 2018. Adoption of lease accounting resulted in recognition of $709.5 million in operating lease assets and $850.2 million in current and long-term operating lease liabilities at quarter-end.

Changes versus the comparable 2018 periods

  • U.S. Retail and U.S. Wholesale drove revenue growth. International sales declined 1.3% year to date, with currency translation unfavorable by approximately $6.4 million.
  • Q3 comparable U.S. Retail sales declined 0.6%; year-to-date they declined 0.1%. Management cited reduced store traffic and unusually warm weather, partly offset by eCommerce growth. Canadian comparable retail sales also declined.
  • Q3 U.S. Wholesale sales increased 3.9%, while segment operating income fell 19.8%; the reported results included the Skip Hop impairment.
  • Q3 SG&A was $296.7 million, up 0.9%, but declined as a share of sales to 31.5% from 31.8%. Year-to-date SG&A declined 1.1% to $828.5 million.
  • Interest expense rose to $28.7 million year to date from $25.8 million, reflecting higher borrowing rates and refinancing. Diluted shares outstanding were lower than in the prior-year periods.

Outlook, risks, and unusual items

  • The company planned approximately $75 million of capital expenditures for fiscal 2019. It gave no specific earnings or revenue guidance in the supplied filing text.
  • A $30.8 million non-cash impairment charge reduced the value of the Skip Hop tradename to $26.0 million. Management attributed the impairment to lower-than-expected sales and profitability, including the loss of Toys “R” Us, weaker international demand, and tariffs on products sourced from China.
  • In March 2019, the company redeemed $400 million of 5.25% notes due 2021 and issued $500 million of 5.625% notes due 2027. Early redemption produced a $7.8 million loss on extinguishment of debt.
  • Management cited tariffs, product and shipping costs, consumer demand, weather, foreign exchange, customer bankruptcies, and seasonal fluctuations as factors affecting results. The company said it expected cash on hand, operating cash flow, revolving credit availability, and capital-market access to meet foreseeable cash needs.
  • The company reported no legal proceeding it believed would have a material adverse effect and no material changes to the risk factors in its prior Form 10-K. It stated that disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.

Important facts for investors to verify

  • Confirm the intended reporting year: the supplied 10-Q is for Q3 2019, not Q3 2018.
  • Track whether Skip Hop sales and profitability stabilize and whether further impairment is necessary.
  • Assess whether eCommerce growth can offset weak comparable store sales, weather effects, and tariff-related costs.
  • Review inventory levels, operating cash flow, and working-capital movements; management attributed improved year-to-date operating cash flow primarily to customer-payment timing.
  • Monitor debt costs, revolving-facility availability and covenants, and the company’s capacity to sustain dividends and share repurchases.