Carter’s, Inc. — Form 10-Q Summary
Reporting period: Fiscal quarter ended March 30, 2024. The request metadata says “2023 Q1,” but the filing covers the first quarter of fiscal 2024 and compares it with the quarter ended April 1, 2023. Amounts are in U.S. dollars.
Business context and financial performance
Carter’s designs, sources, and markets children’s apparel and related products through U.S. Retail, U.S. Wholesale, and International segments. As of quarter-end, it operated 1,027 company-owned stores in North America and sold through eCommerce, wholesale partners, and international licensees.
| Metric | Q1 2024 | Prior-year quarter | Change |
|---|---|---|---|
| Net sales | $661.5 million | $695.9 million | Down 4.9% |
| Gross profit / margin | $315.2 million / 47.6% | $309.5 million / 44.5% | Profit up 1.8%; margin up 310 bps |
| Operating income / margin | $55.0 million / 8.3% | $56.4 million / 8.1% | Income down 2.3%; margin up 20 bps |
| Net income | $38.0 million | $36.0 million | Up 5.7% |
| Diluted EPS | $1.04 | $0.95 | Up $0.09 |
| Operating cash flow | $(25.6) million | $42.2 million | Decreased $67.7 million |
Sales fell primarily on lower eCommerce traffic, wholesale shipment timing, lower off-price wholesale sales, and lower average selling prices. Gross margin improved mainly from lower freight and product input costs and fewer off-price sales. SG&A rose 2.2% to $265.4 million; its share of sales increased 280 bps to 40.1%, reflecting new-store investment, sales deleverage, and the nonrecurrence of a prior-year lease-termination gain.
By segment, sales declined 5.0% in U.S. Retail, 5.7% in U.S. Wholesale, and 2.7% in International. Operating income fell sharply in U.S. Retail to $14.3 million, but rose to $63.3 million in U.S. Wholesale; International operating income was $2.2 million. Retail comparable sales declined 6.8% in the U.S. and 5.1% in Canada.
Financial position, cash flow, and capital allocation
- Cash and cash equivalents were $267.6 million, down from $351.2 million at fiscal year-end. Inventory was $473.4 million, down 22.9% year over year.
- Long-term debt was $497.5 million net, representing $500 million of 5.625% senior notes due March 2027. There were no revolver borrowings; approximately $844.7 million of revolving capacity was available, net of letters of credit. The company reported compliance with credit-facility covenants.
- Operating cash use was $25.6 million, compared with cash generation of $42.2 million a year earlier; management attributed the change primarily to smaller inventory reductions. Capital expenditures were $12.0 million. Financing cash use was $45.3 million, including $29.3 million of dividends and $9.0 million of share repurchases.
- The company paid a quarterly dividend of $0.80 per share, versus $0.75 a year earlier. It repurchased 107,795 shares for $9.0 million and reported $640.5 million remaining under repurchase authorizations.
Outlook, management commentary, and risks
Management said inflation, higher interest rates, consumer debt, reduced savings, energy prices, and geopolitical uncertainty may weigh on consumer sentiment and demand; increased industry promotions could pressure sales and margins. It expects Red Sea shipping disruption to add approximately $6–$8 million in costs through fiscal 2024, while still expecting full-year freight input costs to be favorable to fiscal 2023. The company plans approximately $80 million in fiscal 2024 capital expenditures and projects about 33 store openings and 20 closures for the remainder of the year. Management said available liquidity should be sufficient for at least the next 12 months. No full-year earnings or sales guidance is stated in the provided filing text.
Other risks identified include supply-chain disruption, cost inflation, weaker discretionary spending and birth rates, customer financial distress, competition, weather, foreign exchange, tariffs, cybersecurity, and the ability to achieve forecasts and maintain dividends or buybacks. Management reported no material change to the risk factors in its 2023 Form 10-K. The company disclosed ordinary-course claims and lawsuits, but no proceedings it believes would materially adversely affect its financial position, results, or cash flows. Gross unrecognized tax benefits were approximately $8.2 million.
Management’s adjusted diluted EPS was $1.04, versus $0.98 in the prior-year quarter; the filing’s non-GAAP reconciliation shows no adjustment to Q1 2024 GAAP results and a prior-year restructuring adjustment.
Important facts for investors to verify
- Confirm the period: this filing is for Q1 fiscal 2024, notwithstanding the request metadata’s “2023 Q1.”
- Assess whether weaker sales and comparable-store trends, particularly in U.S. Retail and eCommerce, persist, and whether lower prices and promotions continue to pressure revenue.
- Track whether gross-margin gains from lower freight and product costs offset SG&A deleverage and the expected $6–$8 million Red Sea-related costs.
- Review operating cash flow and working-capital movements; quarterly cash use reflects seasonal factors and may not indicate full-year performance.
- Monitor store expansion, planned capital expenditures, debt maturity and covenants, and the sustainability of dividends and share repurchases.