Carter’s, Inc. Form 10-K Summary
Reporting period: Fiscal year ended December 30, 2023 (52 weeks), compared primarily with the 52 weeks ended December 31, 2022. The request metadata says “2022 Q4,” but the supplied filing is the fiscal 2023 Form 10-K, filed February 27, 2024.
Business context
Carter’s designs, sources, and markets children’s apparel and related products under Carter’s, OshKosh B’gosh, Skip Hop, Little Planet, and exclusive retail brands. It sells through U.S. retail and eCommerce, U.S. wholesale, and international channels. At year-end, it operated 1,034 stores and distributed through wholesale partners and licensees in North America and more than 90 other countries.
Financial performance and liquidity
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Net sales | $2.946 billion | $3.213 billion | Down 8.3% |
| Gross margin | 47.4% | 45.8% | Up 160 bps |
| Operating income / margin | $323.4 million / 11.0% | $379.2 million / 11.8% | Income down 14.7% |
| Net income | $232.5 million | $250.0 million | Down 7.0% |
| Diluted EPS | $6.24 | $6.34 | Down 1.6% |
| Operating cash flow | $529.1 million | $88.4 million | Up $440.8 million |
| Capital expenditures | $59.9 million | $40.4 million | Up $19.5 million |
Gross-margin improvement reflected lower inventory provisions, improved price realization, and lower ocean freight costs. SG&A fell 1.4% to $1.094 billion, but rose to 37.1% of sales from 34.6%, as lower sales created fixed-cost deleverage and compensation, consulting, and restructuring costs increased. Management-reported adjusted operating income was $327.8 million and adjusted diluted EPS was $6.19; these non-GAAP measures exclude specified items and should be considered alongside GAAP results.
Sales declined in all segments: U.S. Retail fell 10.6% to $1.502 billion, U.S. Wholesale fell 6.1% to $1.015 billion, and International fell 5.1% to $429.2 million. U.S. Retail comparable sales decreased 12.2%. Overall units sold declined in the low-teens, partly offset by low-single-digit higher average selling prices. Wholesale operating income increased 23.0%, while U.S. Retail and International operating income declined 24.5% and 20.6%, respectively.
Operating cash flow increased mainly because inventory fell $207.4 million, or 27.9%, to $537.1 million, and performance-compensation payments were lower; net income declined. Year-end cash was $351.2 million. Debt was $500 million of 5.625% senior notes due March 2027, with no revolver borrowings and $845.6 million available under the $850 million secured facility. The company reported compliance with facility covenants and believes available liquidity is adequate for at least the next 12 months. Fiscal 2023 shareholder returns totaled $212.0 million: $100.0 million in repurchases and $112.0 million in dividends. The annual dividend was $3.00 per share.
Outlook, commentary, risks, and unusual items
- Management expects continued consumer-demand pressure in fiscal 2024 amid inflation, higher interest rates, consumer debt, and recession concerns. It expects product input and inbound freight costs to improve, but cautions that cost pressure and pricing actions may affect demand.
- Fiscal 2024 plans include approximately 40 store openings and 30 closures, about $80 million of capital expenditures, and a $0.80-per-share quarterly dividend declared for payment in March 2024. These plans are subject to business conditions and other uncertainties.
- Red Sea shipping disruptions added an estimated 7–10 days to transit for affected shipments. Carter’s estimated $6–$7 million of added costs through June 2024 if disruptions continue; approximately 65% of products typically move through the Red Sea for East Coast U.S. delivery.
- Other notable items included approximately $6.2 million of fiscal 2023 restructuring costs and a $6.9 million payment from a court-approved payment-card interchange settlement, received in January 2024. Fiscal 2022 included a $9.0 million non-cash Skip Hop tradename impairment and a $19.9 million debt-extinguishment loss; neither recurred in fiscal 2023.
- Key risks include discretionary-spending weakness, competition and inventory forecasting, reliance on foreign suppliers and concentrated wholesale customers, freight and geopolitical disruption, tariffs and forced-labor import restrictions, cyber and data-security incidents, weather, and debt and covenant constraints. The largest wholesale customer represented 10.4% of fiscal 2023 sales; the top five represented approximately 29%.
- The company reported no legal proceeding it believed would materially adversely affect its financial position, results, or cash flows. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting; the audit identified U.S. wholesale revenue recognition as a critical audit matter.
Important facts for investors to verify
- Whether consumer demand and comparable sales stabilize, particularly in U.S. Retail and eCommerce, and whether planned store expansion earns adequate returns.
- Whether gross-margin gains persist while SG&A remains elevated as a percentage of sales.
- Whether the sharp operating-cash-flow increase is repeatable or was primarily a one-time working-capital benefit from inventory reduction.
- Actual Red Sea-related transit delays and costs, and whether sourcing concentration or trade restrictions disrupt product availability.
- Wholesale customer health, receivable exposure, inventory levels, and progress against management’s fiscal 2024 plans.
- Ability to service or refinance the $500 million 2027 notes, maintain revolver covenant compliance, and sustain dividends and repurchases under weaker conditions.