Last10K.com

Carters Inc (CRI) SEC Filing 8-K Material Event for the period ending Friday, October 23, 2020

Carters Inc

CIK: 1060822 Ticker: CRI


EXHIBIT 99.1
                                                
carters_logoa01a01a01a01a19.jpg
 
Contact:
 
Sean McHugh
 
Vice President & Treasurer
 
sean.mchugh@carters.com

Carters, Inc. Reports Third Quarter Fiscal 2020 Results
Third quarter results show progress recovering from market disruption
Net sales $865 million, decline of 8%
U.S. Retail comparable sales down 3.5%, including 17% increase in eCommerce sales
Sales of exclusive brands to Target, Walmart and Amazon grew 10%
Operating income $114 million, growth of 35%; adjusted operating income $120 million, growth of 4%
Diluted EPS $1.85, growth of 38%; adjusted diluted EPS $1.96, growth of 5%
$1.6 billion in liquidity at quarter end
ATLANTA, October 23, 2020 - Carter’s, Inc. (NYSE:CRI), the largest branded marketer in North America of apparel exclusively for babies and young children, today reported its third quarter fiscal 2020 results.
“We exceeded our sales and earnings goals in the third quarter,” said Michael D. Casey, Chairman and Chief Executive Officer. “The quarter got off to a strong start with our Fourth of July holiday retail sales up 7%. We saw less robust demand in August during the back-to-school shopping period with many children beginning their school year at home and learning virtually. We had the strongest level of demand in September with our Labor Day holiday retail sales up 15%, our best performance in three years.
“Earnings in the quarter were driven by the strength of our product offerings, more effective brand marketing, fewer promotions, curtailed spending and growth in eCommerce sales. eCommerce continues to be our fastest growing and highest margin business.
“We believe our third quarter performance reflects the strength of our brands, our strong value proposition, broad market distribution and the less discretionary nature of children’s apparel.
“As we enter the final weeks of the year, consumer demand is less predictable this holiday season given the lingering effects and, in some markets, resurgence of the coronavirus. That said, we believe we are

1



well-positioned to outperform the market in the balance of 2020 and years ahead by providing the best value and experience in young children’s apparel.”
Adjustments to Reported GAAP Results
In addition to the results presented in this earnings release in accordance with GAAP, the Company has provided adjusted, non-GAAP financial measurements, as presented below. The Company believes these adjustments provide a meaningful comparison of the Company’s results and afford investors a view of what management considers to be the Company's core performance. These measures are presented for informational purposes only. See “Reconciliation of GAAP to Adjusted Results” section of this release for additional disclosures and reconciliations regarding these non-GAAP financial measures.
 
Third Fiscal Quarter
 
2020
 
 
2019
(In millions, except earnings per share)
Operating Income
 
% Net Sales
 
Net Income
 
Diluted EPS
 
 
Operating Income
 
% Net Sales
 
Net Income
 
Diluted EPS
As reported (GAAP)
$
113.5

 
13.1
%
 
$
81.2

 
$
1.85

 
 
$
83.9

 
8.9
%
 
$
60.3

 
$
1.34

COVID-19 expenses
3.3

 
 
 
2.5

 
0.06

 
 

 
 
 

 

Retail store operating leases and other long-lived asset impairments, net
1.5

 
 
 
1.1

 
0.03

 
 

 
 
 

 

Productivity/restructuring costs
1.2

 
 
 
1.0

 
0.02

 
 

 
 
 

 

Intangible asset impairment

 
 
 

 

 
 
30.8

 
 
 
23.7

 
0.53

As adjusted
$
119.5

 
13.8
%
 
$
85.9

 
$
1.96

 
 
$
114.7

 
12.2
%
 
$
83.9

 
$
1.87


 
First Three Fiscal Quarters
 
2020
 
 
2019
(In millions, except earnings per share)
Operating Income
 
% Net Sales
 
Net Income
 
Diluted EPS
 
 
Operating Income
 
% Net Sales
 
Net Income
 
Diluted EPS
As reported (GAAP)
$
56.0

 
2.8
%
 
$
10.7

 
$
0.24

 
 
$
209.1

 
8.6
%
 
$
138.7

 
$
3.06

Intangible asset impairment
26.5

 
 
 
20.2

 
0.46

 
 
30.8

 
 
 
23.7

 
0.52

Goodwill impairment
17.7

 
 
 
17.7

 
0.40

 
 

 
 
 

 

COVID-19 expenses
18.8

 
 
 
14.3

 
0.34

 
 

 
 
 

 

Productivity/restructuring costs
8.8

 
 
 
6.8

 
0.15

 
 
1.6

 
 
 
1.3

 
0.03

Retail store operating leases and other long-lived asset impairments, net
6.5

 
 
 
4.9

 
0.11

 
 

 
 
 

 

Debt extinguishment loss

 
 
 

 

 
 

 
 
 
6.0

 
0.13

Store restructuring costs

 
 
 

 

 
 
(0.7
)
 
 
 
(0.6
)
 
(0.01
)
China business model change

 
 
 

 

 
 
(2.1
)
 
 
 
(2.1
)
 
(0.05
)
As adjusted
$
134.3

 
6.6
%
 
$
74.7

 
$
1.70

 
 
$
238.7

 
9.9
%
 
$
166.9

 
$
3.68


Note: Results may not be additive due to rounding.



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Consolidated Results
The discussion of results below is presented on an adjusted (non-GAAP) basis where noted.
Third Quarter of Fiscal 2020 compared to Third Quarter of Fiscal 2019
Net sales decreased $78.2 million, or 8.3%, to $865.1 million, compared to $943.3 million in the third quarter of fiscal 2019. The decline reflects decreased sales to certain wholesale customers, decreased traffic to Company-operated stores, and decreased back-to-school sales (all a result of ongoing disruptions related to the COVID-19 pandemic), partially offset by strong eCommerce channel growth. U.S. Retail segment comparable sales declined 3.5%, reflecting a retail store decline, partially offset by eCommerce growth of 17.2%.
Operating income increased $29.7 million, or 35.4%, to $113.5 million, compared to $83.9 million in the third quarter of fiscal 2019. Operating margin increased 420 basis points to 13.1%. Adjusted operating income (a non-GAAP measure) increased $4.9 million, or 4.2%, to $119.5 million, compared to $114.7 million in the third quarter of fiscal 2019. Adjusted operating margin increased 160 basis points to 13.8%, reflecting improved gross margin and strong management of spending.
Net income increased $21.0 million, or 34.8%, to $81.2 million, or $1.85 per diluted share, compared to $60.3 million, or $1.34 per diluted share, in the third quarter of fiscal 2019. Adjusted net income (a non-GAAP measure) increased $2.0 million, or 2.3%, to $85.9 million, compared to $83.9 million in the third quarter of fiscal 2019. Adjusted earnings per diluted share (a non-GAAP measure) increased 4.8% to $1.96, compared to $1.87 in the third quarter of fiscal 2019.
First Three Quarters of Fiscal 2020 compared to First Three Quarters of Fiscal 2019
Net sales decreased $384.3 million, or 15.9%, to $2.03 billion. This decrease reflects the temporary closure of the Company’s retail stores earlier this year, largely in the months of March, April, and May, and decreased sales to certain wholesale customers (both a result of disruptions related to COVID-19), partially offset by strong growth in eCommerce sales. Comparable eCommerce sales in the U.S. increased 39%.
Operating income was $56.0 million, compared to $209.1 million in the first three quarters of fiscal 2019. Adjusted operating income (a non-GAAP measure) was $134.3 million, compared to $238.7 million in the first three quarters of fiscal 2019. The decrease reflects the decline in net sales, increased inventory provisions, and lower royalty income, partially offset by decreased selling, general, and administrative expenses.

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Net income was $10.7 million, or $0.24 per diluted share, compared to $138.7 million, or $3.06 per diluted share, in the first three quarters of fiscal 2019. Adjusted net income (a non-GAAP measure) was $74.7 million, compared to $166.9 million in the first three quarters of fiscal 2019. Adjusted earnings per diluted share (a non-GAAP measure) was $1.70, compared to $3.68 in the first three quarters of fiscal 2019.
Net cash provided by operations in the first three quarters of fiscal 2020 was $320.1 million compared to $73.4 million in the first three quarters of fiscal 2019. The increase reflects the extension of vendor payment terms, deferrals of retail store lease and other cash payments, and a reduction in inventory, partially offset by lower earnings related to COVID-19 disruptions.
See the “Business Segment Results” and “Reconciliation of GAAP to Adjusted Results” sections of this release for additional disclosures regarding business segment performance and non-GAAP measures.
Liquidity and Financial Position
During the third quarter of fiscal 2020, the Company repaid $244 million in outstanding borrowings under its $750 million secured revolving credit facility using cash on hand. The Company’s total liquidity at the end of the third quarter of fiscal 2020 was $1.6 billion, comprised of cash and cash equivalents of $831 million and approximately $740 million in available borrowing capacity (exclusive of $7 million of outstanding letters of credit) on its secured revolving credit facility.
Earlier this year, the Company announced that, in connection with the COVID-19 pandemic, it temporarily suspended its common stock share repurchase program and quarterly cash dividend. No distributions of capital occurred in the third quarter of fiscal 2020. Provisions in the Company’s secured revolving credit facility restrict the Company’s ability to pay cash dividends or repurchase its common stock through the third fiscal quarter of 2021, and could have the effect of restricting the Company’s ability to do so thereafter. The Company’s Board of Directors will evaluate future distributions of capital, including share repurchases and dividends, based on a number of factors, including restrictions under the Company’s revolving credit facility, business conditions, the Company’s financial performance, and other considerations.
The Company continues to believe it has sufficient liquidity for the foreseeable future to maintain its operations and manage through the disruption caused by the COVID-19 pandemic.


4



2020 Business Outlook
Given the market disruption caused by the COVID-19 pandemic, recent spikes in confirmed cases of the coronavirus, and related uncertainty on timing and extent of the market recovery, the Company is not providing fiscal 2020 sales and earnings guidance at this time.
Conference Call
The Company will hold a conference call with investors to discuss third quarter fiscal 2020 results and its business outlook on October 23, 2020 at 8:30 a.m. Eastern Daylight Time. To participate in the call, please dial 334-777-6978. To listen to a live broadcast via the internet and view the accompanying presentation materials, please visit ir.carters.com and select links for “News & Events” followed by “Webcasts & Presentations”. A replay of the call will be available shortly after the broadcast through November 6, 2020, at 888-203-1112 (U.S. / Canada) or 719-457-0820 (international), passcode 9393867. The replay will also be archived online on the “Webcasts & Presentations” page noted above.
About Carter’s, Inc.
Carter’s, Inc. is the largest branded marketer in North America of apparel exclusively for babies and young children. The Company owns the Carter’s and OshKosh B’gosh brands, two of the most recognized brands in the marketplace. These brands are sold in leading department stores, national chains, and specialty retailers domestically and internationally. They are also sold through approximately 1,100 Company-operated stores in the United States, Canada, and Mexico and online at www.carters.com, www.oshkosh.com, www.cartersoshkosh.ca, and www.carters.com.mx. The Company’s Child of Mine brand is available at Walmart, its Just One You brand is available at Target, and its Simple Joys brand is available on Amazon. The Company also owns Skip Hop, a global lifestyle brand for families with young children. Carter’s is headquartered in Atlanta, Georgia. Additional information may be found at www.carters.com.
Forward Looking Statements
This press release contains forward-looking statements within the meaning of the federal securities laws relating to our future performance, including statements with respect to the potential effects of the COVID-19 pandemic and the Company’s liquidity. Such statements are based on current expectations only, and are subject to certain risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize or not materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. Certain of the risks and uncertainties that could cause actual results and performance to differ materially are described in the Company’s most recently filed Annual Report on Form 10-K, Quarterly Report on Form 10-Q for the

5



quarter ended March 28, 2020, and other reports filed with the Securities and Exchange Commission from time to time under the headings “Risk Factors”. Included among those risks are those related to: the effects of the current coronavirus outbreak; financial difficulties for one or more of our major customers; an overall decrease in consumer spending; our products not being accepted in the marketplace; increased competition in the market place; diminished value of our brands; the failure to protect our intellectual property; the failure to comply with applicable quality standards or regulations; unseasonable or extreme weather conditions; pending and threatened lawsuits; a breach of our information technology systems and the loss of personal data; increased margin pressures, including increased cost of materials and labor; our foreign sourcing arrangements; disruptions in our supply chain; the management and expansion of our business domestically and internationally; the acquisition and integration of other brands and businesses; and changes in our tax obligations, including additional customs, duties or tariffs. The Company does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.






6




CARTER’S, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
(unaudited)



 
Fiscal Quarter Ended
 
Three Fiscal Quarters Ended
 
September 26, 2020
 
September 28, 2019
 
September 26, 2020
 
September 28, 2019
Net sales
$
865,080

 
$
943,322

 
$
2,034,437

 
$
2,418,764

Cost of goods sold
483,333

 
540,808

 
1,170,778

 
1,376,336

Adverse purchase commitments (inventory and raw materials), net
(1,968
)
 
303

 
16,166

 
1,354

Gross profit
383,715

 
402,211

 
847,493

 
1,041,074

Royalty income, net
9,063

 
9,192

 
19,989

 
27,371

Selling, general, and administrative expenses
279,251

 
296,733

 
767,237

 
828,540

Goodwill impairment

 

 
17,742

 

Intangible asset impairment

 
30,800

 
26,500

 
30,800

Operating income
113,527

 
83,870

 
56,003

 
209,105

Interest expense
16,347

 
9,966

 
40,523

 
28,667

Interest income
(330
)
 
(200
)
 
(1,217
)
 
(937
)
Other (income) expense, net
(2,758
)
 
483

 
2,647

 
474

Loss on extinguishment of debt

 

 

 
7,823

Income before income taxes
100,268

 
73,621

 
14,050

 
173,078

Income tax provision
19,027

 
13,369

 
3,347

 
34,423

Net income
$
81,241

 
$
60,252

 
$
10,703

 
$
138,655

 
 
 
 
 
 
 
 
Basic net income per common share
$
1.86

 
$
1.35

 
$
0.25

 
$
3.08

Diluted net income per common share
$
1.85

 
$
1.34

 
$
0.24

 
$
3.06

Dividend declared and paid per common share
$

 
$
0.50

 
$
0.60

 
$
1.50



7



CARTER’S, INC.
BUSINESS SEGMENT RESULTS
(dollars in thousands)
(unaudited)

 
Fiscal Quarter Ended
 
 
Three Fiscal Quarters Ended
 
September 26,
2020
 
% of
Total Net Sales
 
September 28,
2019
 
% of
Total Net Sales
 
 
September 26,
2020
 
% of
Total Net Sales
 
September 28,
2019
 
% of
Total Net Sales
Net sales:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Retail
$
449,150

 
51.9
%
 
$
464,100

 
49.2
%
 
 
$
1,085,883

 
53.4
 %
 
$
1,264,283

 
52.3
%
U.S. Wholesale
302,135

 
34.9
%
 
352,256

 
37.3
%
 
 
706,009

 
34.7
 %
 
856,713

 
35.4
%
International
113,795

 
13.2
%
 
126,966

 
13.5
%
 
 
242,545

 
11.9
 %
 
297,768

 
12.3
%
Total net sales
$
865,080

 
100.0
%
 
$
943,322

 
100.0
%
 
 
$
2,034,437

 
100.0
 %
 
$
2,418,764

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss):
 
 
% of
Segment
Net Sales
 
 
 
% of
Segment
Net Sales
 
 
 
 
% of
Segment
Net Sales
 
 
 
% of
Segment
Net Sales
U.S. Retail
$
47,559

 
10.6
%
 
$
49,472

 
10.7
%
 
 
$
38,902

 
3.6
 %
 
$
124,567

 
9.9
%
U.S. Wholesale
65,718

 
21.8
%
 
54,391

 
15.4
%
 
 
89,141

 
12.6
 %
 
145,181

 
16.9
%
International
17,400

 
15.3
%
 
6,136

 
4.8
%
 
 
(15,819
)
 
(6.5
)%
 
15,351

 
5.2
%
Corporate expenses (*)
(17,150
)
 
n/a

 
(26,129
)
 
n/a

 
 
(56,221
)
 
n/a

 
(75,994
)
 
n/a

Total operating income
$
113,527

 
13.1
%
 
$
83,870

 
8.9
%
 
 
$
56,003

 
2.8
 %
 
$
209,105

 
8.6
%

(*)
Corporate expenses include expenses related to incentive compensation, stock-based compensation, executive management, severance and relocation, finance, office occupancy, information technology, certain legal fees, consulting fees, and audit fees.
 
Fiscal Quarter Ended September 26, 2020
 
 
Three Fiscal Quarters Ended September 26, 2020
Charges:
U.S. Retail
 
U.S. Wholesale
 
International
 
 
U.S. Retail
 
U.S. Wholesale
 
International
Productivity/restructuring costs(1)
$
0.3

 
$
0.2

 
$
0.3

 
 
$
3.4

 
$
1.5

 
$
1.9

Goodwill impairment

 

 

 
 

 

 
17.7

Skip Hop tradename impairment charge

 

 

 
 
0.5

 
6.8

 
3.7

OshKosh tradename impairment charge

 

 

 
 
13.6

 
1.6

 
0.3

Incremental costs associated with COVID-19 pandemic
1.6

 
1.4

 
0.3

 
 
8.3

 
8.5

 
2.0

Retail store operating leases and other long-lived asset impairments, net of gain(2)
1.5

 

 

 
 
6.3

 

 
0.2

Total charges
$
3.4

 
$
1.6

 
$
0.6

 
 
$
32.1

 
$
18.4

 
$
25.8


(1)
The third fiscal quarter ended September 26, 2020, the three fiscal quarters ended September 26, 2020, and the three fiscal quarters ended September 28, 2019 also include corporate charges related to organizational restructuring of $0.4 million, $2.0 million, and $1.6 million, respectively.
(2)
Impairments include an immaterial gain on the remeasurement of retail store operating leases.

8



 
Fiscal Quarter Ended September 28, 2019
 
 
Three Fiscal Quarters Ended September 28, 2019
Charges:
U.S. Retail
 
U.S. Wholesale
 
International
 
 
U.S. Retail
 
U.S. Wholesale
 
International
Benefit related to sale of inventory previously reserved in China
$

 
$

 
$

 
 
$

 
$

 
$
(2.1
)
Reversal of store restructuring costs previously recorded during the third quarter of fiscal 2017

 

 

 
 
(0.7
)
 

 

Skip Hop tradename impairment charge
1.2

 
19.1

 
10.5

 
 
1.2

 
19.1

 
10.5

Total charges
$
1.2

 
$
19.1

 
$
10.5

 
 
$
0.5

 
$
19.1

 
$
8.4


Note: Results may not be additive due to rounding.

9



CARTER’S, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
(unaudited)

 
September 26, 2020
 
December 28, 2019
 
September 28, 2019
ASSETS
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
831,175

 
$
214,311

 
$
153,936

Accounts receivable, net of allowance for credit losses of $7,675, $6,354, $4,591, respectively
263,231

 
251,005

 
293,203

Finished goods inventories, net of inventory reserves of $30,053, $9,283, and $19,583, respectively
646,608

 
593,987

 
723,242

Prepaid expenses and other current assets
56,493

 
48,454

 
53,264

Total current assets
1,797,507

 
1,107,757

 
1,223,645

Property, plant, and equipment, net of accumulated depreciation of $576,123, $523,848, and $504,833, respectively
274,574

 
320,168

 
330,371

Operating lease assets
619,057

 
687,024

 
709,523

Tradenames, net
307,955

 
334,642

 
334,705

Goodwill
209,507

 
229,026

 
228,235

Customer relationships, net
38,147

 
41,126

 
41,890

Other assets
34,874

 
33,374

 
31,211

Total assets
$
3,281,621

 
$
2,753,117

 
$
2,899,580

 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable
$
473,473

 
$
183,641

 
$
205,782

Current operating lease liabilities
172,364

 
160,228

 
158,524

Other current liabilities
115,069

 
131,631

 
119,862

Total current liabilities
760,906

 
475,500

 
484,168

 
 
 
 
 
 
Long-term debt, net
989,086

 
594,672

 
769,525

Deferred income taxes
60,160

 
74,370

 
78,916

Long-term operating lease liabilities
587,099

 
664,372

 
691,717

Other long-term liabilities
62,489

 
64,073

 
62,520

Total liabilities
$
2,459,740

 
$
1,872,987

 
$
2,086,846

 
 
 
 
 
 
Commitments and contingencies
 
 
 
 
 
 
 
 
 
 
 
Stockholders' equity:
 
 
 
 
 
Preferred stock; par value $.01 per share; 100,000 shares authorized; none issued or outstanding at September 26, 2020, December 28, 2019, and September 28, 2019
$

 
$

 
$

Common stock, voting; par value $.01 per share; 150,000,000 shares authorized; 43,648,671, 43,963,103 and 44,287,636 shares issued and outstanding at September 26, 2020, December 28, 2019, and September 28, 2019, respectively
436

 
440

 
443

Additional paid-in capital
9,258

 

 

Accumulated other comprehensive loss
(41,402
)
 
(35,634
)
 
(38,908
)
Retained earnings
853,589

 
915,324

 
851,199

Total stockholders' equity
821,881

 
880,130

 
812,734

Total liabilities and stockholders' equity
$
3,281,621

 
$
2,753,117

 
$
2,899,580



10



CARTER’S, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
 
Three Fiscal Quarters Ended
 
September 26, 2020
 
September 28, 2019
Cash flows from operating activities:
 
 
 
Net income
$
10,703

 
$
138,655

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation of property, plant, and equipment
66,985

 
68,005

Amortization of intangible assets
2,784

 
2,810

Provisions for (recoveries of) excess and obsolete inventory
20,912

 
4,567

Goodwill impairment
17,742

 

Intangible asset impairments
26,500

 
30,800

Other asset impairments and loss on disposal of property, plant and equipment, net of recoveries
9,395

 
407

Amortization of debt issuance costs
1,641

 
1,087

Stock-based compensation expense
9,531

 
13,540

Unrealized foreign currency exchange loss, net
1,354

 
176

Provisions for (recoveries of) doubtful accounts receivable from customers
7,702

 
(2,063
)
Loss on extinguishment of debt

 
7,823

Deferred income tax (benefit) expense
(16,697
)
 
8,300

Effect of changes in operating assets and liabilities:
 
 
 
Accounts receivable
(21,576
)
 
(32,792
)
Finished goods inventories
(76,739
)
 
(152,023
)
Prepaid expenses and other assets
(7,660
)
 
(16,688
)
Accounts payable and other liabilities
267,551

 
751

Net cash provided by operating activities
320,128

 
73,355

 
 
 
 
Cash flows from investing activities:
 
 
 
Capital expenditures
(25,212
)
 
(46,138
)
Disposals and recoveries from property, plant, and equipment

 
749

Net cash used in investing activities
(25,212
)
 
(45,389
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Proceeds from senior notes due 2025
500,000

 

Proceeds from senior notes due 2027

 
500,000

Payment of senior notes due 2021

 
(400,000
)
Premiums paid to extinguish debt

 
(5,252
)
Payment of debt issuance costs
(7,639
)
 
(5,793
)
Borrowings under secured revolving credit facility
644,000

 
265,000

Payments on secured revolving credit facility
(744,000
)
 
(186,000
)
Repurchases of common stock
(45,255
)
 
(147,464
)
Dividends paid
(26,260
)
 
(67,528
)
Withholdings from vestings of restricted stock
(4,928
)
 
(4,214
)
Proceeds from exercises of stock options
3,728

 
6,881

Net cash provided by (used in) financing activities
319,646

 
(44,370
)
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
2,302

 
263

Net increase (decrease) in cash and cash equivalents
616,864

 
(16,141
)
Cash and cash equivalents, beginning of period
214,311

 
170,077

Cash and cash equivalents, end of period
$
831,175

 
$
153,936


11



CARTER’S, INC.
RECONCILIATION OF GAAP TO ADJUSTED RESULTS
(dollars in millions, except earnings per share)
(unaudited)
 
Fiscal Quarter Ended September 26, 2020
 
Gross Margin
 
% Net Sales
 
SG&A
 
% Net Sales
 
Operating Income
 
% Net Sales
 
Income Taxes
 
Net Income
 
Diluted EPS
As reported (GAAP)
$
383.7

 
44.4
%
 
$
279.3

 
32.3
%
 
$
113.5

 
13.1
%
 
$
19.0

 
$
81.2

 
$
1.85

COVID-19 expenses (b)

 
 
 
(3.3
)
 
 
 
3.3

 
 
 
0.8

 
2.5

 
0.06

Retail store operating leases and other long-lived asset impairments, net (c)

 
 
 
(1.5
)
 
 
 
1.5

 
 
 
0.4

 
1.1

 
0.03

Productivity/restructuring costs (d)

 
 
 
(1.2
)
 
 
 
1.2

 
 
 
0.2

 
1.0

 
0.02

As adjusted (a)
$
383.7

 
44.4
%
 
$
273.2

 
31.6
%
 
$
119.5

 
13.8
%
 
$
20.4

 
$
85.9

 
$
1.96


 
Three Fiscal Quarters Ended September 26, 2020
 
Gross Margin
 
% Net Sales
 
SG&A
 
% Net Sales
 
Operating Income
 
% Net Sales
 
Income Taxes
 
Net Income
 
Diluted EPS
As reported (GAAP)
$
847.5

 
41.7
%
 
$
767.2

 
37.7
%
 
$
56.0

 
2.8
%
 
$
3.3

 
$
10.7

 
$
0.24

Intangible asset impairment (e)

 
 
 

 
 
 
26.5

 
 
 
6.3

 
20.2

 
0.46

Goodwill impairment (f)

 
 
 

 
 
 
17.7

 
 
 

 
17.7

 
0.40

COVID-19 expenses (b)

 
 
 
(18.8
)
 
 
 
18.8

 
 
 
4.5

 
14.3

 
0.34

Productivity/restructuring costs (d)

 
 
 
(8.8
)
 
 
 
8.8

 
 
 
1.9

 
6.8

 
0.15

Retail store operating leases and other long-lived asset impairments, net (c)

 
 
 
(6.5
)
 
 
 
6.5

 
 
 
1.6

 
4.9

 
0.11

As adjusted (a)
$
847.5

 
41.7
%
 
$
733.2

 
36.0
%
 
$
134.3

 
6.6
%
 
$
17.7

 
$
74.7

 
$
1.70


 
Fiscal Quarter Ended September 28, 2019
 
Gross Margin
 
% Net Sales
 
SG&A
 
% Net Sales
 
Operating Income
 
% Net Sales
 
Income Taxes
 
Net Income
 
Diluted EPS
As reported (GAAP)
$
402.2

 
42.6
%
 
$
296.7

 
31.5
%
 
$
83.9

 
8.9
%
 
$
13.4

 
$
60.3

 
$
1.34

Intangible asset impairment (e)

 
 
 

 
 
 
30.8

 
 
 
7.1

 
23.7

 
0.53

As adjusted (a)
$
402.2

 
42.6
%
 
$
296.7

 
31.5
%
 
$
114.7

 
12.2
%
 
$
20.5

 
$
83.9

 
$
1.87


 
Three Fiscal Quarters Ended September 28, 2019
 
Gross Margin
 
% Net Sales
 
SG&A
 
% Net Sales
 
Operating Income
 
% Net Sales
 
Income Taxes
 
Net Income
 
Diluted EPS
As reported (GAAP)
$
1,041.1

 
43.0
%
 
$
828.5

 
34.3
%
 
$
209.1

 
8.6
%
 
$
34.4

 
$
138.7

 
$
3.06

Intangible asset impairment (e)

 
 
 

 
 
 
30.8

 
 
 
7.1

 
23.7

 
0.52

Debt extinguishment loss (g)

 
 
 

 
 
 

 
 
 
1.8

 
6.0

 
0.13

Productivity/restructuring costs (d)

 
 
 
(1.6
)
 
 
 
1.6

 
 
 
0.4

 
1.3

 
0.03

Store restructuring costs (h)

 
 
 
0.7

 
 
 
(0.7
)
 
 
 
(0.2
)
 
(0.6
)
 
(0.01
)
China business model change (i)
(2.1
)
 
 
 

 
 
 
(2.1
)
 
 
 

 
(2.1
)
 
(0.05
)
As adjusted (a)
$
1,039.0

 
43.0
%
 
$
827.6

 
34.2
%
 
$
238.7

 
9.9
%
 
$
43.6

 
$
166.9

 
$
3.68







12




(a)
In addition to the results provided in this earnings release in accordance with GAAP, the Company has provided adjusted, non-GAAP financial measurements that present gross margin, SG&A, operating income, income tax, net income, and net income on a diluted share basis excluding the adjustments discussed above.  The Company believes these adjustments provide a meaningful comparison of the Company’s results and afford investors a view of what management considers to be the Company's core performance.  The adjusted, non-GAAP financial measurements included in this earnings release should not be considered as an alternative to net income or as any other measurement of performance derived in accordance with GAAP.  The adjusted, non-GAAP financial measurements are presented for informational purposes only and are not necessarily indicative of the Company’s future condition or results of operations.
(b)
Net expenses incurred due to the COVID-19 pandemic, including incremental employee-related costs, costs associated with additional protective equipment and cleaning supplies, restructuring costs, and a payroll tax benefit.
(c)
Principally related to U.S. Retail store lease assets.
(d)
Certain lease exit, severance and related costs resulting from restructuring actions (not related to COVID-19).
(e)
Intangible impairment charges related to the OshKosh and Skip Hop tradename assets.
(f)
Goodwill impairment charge recorded in the International segment.
(g)
Related to the redemption of the $400 million aggregate principal amount of senior notes due 2021 in March 2019 that were previously issued by a wholly-owned subsidiary of the Company.
(h)
Reversal of retail store restructuring costs previously recorded during the third quarter of fiscal 2017.
(i)
Benefit related to the sale of inventory previously reserved in China.

Note: Results may not be additive due to rounding.



13



CARTER’S, INC.
RECONCILIATION OF NET INCOME ALLOCABLE TO COMMON SHAREHOLDERS
(unaudited)

 
Fiscal Quarter Ended
 
Three Fiscal Quarters Ended
 
September 26,
2020
 
September 28,
2019
 
September 26,
2020
 
September 28,
2019
Weighted-average number of common and common equivalent shares outstanding:
 
 
 
 
 
 
 
Basic number of common shares outstanding
43,193,752

 
44,144,135

 
43,237,319

 
44,640,413

Dilutive effect of equity awards
156,878

 
287,904

 
174,351

 
302,832

Diluted number of common and common equivalent shares outstanding
43,350,630

 
44,432,039

 
43,411,670

 
44,943,245

As reported on a GAAP Basis:
 
 
 
 
 
 
 
(dollars in thousands, except per share data)
 
 
 
 
 
 
 
Basic net income per common share:
 
 
 
 
 
 
 
Net income
$
81,241

 
$
60,252

 
$
10,703

 
$
138,655

Income allocated to participating securities
(837
)
 
(565
)
 
(88
)
 
(1,244
)
Net income available to common shareholders
$
80,404

 
$
59,687

 
$
10,615

 
$
137,411

Basic net income per common share
$
1.86

 
$
1.35

 
$
0.25

 
$
3.08

Diluted net income per common share:
 
 
 
 
 
 
 
Net income
$
81,241

 
$
60,252

 
$
10,703

 
$
138,655

Income allocated to participating securities
(834
)
 
(563
)
 
(89
)
 
(1,239
)
Net income available to common shareholders
$
80,407

 
$
59,689

 
$
10,614

 
$
137,416

Diluted net income per common share
$
1.85

 
$
1.34

 
$
0.24

 
$
3.06

As adjusted (a):
 
 
 
 
 
 
 
Basic net income per common share:
 
 
 
 
 
 
 
Net income
$
85,903

 
$
83,932

 
$
74,700

 
$
166,937

Income allocated to participating securities
(885
)
 
(794
)
 
(759
)
 
(1,508
)
Net income available to common shareholders
$
85,018

 
$
83,138

 
$
73,941

 
$
165,429

Basic net income per common share
$
1.97

 
$
1.88

 
$
1.71

 
$
3.71

Diluted net income per common share:
 
 
 
 
 
 
 
Net income
$
85,903

 
$
83,932

 
$
74,700

 
$
166,937

Income allocated to participating securities
(882
)
 
(791
)
 
(757
)
 
(1,502
)
Net income available to common shareholders
$
85,021

 
$
83,141

 
$
73,943

 
$
165,435

Diluted net income per common share
$
1.96

 
$
1.87

 
$
1.70

 
$
3.68


(a)
In addition to the results provided in this earnings release in accordance with GAAP, the Company has provided adjusted, non-GAAP financial measurements that present per share data excluding the adjustments discussed above. The Company has excluded $4.7 million and $64.0 million in after-tax expenses from these results for the fiscal quarter and three fiscal quarters ended September 26, 2020, respectively. The Company has excluded $23.7 million and $28.3 million in after-tax expenses from these results for the fiscal quarter and three fiscal quarters ended September 28, 2019, respectively.


Note: Results may not be additive due to rounding.

14



RECONCILIATION OF U.S. GAAP AND NON-GAAP INFORMATION
(dollars in millions)
(unaudited)

The following table provides a reconciliation of net income to EBITDA and Adjusted EBITDA for the periods indicated:
 
 
Fiscal Quarter Ended
 
Three Fiscal Quarters Ended
 
Four Fiscal Quarters Ended
 
 
September 26, 2020
 
September 28, 2019
 
September 26, 2020
 
September 28, 2019
 
September 26, 2020
Net income
 
$
81.2

 
$
60.3

 
$
10.7

 
$
138.7

 
$
135.9

Interest expense
 
16.3

 
10.0

 
40.5

 
28.7

 
49.5

Interest income
 
(0.3
)
 
(0.2
)
 
(1.2
)
 
(0.9
)
 
(1.6
)
Income tax expense
 
19.0

 
13.4

 
3.3

 
34.4

 
33.1

Depreciation and amortization
 
24.1

 
24.0

 
69.8

 
70.8

 
94.9

EBITDA
 
$
140.4

 
$
107.3

 
$
123.1

 
$
271.6

 
$
311.7

 
 
 
 
 
 
 
 
 
 
 
Adjustments to EBITDA
 
 
 
 
 
 
 
 
 
 
Intangible asset impairment (a)
 
$

 
$
30.8

 
$
26.5

 
$
30.8

 
$
26.5

Goodwill impairment (b)
 

 

 
17.7

 

 
17.7

COVID-19 expenses (c)
 
3.3

 

 
18.8

 

 
18.8

Productivity/restructuring costs (d)
 
1.0

 

 
8.5

 
1.6

 
8.5

Retail store operating leases and other long-lived asset impairments, net (e)
 
1.5

 

 
6.4

 

 
6.4

Customer bankruptcy charges, net (f)
 

 

 

 

 
(0.6
)
Debt extinguishment loss (g)
 

 

 

 
7.8

 

Store restructuring costs (h)
 

 

 

 
(0.7
)
 

China business model change, net (i)
 

 

 

 
(2.1
)
 

Total adjustments
 
5.8

 
30.8

 
78.1

 
37.5

 
77.5

Adjusted EBITDA
 
$
146.2

 
$
138.1

 
$
201.2

 
$
309.1

 
$
389.2


(a)
Related to the write-down of the OshKosh and Skip Hop tradename assets.
(b)
Goodwill impairment charge recorded in the International segment.
(c)
Net expenses incurred due to the COVID-19 pandemic.
(d)
Certain lease exit, severance and related costs resulting from restructuring actions (not related to COVID-19). Amounts for fiscal quarter, three fiscal quarters, and four fiscal quarters ended September 26, 2020 exclude $0.2 million of depreciation expense that is included in the corresponding depreciation and amortization line item.
(e)
Principally related to U.S. Retail store lease assets.
(f)
Recovery related to the Toys "R" Us bankruptcy.
(g)
Related to the redemption of the $400 million aggregate principal amount of senior notes due 2021 in March 2019 that were previously issued by a wholly-owned subsidiary of the Company.
(h)
Reversal of retail store restructuring costs previously recorded during the third quarter of fiscal 2017.
(i)
Benefit related to the sale of inventory previously reserved in China.

Note: Results may not be additive due to rounding.

EBITDA and Adjusted EBITDA are supplemental financial measures that are not defined or prepared in accordance with GAAP. We define EBITDA as net income before interest, income taxes, and depreciation and amortization. Adjusted EBITDA is EBITDA adjusted for the items described in footnotes (a) - (i) to the table above.

We present EBITDA and Adjusted EBITDA because we consider them important supplemental measures of our performance and believe they are frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. These measures also afford investors a view of what management considers to be the Company's core performance.

The use of EBITDA and Adjusted EBITDA instead of net income or cash flows from operations has limitations as an analytical tool, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP. EBITDA and Adjusted EBITDA do not represent net income or cash flow from operations as those terms are defined by GAAP and do not necessarily indicate whether cash flows will be sufficient to fund cash needs. While EBITDA, Adjusted EBITDA and similar measures are frequently used as measures of operations and the ability to meet debt service requirements, these terms are not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation. EBITDA and Adjusted EBITDA do not reflect the impact

15



of earnings or charges resulting from matters that we consider not to be indicative of our ongoing operations. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as discretionary cash available to us for working capital, debt service and other purposes.

16



RECONCILIATION OF U.S. GAAP AND NON-GAAP INFORMATION
(dollars in millions)
(unaudited)

The table below reflects the calculation of constant currency net sales on a consolidated and International segment basis for the fiscal quarter and three fiscal quarters ended September 26, 2020:
 
Fiscal Quarter Ended
 
Reported Net Sales
September 26, 2020
 
Impact of Foreign Currency Translation
 
Constant-Currency Net Sales
September 26, 2020
 
Reported Net Sales
September 28, 2019
 
Reported Net Sales % Change
 
Constant-Currency Net Sales % Change
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated net sales
$
865.1

 
$
(2.0
)
 
$
867.1

 
$
943.3

 
(8.3
)%
 
(8.1
)%
International segment net sales
$
113.8

 
$
(2.0
)
 
$
115.8

 
$
127.0

 
(10.4
)%
 
(8.8
)%
 
Three Fiscal Quarters Ended
 
Reported Net Sales
September 26, 2020
 
Impact of Foreign Currency Translation
 
Constant-Currency Net Sales
September 26, 2020
 
Reported Net Sales
September 28, 2019
 
Reported Net Sales % Change
 
Constant-Currency Net Sales % Change
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated net sales
$
2,034.4

 
$
(4.7
)
 
$
2,039.1

 
$
2,418.8

 
(15.9
)%
 
(15.7
)%
International segment net sales
$
242.5

 
$
(4.7
)
 
$
247.2

 
$
297.8

 
(18.5
)%
 
(17.0
)%

The Company evaluates its net sales on both an “as reported” and a “constant currency” basis.  The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates that occurred between the comparative periods.  Constant currency net sales results are calculated by translating current period net sales in local currency to the U.S. dollar amount by using the currency conversion rate for the prior comparative period.  The Company consistently applies this approach to net sales for all countries where the functional currency is not the U.S. dollar.  The Company believes that the presentation of net sales on a constant currency basis provides useful supplemental information regarding changes in our net sales that were not due to fluctuations in currency exchange rates and such information is consistent with how the Company assesses changes in its net sales between comparative periods.




17

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Ticker: CRI
CIK: 1060822
Form Type: 8-K Corporate News
Accession Number: 0001060822-20-000018
Submitted to the SEC: Fri Oct 23 2020 6:22:27 AM EST
Accepted by the SEC: Fri Oct 23 2020
Period: Friday, October 23, 2020
Industry: Apparel And Other Finishd Prods Of Fabrics And Similar Matl
Events:
  1. Earnings Release
  2. Financial Exhibit

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