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Carters Inc (CRI) SEC Filing 8-K Material Event for the period ending Friday, July 29, 2022

Carters Inc

CIK: 1060822 Ticker: CRI

                                                EXHIBIT 99.1
                                                
carters_logoa01a01a01a01a19.jpg
Contact:
Sean McHugh
Vice President & Treasurer
 (678) 791-7615

Carters, Inc. Reports Second Quarter Fiscal 2022 Results

Net sales $701 million
Diluted EPS $0.93; adjusted diluted EPS $1.30
Returned $132 million to shareholders through share repurchases and dividends in Q2; $237 million returned in the first half of fiscal 2022
Full year fiscal 2022 outlook:
Net sales of approximately $3.25 billion to $3.30 billion
Adjusted diluted EPS of approximately $7.10 to $7.60

ATLANTA, July 29, 2022 - Carter’s, Inc. (NYSE:CRI), the largest branded marketer in North America of apparel exclusively for babies and young children, today reported its second quarter fiscal 2022 results.
“After a strong start to the year, our sales slowed in the second quarter,” said Michael D. Casey, Chairman and Chief Executive Officer. “In 2021, the United States government provided unprecedented stimulus payments and support to families with young children to help them recover from the pandemic. The absence of that support this year, together with the surge in gas prices and inflation, have weighed on consumers’ demand for our brands.
“Since the pandemic began, year-over-year comparisons have been affected by historic challenges and the related disruption to the lives of families with young children. Our performance relative to the pre-pandemic period reflects our progress increasing the profitability of Carter’s. By that measure, our earnings are significantly higher in 2022 and have been driven by the structural improvements made to our business since 2019.
“Those improvements include the rationalization of lower margin product choices, closure of less productive stores, investment in inventory management and pricing capabilities, reduction in promotions and improved price realization. These changes enabled Carter’s to achieve record earnings in 2021.
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“We have revised our outlook for the balance of the year to reflect the trends in our business, and market risks related to inflation and related impact on consumer demand.
“We are focused on mitigating the effects of the current retail environment, including reducing inventory commitments and discretionary spending. We plan to continue investing in our direct-to-consumer, merchandising, brand marketing, and pricing capabilities which we believe will enable us to achieve our longer-term growth objectives.”
Adjustments to Reported GAAP Results
In addition to the results provided in this earnings release in accordance with GAAP, the Company has provided adjusted, non-GAAP financial measurements, as presented below. These 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. See “Reconciliation of GAAP to Adjusted Results” section of this release for additional disclosures and reconciliations regarding these non-GAAP financial measures.
In the second quarter of fiscal 2022, a pre-tax adjustment of approximately $19.9 million ($15.2 million net of tax, or $0.38 per diluted share) was made related to a loss on extinguishment of debt.
Second Fiscal Quarter
20222021
(In millions, except earnings per share)Operating Income% Net SalesNet IncomeDiluted EPSOperating Income% Net SalesNet IncomeDiluted EPS
As reported (GAAP)$75.4 10.8 %$37.0 $0.93 $107.6 14.4 %$71.6 $1.62 
Loss on extinguishment of debt— 15.2 0.38 — — — 
Restructuring costs— — — 2.2 1.6 0.04 
COVID-19 expenses— — — 1.0 0.8 0.02 
Retail store operating leases and other long-lived asset impairments, net of gain— — — (0.4)(0.3)(0.01)
As adjusted$75.4 10.8 %$52.1 $1.30 $110.4 14.8 %$73.7 $1.67 
First Half
20222021
(In millions, except earnings per share)Operating Income% Net SalesNet IncomeDiluted EPSOperating Income% Net SalesNet IncomeDiluted EPS
As reported (GAAP)$178.0 12.0 %$104.9 $2.59 $235.1 15.3 %$157.8 $3.58 
Loss on extinguishment of debt— 15.2 0.37 — — — 
COVID-19 expenses— — — 3.2 2.4 0.05 
Restructuring costs— — — 2.7 2.0 0.05 
Retail store operating leases and other long-lived asset impairments, net of gain— — — (1.9)(1.5)(0.03)
As adjusted$178.0 12.0 %$120.1 $2.97 $239.0 15.6 %$160.7 $3.64 
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.
Second Quarter of Fiscal 2022 compared to Second Quarter of Fiscal 2021
Net sales decreased $45.7 million, or 6.1%, to $700.7 million, driven by declines in the Company’s U.S. Retail and U.S. Wholesale sales, partially offset by growth in its International sales. U.S. Retail and U.S. Wholesale net sales declined by 11% and 3%, respectively. International net sales grew 7%. U.S. Retail comparable net sales declined 8%. Changes in foreign currency exchange rates used for translation in the second quarter of fiscal 2022, as compared to the second quarter of fiscal 2021, had an unfavorable effect on consolidated net sales of approximately $2.3 million, or 0.3%.
Operating income decreased $32.2 million to $75.4 million, compared to $107.6 million in the second quarter of fiscal 2021. Operating margin was 10.8%, compared to 14.4% in the prior-year period. Adjusted operating income (a non-GAAP measure) decreased $35.0 million to $75.4 million, compared to $110.4 million in the second quarter of fiscal 2021. Adjusted operating margin was 10.8%, compared to 14.8% in the prior year period, reflecting higher ocean freight rates, increased inventory provisions, and fixed cost deleverage on lower sales, partially offset by lower air freight expenses, lower performance-based compensation provisions, and reduction of other discretionary spending.
Net income was $37.0 million, or $0.93 per diluted share, compared to $71.6 million, or $1.62 per diluted share, in the second quarter of fiscal 2021. Adjusted net income (a non-GAAP measure) was $52.1 million, compared to $73.7 million in the second quarter of fiscal 2021. Adjusted earnings per diluted share (a non-GAAP measure) was $1.30, compared to $1.67 in the prior-year quarter.
First Half of Fiscal 2022 compared to First Half of Fiscal 2021
Net sales decreased $51.8 million, or 3.4%, to $1.48 billion, driven by a decline in the Company’s U.S. Retail segment, partially offset by growth in its International and U.S. Wholesale segments. U.S. Retail net sales declined 10%, reflecting the comparison to the first half of 2021 which benefited from significant and unprecedented government stimulus payments made to consumers in response to the pandemic and a lower store count related to the closure of low-margin stores. U.S. Retail comparable net sales declined 7%. International and U.S. Wholesale net sales increased by 9% and 3%, respectively. Changes in foreign currency exchange rates used for translation in the first half of fiscal 2022, as compared to the first half of fiscal 2021, had an unfavorable effect on consolidated net sales of approximately $2.5 million, or 0.2%.
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Operating income decreased $57.0 million to $178.0 million, compared to $235.1 million in the first half of fiscal 2021. Operating margin was 12.0%, compared to 15.3% in the prior year period. Adjusted operating income (a non-GAAP measure) decreased $60.9 million to $178.0 million, compared to $239.0 million in the first half of fiscal 2021. Adjusted operating margin was 12.0%, compared to 15.6% in the prior year period, reflecting higher ocean freight rates, increased inventory provisions, and fixed cost deleverage on lower sales, partially offset by lower air freight, lower performance-based compensation provisions, and reduction in other discretionary spending.
Net income was $104.9 million, or $2.59 per diluted share, compared to $157.8 million, or $3.58 per diluted share, in the first half of fiscal 2021. Adjusted net income (a non-GAAP measure) was $120.1 million, compared to $160.7 million in the first half of fiscal 2021. Adjusted earnings per diluted share (a non-GAAP measure) was $2.97, compared to adjusted loss per diluted share of $3.64 in the first half of fiscal 2021.
Net cash used in operations in the first half of fiscal 2022 was $93.6 million, compared to net cash provided by operations of $49.5 million in the first half of fiscal 2021. The decline primarily reflected lower net sales, planned earlier inventory receipts to improve second half deliveries, and payment of fiscal 2021 performance-based compensation, partially offset by a decrease in payment terms to certain of our vendors in 2021.
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.
Return of Capital
In the second quarter and first half of fiscal 2022, the Company returned to shareholders a total of $131.7 million and $236.8 million, respectively, through share repurchases and cash dividends as described below.
During the second quarter of fiscal 2022, the Company repurchased and retired 1.3 million shares of its common stock for $101.8 million at an average price of $80.02 per share. In the first half of fiscal 2022, the Company repurchased and retired 2.1 million shares of its common stock for $176.3 million at an average price of $85.36 per share. These first half repurchases represent approximately 5% of shares outstanding as of the beginning of fiscal year 2022. Fiscal year-to-date through July 28, 2022, the Company has repurchased and retired a total of 2.5 million shares for $206.8 million at an average price of $83.86 per share. All shares were repurchased in open market transactions pursuant to applicable regulations for such transactions. As of July 28, 2022, the total
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remaining capacity under the Company’s previously announced repurchase authorizations was approximately $842 million.
In the second quarter of fiscal 2022, the Company paid a cash dividend of $0.75 per share totaling $29.9 million. In the first half of fiscal 2022, the Company paid cash dividends totaling $60.5 million. Future payments of quarterly dividends will be at the discretion of the Company’s Board of Directors based on a number of factors, including the Company’s future financial performance and other considerations.
Early Extinguishment of Debt
On April 4, 2022, the Company redeemed senior notes with a principal amount of $500 million, bearing an interest rate of 5.5%. Cash on hand was utilized to extinguish this debt.
2022 Business Outlook
The Company’s outlooks for the third quarter of fiscal 2022 and fiscal year 2022 reflect:
A continuation of second quarter demand trends;
Inventory commitments aligned with our revised sales outlook, and a better mix and level of inventories relative to last year, supporting the upcoming back-to-school and holiday seasons;
Improving supply chain performance;
Reduced discretionary spending;
Improved price realization;
Continued investment in our direct-to-consumer, merchandising, brand marketing, and pricing capabilities;
Lower interest expense; and
Benefit of share repurchases.
For the third quarter of fiscal 2022, the Company projects:
Net sales of approximately $850 million to $865 million;
Adjusted operating income of approximately $90 million to $100 million, compared to $123.9 million in the third quarter of fiscal 2021; and
Adjusted diluted earnings per share of approximately $1.50 to $1.70, compared to $1.93 in the third quarter of fiscal 2021.
For fiscal year 2022, the Company projects:
Net sales of approximately $3.25 billion to $3.30 billion;
Adjusted operating income of approximately $415 million to $440 million, compared to $500.8 million in fiscal 2021; and
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Adjusted diluted earnings per share of approximately $7.10 to $7.60, compared to $7.87 in fiscal 2021.
Our adjusted diluted earnings per share outlook for fiscal year 2022 excludes a pre-tax loss on extinguishment of debt of approximately $19.9 million, which was recorded in the second fiscal quarter.
We have not reconciled forward-looking adjusted operating income or adjusted diluted earnings per share to their most directly comparable GAAP measures because we cannot predict with reasonable certainty the ultimate outcome of certain components of such reconciliations that are not within our control due to factors described above, or others that may arise, without unreasonable effort. For these reasons, we are unable to assess the probable significance of the unavailable information, which could materially impact the amount of future operating income or diluted EPS, the most directly comparable GAAP metrics to adjusted operating income and adjusted diluted earnings per share, respectively.
Conference Call
The Company will hold a conference call with investors to discuss second quarter fiscal 2022 results and its business outlook on July 29, 2022 at 8:30 a.m. Eastern Daylight Time. To listen to a live webcast and view the accompanying presentation materials, please visit ir.carters.com and select links for “News & Events” followed by “Webcasts & Presentations.” To access the call by phone, please preregister on https://register.vevent.com/register/BIdd252838d6814c208b63afb9b9f145e5 to receive your dial-in number and unique passcode.
A webcast replay will be available shortly after the conclusion of the call at ir.carters.com.
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 970 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.

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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 future outlook, financial results, liquidity, strategy, financings, and investments. 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 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.

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


Fiscal Quarter EndedTwo Fiscal Quarters Ended
July 2, 2022July 3, 2021July 2, 2022July 3, 2021
Net sales$700,695 $746,400 $1,481,980 $1,533,761 
Cost of goods sold364,657 379,793 790,851 781,524 
Adverse purchase commitments (inventory and raw materials), net4,799 (2,100)4,848 (8,430)
Gross profit331,239 368,707 686,281 760,667 
Royalty income, net5,602 6,645 13,076 14,108 
Selling, general, and administrative expenses261,423 267,770 521,315 539,697 
Operating income 75,418 107,582 178,042 235,078 
Interest expense8,652 15,295 23,784 30,643 
Interest income(272)(201)(610)(426)
Other expense (income), net17 (723)(494)(1,640)
Loss on extinguishment of debt19,940 — 19,940 — 
Income before income taxes47,081 93,211 135,422 206,501 
Income tax provision 10,111 21,608 30,519 48,702 
Net income $36,970 $71,603 $104,903 $157,799 
Basic net income per common share$0.93 $1.63 $2.60 $3.59 
Diluted net income per common share$0.93 $1.62 $2.59 $3.58 
Dividend declared and paid per common share$0.75 $0.40 $1.50 $0.40 

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

 Fiscal Quarter EndedTwo Fiscal Quarters Ended
July 2, 2022% of
Total Net Sales
July 3, 2021% of
Total Net Sales
July 2, 2022% of
Total Net Sales
July 3, 2021% of
Total Net Sales
Net sales:    
U.S. Retail$379,097 54.1 %$423,627 56.8 %$745,455 50.3 %$830,694 54.2 %
U.S. Wholesale224,016 32.0 %231,630 31.0 %531,317 35.9 %515,007 33.6 %
International97,582 13.9 %91,143 12.2 %205,208 13.8 %188,060 12.2 %
Consolidated net sales$700,695 100.0 %$746,400 100.0 %$1,481,980 100.0 %$1,533,761 100.0 %
Operating income:% of
Segment
Net Sales
% of
Segment
Net Sales
% of
Segment
Net Sales
% of
Segment
Net Sales
U.S. Retail$55,540 14.7 %$87,080 20.6 %$105,534 14.2 %$163,600 19.7 %
U.S. Wholesale33,593 15.0 %40,592 17.5 %94,099 17.7 %110,650 21.5 %
International12,163 12.5 %9,007 9.9 %22,551 11.0 %18,741 10.0 %
Corporate expenses (*)(25,878)n/a(29,097)n/a(44,142)n/a(57,913)n/a
Consolidated operating income $75,418 10.8 %$107,582 14.4 %$178,042 12.0 %$235,078 15.3 %

(*)    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.
(dollars in millions)Fiscal Quarter Ended July 3, 2021Two Fiscal Quarters Ended July 3, 2021
Charges:U.S. RetailU.S. WholesaleInternationalU.S. RetailU.S. WholesaleInternational
Incremental costs associated with COVID-19 pandemic$0.5 $0.4 $0.1 $1.6 $1.3 $0.3 
Restructuring costs (1)
(0.6)— 2.3 (0.6)0.1 2.3 
Retail store operating leases and other long-lived asset impairments, net of gain (2)
(0.4)— — (1.9)— — 
Total charges (3)
$(0.5)$0.4 $2.4 $(0.9)$1.4 $2.6 
(1)Fiscal quarter and two fiscal quarters ended July 3, 2021 include $2.3 million of costs associated with the early exit of the Canada corporate office lease. Fiscal quarter and two fiscal quarters ended July 3, 2021 also includes corporate charges related to organizational restructuring of $0.5 million and $0.9 million, respectively.
(2)Related to gains on the modification of previously impaired retail store leases.
(3)Total charges for two fiscal quarters ended July 3, 2021 exclude a customer bankruptcy recovery of $38,000.

Note: Results may not be additive due to rounding.
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CARTER’S, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
(unaudited)

July 2, 2022January 1, 2022July 3, 2021
ASSETS
Current assets:
Cash and cash equivalents$231,339 $984,294 $1,120,901 
Accounts receivable, net of allowance for credit losses of $5,758, $7,281, and $7,130, respectively
183,920 231,354 163,957 
Finished goods inventories, net of inventory reserves of $18,057, $14,378, and $15,726, respectively
858,258 647,742 619,617 
Prepaid expenses and other current assets81,482 50,131 66,549 
Total current assets1,354,999 1,913,521 1,971,024 
Property, plant, and equipment, net of accumulated depreciation of $548,013, $528,926, and $545,702 respectively
186,778 216,004 231,944 
Operating lease assets449,350 487,748 527,121 
Tradenames, net307,518 307,643 307,768 
Goodwill211,247 212,023 213,195 
Customer relationships, net32,248 33,969 35,777 
Other assets31,747 30,889 29,097 
Total assets$2,573,887 $3,201,797 $3,315,926 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$408,006 $407,044 $356,826 
Current operating lease liabilities142,981 147,537 158,270 
Other current liabilities96,102 176,449 113,240 
Total current liabilities647,089 731,030 628,336 
Long-term debt, net616,275 991,370 990,437 
Deferred income taxes45,730 40,910 58,150 
Long-term operating lease liabilities400,046 441,861 484,881 
Other long-term liabilities43,881 46,440 56,618 
Total liabilities$1,753,021 $2,251,611 $2,218,422 
Commitments and contingencies
Stockholders' equity:
Preferred stock; par value $0.01 per share; 100,000 shares authorized; none issued or outstanding at July 2, 2022, January 1, 2022, and July 3, 2021$— $— $— 
Common stock, voting; par value $0.01 per share; 150,000,000 shares authorized; 39,315,094, 41,148,870, and 44,011,080 shares issued and outstanding at July 2, 2022, January 1, 2022, and July 3, 2021, respectively
393 411 440 
Additional paid-in capital— — 31,521 
Accumulated other comprehensive loss(32,203)(28,897)(27,263)
Retained earnings852,676 978,672 1,092,806 
Total stockholders' equity820,866 950,186 1,097,504 
Total liabilities and stockholders' equity$2,573,887 $3,201,797 $3,315,926 

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CARTER’S, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
Two Fiscal Quarters Ended
July 2, 2022July 3, 2021
Cash flows from operating activities:
Net income $104,903 $157,799 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant, and equipment29,838 44,613 
Amortization of intangible assets1,865 1,866 
Provisions for excess and obsolete inventory3,709 1,451 
Other asset impairments and loss on disposal of property, plant and equipment, net of recoveries246 2,056 
Amortization of debt issuance costs1,173 1,497 
Stock-based compensation expense12,218 12,322 
Unrealized foreign currency exchange (gain) loss, net(32)61 
(Recoveries of) provisions for doubtful accounts receivable from customers(1,520)1,206 
Unrealized loss (gain) on investments1,867 (1,279)
Loss on extinguishment of debt19,940 — 
Deferred income taxes expense 4,762 5,817 
Other1,019 — 
Effect of changes in operating assets and liabilities:
Accounts receivable48,973 21,620 
Finished goods inventories(215,519)(19,663)
Prepaid expenses and other assets(32,308)(8,724)
Accounts payable and other liabilities(74,729)(171,119)
Net cash (used in) provided by operating activities$(93,595)$49,523 
Cash flows from investing activities:
Capital expenditures$(16,313)$(20,506)
Proceeds from sale of investments— 5,000 
Net cash used in investing activities$(16,313)$(15,506)
Cash flows from financing activities:
Payment of senior notes due 2025$(500,000)$— 
Premiums paid to extinguish debt(15,678)— 
Payment of debt issuance costs(2,420)(223)
Borrowings under secured revolving credit facility120,000 — 
Repurchases of common stock(176,306)— 
Dividends paid(60,460)(17,596)
Withholdings from vesting of restricted stock(6,681)(3,698)
Proceeds from exercises of stock options311 5,147 
Other(321)— 
Net cash used in financing activities$(641,555)$(16,370)
Net effect of exchange rate changes on cash and cash equivalents(1,492)931 
Net (decrease) increase in cash and cash equivalents$(752,955)$18,578 
Cash and cash equivalents, beginning of period984,294 1,102,323 
Cash and cash equivalents, end of period$231,339 $1,120,901 
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CARTER’S, INC.
RECONCILIATION OF GAAP TO ADJUSTED RESULTS
(dollars in millions, except earnings per share)
(unaudited)

Fiscal Quarter Ended July 2, 2022
Gross Profit% Net SalesSG&A% Net SalesOperating Income% Net SalesIncome TaxesNet IncomeDiluted EPS
As reported (GAAP)$331.2 47.3 %$261.4 37.3 %$75.4 10.8 %$10.1 $37.0 $0.93 
Loss on extinguishment of debt (b)
— — — 4.8 15.2 0.38 
As adjusted (a)
$331.2 47.3 %$261.4 37.3 %$75.4 10.8 %$14.9 $52.1 $1.30 
Two Fiscal Quarters Ended July 2, 2022
Gross Profit% Net SalesSG&A% Net SalesOperating Income% Net SalesIncome TaxesNet IncomeDiluted EPS
As reported (GAAP)$686.3 46.3 %$521.3 35.2 %$178.0 12.0 %$30.5 $104.9 $2.59 
Loss on extinguishment of debt (b)
— — — 4.8 15.2 0.37 
As adjusted (a)
$686.3 46.3 %$521.3 35.2 %$178.0 12.0 %$35.3 $120.1 $2.97 
Fiscal Quarter Ended July 3, 2021
Gross Profit% Net SalesSG&A% Net SalesOperating Income% Net SalesIncome TaxesNet IncomeDiluted EPS
As reported (GAAP)$368.7 49.4 %$267.8 35.9 %$107.6 14.4 %$21.6 $71.6 $1.62 
Restructuring costs (c)
— (2.2)2.2 0.6 1.6 0.04 
COVID-19 expenses (d)
— (1.0)1.0 0.3 0.8 0.02 
Retail store operating leases and other long-lived asset impairments, net of gain — 0.4 (0.4)(0.1)(0.3)(0.01)
As adjusted (a)
$368.7 49.4 %$264.9 35.5 %$110.4 14.8 %$22.4 $73.7 $1.67 
Two Fiscal Quarters Ended July 3, 2021
Gross Profit% Net SalesSG&A% Net SalesOperating Income% Net SalesIncome TaxesNet IncomeDiluted EPS
As reported (GAAP)$760.7 49.6 %$539.7 35.2 %$235.1 15.3 %$48.7 $157.8 $3.58 
COVID-19 expenses (d)
— (3.2)3.2 0.8 2.4 0.05 
Restructuring costs (c)
— (2.7)2.7 0.7 2.0 0.05 
Retail store operating leases and other long-lived asset impairments, net of gain — 1.9 (1.9)(0.5)(1.5)(0.03)
As adjusted (a) (e)
$760.7 49.6 %$535.8 34.9 %$239.0 15.6 %$49.7 $160.7 $3.64 

Fiscal Quarter Ended October 2, 2021
Gross Profit% Net SalesSG&A% Net SalesOperating Income% Net SalesIncome TaxesNet IncomeDiluted EPS
As reported (GAAP)$408.8 45.9 %$293.2 32.9 %$124.0 13.9 %$23.4 $85.0 $1.93 
COVID-19 expenses (d)
— (0.3)0.3 0.1 0.2 — 
Retail store operating leases and other long-lived asset impairments, net of gain— 0.3 (0.3)(0.1)(0.2)— 
Restructuring costs (c)
— 0.2 (0.2)— (0.1)— 
As adjusted (a)
$408.8 45.9 %$293.3 32.9 %$123.9 13.9 %$23.3 $84.9 $1.93 

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Fiscal Year Ended January 1, 2022
Gross Profit% Net SalesSG&A% Net SalesOperating Income% Net SalesIncome TaxesNet IncomeDiluted EPS
As reported (GAAP)$1,662.3 47.7 %$1,193.9 34.2 %$497.1 14.3 %$98.5 $339.7 $7.81 
Retail store operating leases and other long-lived asset impairments, net of gain — 2.6 (2.6)(0.6)(2.0)(0.05)
COVID-19 expenses (d)
— (3.9)3.9 1.0 3.0 0.07 
Restructuring costs (c)
— (2.4)2.4 0.6 1.8 0.04 
As adjusted (a) (e)
$1,662.3 47.7 %$1,190.2 34.1 %$500.8 14.4 %$99.5 $342.5 $7.87 


(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 profit, 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)Related to the redemption of the $500 million aggregate principal amount of senior notes due 2025 in April 2022 that were previously issued by a wholly-owned subsidiary of the Company.
(c)Certain lease exit, severance and related costs resulting from restructuring actions (not related to COVID-19).
(d)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.
(e)Adjusted results exclude a customer bankruptcy recovery of $38,000.



Note: Results may not be additive due to rounding.


13


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

Fiscal Quarter EndedTwo Fiscal Quarters Ended
July 2,
2022
July 3,
2021
July 2,
2022
July 3,
2021
Weighted-average number of common and common equivalent shares outstanding:
Basic number of common shares outstanding39,344,834 43,445,780 39,807,354 43,408,262 
Dilutive effect of equity awards

29,153 169,631 48,274 151,468 
Diluted number of common and common equivalent shares outstanding39,373,987 43,615,411 39,855,628 43,559,730 
As reported on a GAAP Basis:
(dollars in thousands, except per share data)
Basic net income per common share:
Net income $36,970 $71,603 $104,903 $157,799 
Income allocated to participating securities(536)(860)(1,480)(1,896)
Net income available to common shareholders$36,434 $70,743 $103,423 $155,903 
Basic net income per common share$0.93 $1.63 $2.60 $3.59 
Diluted net income per common share:
Net income $36,970 $71,603 $104,903 $157,799 
Income allocated to participating securities(536)(857)(1,479)(1,890)
Net income available to common shareholders$36,434 $70,746 $103,424 $155,909 
Diluted net income per common share$0.93 $1.62 $2.59 $3.58 
As adjusted (a):
Basic net income per common share:
Net income $52,121 $73,700 $120,053 $160,687 
Income allocated to participating securities(774)(886)(1,705)(1,931)
Net income available to common shareholders$51,347 $72,814 $118,348 $158,756 
Basic net income per common share$1.31 $1.68 $2.97 $3.66 
Diluted net income per common share:
Net income $52,121 $73,700 $120,053 $160,687 
Income allocated to participating securities(774)(883)(1,704)(1,925)
Net income available to common shareholders$51,347 $72,817 $118,349 $158,762 
Diluted net income per common share$1.30 $1.67 $2.97 $3.64 

(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 $15.2 million in after-tax expenses from these results for both the fiscal quarter and two fiscal quarters ended July 2, 2022. The Company has excluded $2.1 million and $2.9 million in after-tax expenses from these results for the fiscal quarter and two fiscal quarters ended July 3, 2021, 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 EndedTwo Fiscal Quarters EndedFour Fiscal Quarters Ended
July 2, 2022July 3, 2021July 2, 2022July 3, 2021July 2, 2022
Net income $37.0 $71.6 $104.9 $157.8 $286.9 
Interest expense8.7 15.3 23.8 30.6 53.4 
Interest income(0.3)(0.2)(0.6)(0.4)(1.3)
Income tax expense 10.1 21.6 30.5 48.7 80.4 
Depreciation and amortization17.5 22.4 31.7 46.5 79.3 
EBITDA$73.0 $130.7 $190.3 $283.2 $498.7 
Adjustments to EBITDA
Loss on extinguishment of debt (a)
$19.9 $— $19.9 $— $19.9 
COVID-19 expenses (b)
— 1.0 — 3.2 $0.8 
Restructuring costs (c)
— 1.7 — 1.6 (0.4)
Retail store operating leases and other long-lived asset impairments, net of gain— (0.4)— (1.9)(0.7)
  Total adjustments19.9 2.3 19.9 2.9 19.6 
Adjusted EBITDA (d)
$92.9 $133.0 $210.2 $286.0 $518.3 


a.Related to the redemption of the $500 million aggregate principal amount of senior notes due 2025 in April 2022 that were previously issued by a wholly-owned subsidiary of the Company.
b.Expenses incurred due to the COVID-19 pandemic.
c.Certain lease exit, severance and related costs resulting from restructuring actions (not related to COVID-19). Amounts for fiscal quarter and two fiscal quarters ended July 3, 2021 exclude $0.5 million, $1.1 million, respectively, and amount for four fiscal quarters ended July 2, 2022 excludes $0.1 million of depreciation expense included in the corresponding depreciation and amortization line item.
d.Adjusted EBITDA for the two fiscal quarters ended July 3, 2021 excludes a customer bankruptcy recovery of $38,000.

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) - (d) 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 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.
15


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 two fiscal quarters ended July 2, 2022:
Fiscal Quarter Ended
Reported Net Sales
July 2, 2022
Impact of Foreign Currency TranslationConstant-Currency Net Sales
July 2, 2022
Reported Net Sales
July 3, 2021
Reported Net Sales % ChangeConstant-Currency Net Sales % Change
Consolidated net sales$700.7 $(2.3)$703.0 $746.4 (6.1)%(5.8)%
International segment net sales$97.6 $(2.3)$99.9 $91.1 7.1 %9.6 %
Two Fiscal Quarters Ended
Reported Net Sales
July 2, 2022
Impact of Foreign Currency TranslationConstant-Currency Net Sales
July 2, 2022
Reported Net Sales
July 3, 2021
Reported Net Sales % ChangeConstant-Currency Net Sales % Change
Consolidated net sales$1,482.0 $(2.5)$1,484.4 $1,533.8 (3.4)%(3.2)%
International segment net sales$205.2 $(2.5)$207.7 $188.1 9.1 %10.4 %

Note: Results may not be additive due to rounding.
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.




16

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Ticker: CRI
CIK: 1060822
Form Type: 8-K Corporate News
Accession Number: 0001060822-22-000165
Submitted to the SEC: Fri Jul 29 2022 6:28:54 AM EST
Accepted by the SEC: Fri Jul 29 2022
Period: Friday, July 29, 2022
Industry: Apparel And Other Finishd Prods Of Fabrics And Similar Matl
Events:
  1. Earnings Release
  2. Financial Exhibit

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