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Carter's (CRI) Q4 Earnings & Sales Miss Estimates, Stock Down

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Carter's, Inc. CRI reported fourth-quarter 2019 results, wherein top and bottom lines lagged the Zacks Consensus Estimate. Moreover, earnings declined on a year-over-year basis, while sales improved. Results were impacted by soft wholesale businesses along with higher expenses. Further, management outlined its view for 2020.

Markedly, shares of the company lost almost 13% during the trading session on Feb 24. We note that shares of this Zacks Rank #4 (Sell) company have decreased 11.6% year to date, wider than the industry’s decline of 1.7%.

Q4 Highlights

Carter’s fourth-quarter 2019 adjusted earnings of $2.81 per share decreased 1.1% year over year and missed the Zacks Consensus Estimate of $2.89. This might be attributed to higher SG&A expenses and interest expenses.

On a GAAP basis, the company reported earnings per share of $2.82 compared with $2.83 earned in the year-ago quarter.

Carter's, Inc. Price, Consensus and EPS Surprise

Net sales grew 1.3% to $1,100.5 million but marginally missed the Zacks Consensus Estimate of $1,102 million, owing to growth in retail and international segments. Also, favorable foreign currency aided the top line by $0.3 million.

Segmental Sales

Sales at the U.S. Retail segment rose 2.2% year over year to $619.9 million. Comparable sales (comps) increased 1.6%, driven by growth in e-commerce sales.

The U.S. Wholesale segment witnessed decrease in sales of 0.7% to $348.9 million, owing to decrease in off-price channel sales and increased demand for the exclusive Carter’s brand.

The International segment witnessed nearly 2.4% rise in revenues to $131.7 million in the fourth quarter due to growth in markets outside North America, partly offset by the change in business model in China and favorable impact of currency fluctuations. Currency-neutral revenues for the segment increased $0.3 million.


Gross profit was almost flat on a year-over-year basis, at $467.5 million and gross margin contracted 70 basis points (bps) to 42.5%.

Adjusted operating income decreased 4.6% to $162.8 million. Adjusted operating margin contracted 100 bps to 14.7%, due to decline in gross margin.

Balance Sheet & Shareholder-Friendly Moves

The company ended the quarter with cash and cash equivalents of $214.3 million, net long-term debt of $594.7 million, and shareholders’ equity of $880.1 million. Inventories as of Dec 28, 2019, increased 3.4% to $594 million.

In 2019, the company generated $387,215 million in operating cash flow. Capital expenditure in the quarter totaled $61.4 million.

During the fourth quarter and 2019, Carter’s returned nearly $71.5 million and $286.5 million, respectively, to its shareholders through dividend payout and share buybacks. In the quarter, the company bought back 499,552 shares for $49.4 million, the average price being $98.98 per share. It paid out a dividend of 50 cents per share in the reported quarter.

Year-to-date through Feb 21, 2020, the company has repurchased 220,943 shares for $24.1 million at an average price of $108.94 per share.

The company approved a new incremental $500 million share repurchase authorization and increased quarterly dividend by 20% to 60 cents per share effective with the dividend to be paid out next month.

Store Update

In the fourth quarter, Carter’s opened 20 retail stores and shut three in the United States. As of Dec 28, 2019, the company operated 862 retail stores in the United States alongside 201 in Canada and 46 in Mexico.


Management issued guidance for 2020. The company anticipates top-line growth of roughly 2-3% in 2020. Adjusted earnings are expected to improve nearly 4-6% from $6.46 reported in 2019. Earnings view excludes anticipated expenses of around $10-$12 million related to organizational restructurings. The Zacks Consensus Estimate for 2020 sales and earnings are pegged at $3.64 billion and $7.02, respectively.

For the first quarter of 2020, the company projects net sales to be comparable to the first quarter of 2019. Adjusted diluted earnings per share are expected to be around 60 cents compared with 87 cents earned in the first quarter of 2019.

The outbreak of coronavirus in China has given rise to a tough situation for companies operating in the region. The virus has affected several industries within China, including textile production and manufacturing. The company plans to source around 15% of its products from China in 2020. However, its first-quarter and 2020 guidance does not include any adjustments for potential effects of the coronavirus situation.

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