Key opportunity: Glenview Capital raises its stake in Carter's (Part 2 of 6)
Glenview Capital and Carter’s
Larry Robbins’ Glenview Capital filed a Schedule 13G with the SEC last week. The fund disclosed that it has boosted its position in Carter’s Inc. (CRI). The filing noted that Glenview currently holds a 6.84% stake in the company with 3,673,608 shares.
In this part of the series, we’ll briefly go through Carter’s business segments.
Carter’s operates via five business segments:
- Carter’s wholesale
- Carter’s retail
- OshKosh retail
- OshKosh wholesale
The Carter’s brand was established in 1865. It’s known for high-quality apparel for children, ages newborn to seven.
Established in 1895, OshKosh is a known brand for apparel for children ages newborn to 12, with a focus on playclothes for toddlers and young children. The OshKosh brands were added to Carter’s portfolio via the acquisition of marketer OshKosh B’Gosh Inc. in 2005.
The retailer said in its 10K filing that its strategy is to market high-quality, essential core products at prices that deliver an attractive value proposition for consumers. It expects to drive sales growth through focus on essential, high-volume, core apparel products for babies and young children like bodysuits, pajamas, blanket sleepers, gowns, bibs, receiving blankets, and playwear.
The retailer believes its core apparel products are essential consumer staples that are less dependent on changes in fashion trends.
Under the Carter’s brand, the company said its top ten core baby and sleepwear products accounted for approximately 60% of its baby and sleepwear net sales in fiscal 2013 in the U.S. Its baby products represented 33.6% of its consolidated net sales in 2013, while playclothes and sleepwear accounted for 24.5% and 12.1% of total sales, respectively.
In fiscal 2013, the company generated $306.1 million in net sales of OshKosh-brand playclothes products in the U.S., which accounted for approximately 11.6% of the company’s consolidated net sales. The aggregate OshKosh-brand playclothes market share in the U.S. for 2013 was approximately 2.7% in the $13 billion department store, national chain, outlet, specialty store, and off-price sales channels.
Carter’s believes it has an opportunity to grow its share in the playclothes category, as this market in the U.S. is highly fragmented. The business is expected to see growth via strengthening product offerings, improving product value, reducing product complexity, and leveraging strong customer relationships and global supply chain expertise.
Carter’s sells its products through the wholesale channel, through retail stores in the U.S. and Canada, and online. Its Carter’s-brand wholesale customers include major retailers like Costco (COST), JCPenney (JCP), Kohl’s (KSS), Macy’s (M), Sam’s Club, Target (TGT), Toys “R” Us, and Walmart (WMT).
The OshKosh brand wholesale customers includes Belk, Bon-Ton (BONT), Costco, Fred Meyer, JCPenney, Kohl’s, and Sears (SHLD).
As of the end of 1Q 2014, Carter’s operated 491 Carter’s and 186 OshKosh outlet, brand, and specialty stores in the U.S. Plus, its products also sell via 103 company-operated stores in Canada in addition to international wholesale, licensing, and online channels. The stores in Canada average approximately 5,500 square feet per location—slightly larger than the U.S.-based stores, and offer a similar product assortment, localized for climate differences.
In 4Q 2013, Carter’s decided to exit retail operations in Japan based on revised forecasts that didn’t meet investment objectives.
The company also generates royalty income by licensing Carter’s, Child of Mine, Just One You, Precious Firsts, and OshKosh brands to licensing partners in the U.S.
Carter’s also partners with approximately 20 licensees to sell the Carter’s and OshKosh brands internationally in approximately 40 countries. The licensing partners develop and sell products through the company’s multiple sales channels while leveraging Carter’s brand strength, customer relationships, and designs.
For Oshkosh, the company’s largest licensing agreement is with Target Corporation (TGT).
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