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Carter's Shares Fall, Despite Earnings Beat

Zacks Equity Research

The market seems to be muted on Carter’s Inc.’s (CRI) third-quarter 2013 performance as the stock fell marginally by 0.4% within a day of the earnings announcement. The company posted quarterly earnings of $1.12 per share that beat the Zacks Consensus Estimate of $1.09 and rose 9.8% from the prior-year quarter.

However, on a reported basis, earnings fell 2% to 97 cents a share, reflecting the impact of office consolidation expenses, revaluation and amortization.

Carter’s, one of the leading providers of clothing and related products for kids, reported nets sales of $760.2 million that surged 13.7% on the back of its compelling brands, promotional strategies and multi-channel business model. Net Sales also handily surpassed the Zacks Consensus Estimate of $750 million.

Gross profit rose 14.7% to $309.6 million with the margin increasing 30 basis points to 40.7% of net sales. Adjusted operating income for the quarter saw a year-over-year rise of 7.1% to $104.2 million from $97.3 million, with the margin falling approximately 90 basis points to 13.7% of sales.

Segmental Information

Carter’s retail sales increased 15.5% to $251.0 million owing to increment in sales worth $19.2 million from new outlets, 52.5% rise in sales from e-Commerce operations and a 0.5% rise in same-store sales. These were partly offset by store closures, which reduced sales by $1 million. Wholesale sales went up 15.6% to $318.6 million

OshKosh B’gosh retail sales rose 4.9% to $81.9 million, backed by a 38.8% rise in e-Commerce sales, sales benefit of $2.8 million from new outlets and a 1% increase in same-store sales, partly offset by a $2.8 million decline in sales owing to store closures. Wholesale sales declined 13.1% to $24.6 million.

International sales advanced 21.1% to $84.1 million owing to the robust performance of the company’s wholesale channel and Canadian retail segment. However, same-store sales dropped 3.6%. Alongside, the segment reported sales worth $3.9 million from its Japanese business.

Store Update

During the third quarter of 2013, 17 new Carter’s retail stores were opened bringing the number to 455 and 7 new OshKosh B’gosh retail stores taking the count to 170 in the United States.

Other Financial Updates

On Aug 12, 2013 Carter’s issued senior notes worth $400 million bearing a coupon rate of 5.25% due Aug 15, 2021. Carter’s took this initiative to enhance its capital structure. On account of this, the company received net amount of $394.2 million.

In the third quarter, the company bought back 226,400 shares for $16.4 million. Under its accelerated stock repurchase program the company bought back roughly 4.6 million shares worth $328.4 million, as of Sep 28, 2013.


This biggest marketer of babies’ and kids’ apparel and other related items in America ended the quarter with cash and cash equivalents of $201.8 million, long-term debt of $586.0 million and shareholders’ equity of $658.9 million.


For the final quarter of 2013, the management envisions a 9–10% increase in net sales and a 10–15% rise in the adjusted earnings a share, compared to the last quarter of 2012.

For full-year 2013, Carter’s estimates net sales and adjusted earnings per share to be up by 10% and roughly 15–17% from 2012, respectively.

Other Stocks to Consider

Carter’s Inc.’s carries a Zacks Rank #3 (Hold). However, some other companiesin the shoes and related apparel sector that warrant a look include Brown Shoe Co. Inc. (BWS), with a Zacks Rank #1 (Strong Buy) and ANTA Sports Products Ltd (ANPDF) and Deckers Outdoor Corp. (DECK), both carrying a Zacks Rank #2 (Buy).

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