Carter's Beats Expectations, Invests in Its Future

MarketsMotley Fool

Carter's Inc. (NYSE: CRI) released second-quarter 2017 results on Thursday before the market opened, detailing solid retail growth and international gains. But thanks to a light earnings outlook for the current quarter, shares declined 1.5% today as the market absorbed the news.

Let's fasten our velcro shoes, then, to get a better look at how the kid's clothing retailer performed over the past few months, as well as what investors can expect going forward.

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Carter's results: The raw numbers

What happened with Carter's this quarter?

  • The Skip Hop brand -- which Carter's acquired in the first quarter -- contributed $25 million in revenue.
  • On an adjusted (non- GAAP) basis -- which excludes items like stock-based compensation and acquisition costs -- net income rose 5.1% year over year to $38.6 million. Adjusted net income per share grew 9.9%, to $0.79.
  • By comparison, Carter's latest guidance called for revenue to increase 6% to 8%, and translate to lower adjusted earnings per share of $0.65 to $0.70.
  • Repurchased and retired 587,465 shares of common stock for $51.6 million.
  • U.S. retail segment revenue grew 11.1% year over year to $391.8 million, including 6% growth in U.S. Retail comparable sales. Within that figure, comparable-store sales grew 0.4%, and comparable eCommerce sales increased 27.6%. Skip Hop also added $0.9 million to this segment.
  • U.S. wholesale segment revenue rose 0.6% to $510.3 million, as $21.9 million in incremental sales from Skip Hop was partially offset by lower demand for Carter's and OshKosh products in wholesale channels.
  • International segment revenue rose 15.4% to $82.6 million, as lower international wholesale demand was more than offset by growth in Canada and China, and $9.1 million in sales from Skip Hop.

What management had to say

Carter's CEO Michael Casey stated:

Looking forward

More specifically, Carter's expects net sales in the third quarter to increase roughly 5% year over year (or to roughly $946.5 million), while adjusted earnings are expected to be roughly flat at $1.61 per share. By comparison -- and this is likely the cause of Thursday's modest decline -- consensus estimates predicted higher earnings of $1.90 per share on revenue of $960 million. To be fair, Carter's noted this outlook assumes increased investments "to support the company's long-term growth objectives compared to the prior-year period."

Finally, Carter's reiterated its guidance for full fiscal-year 2017 revenue to increase 4% to 6% over 2016, and for full-year adjusted earnings per share to increase 8% to 10% (from $5.14 last fiscal year).

In short, the market may not be pleased that Carter's didn't raise its full-year guidance given its relative out-performance in the second quarter. But it's also hard to blame the company for reinvesting its incremental profits back into supporting its plans to drive long-term growth. In the end, Carter's has never been stronger, and I think it's poised to deliver market-beating gains for patient investors.

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Steve Symington has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Carter's. The Motley Fool has a disclosure policy.