Carter's Hits the Mark Despite Weather Challenges
Carter's Inc. (NYSE: CRI) announced third-quarter 2017 results on Thursday morning, highlighting comfortable growth, even as it faced literal headwinds from multiple hurricanes during the quarter. Carter's also made a strategic acquisition to bolster its position in North America, continued its ambitious capital-returns efforts, and narrowed its full-year guidance for the better.
Let's zip up our fall jackets to get a better look at how Carter's kicked off the second half of the year, as well as what investors should expect from the kids' clothing retailer in the coming months.
Carter's results: The raw numbers
| Metric | Q3 2017 |
Q2 2016 |
Year-Over-Year Growth |
|---|---|---|---|
| Revenue |
$948.2 million |
$901.4 million |
5.2% |
| GAAP net income |
$82.5 million |
$80.8 million |
2.1% |
| GAAP earnings per share (diluted) |
$1.71 |
$1.60 |
6.9% |
What happened with Carter's this quarter?
- On an adjusted (non-GAAP) basis -- which accounts for restructuring costs and items related to acquisitions -- net income climbed 5.8% year over year, to $1.70 per share.
- Both the top and bottom lines compared favorably to Carter's latest guidance, which called for lower adjusted earnings of $1.61 per share on revenue of $946.5 million.
- On August 1, 2017, Carter's acquired its licensee in Mexico. The licensee's net sales last year were roughly $28 million. This quarter, it contributed net sales of $4.5 million.
- The recently acquired Skip Hop brand contributed $27.9 million in sales this quarter.
- Repurchased and retired 596,178 shares of common stock for $52.7 million, or an average price of $88.47 per share.
- By segment: U.S. retail sales grew 7.7%, to $454 million, including 2.6% growth in U.S. retail comparable sales. Within the latter, comparable e-commerce sales increased 20.9%, while comparable-store sales declined 3.2%. Results were held back by the hurricanes and abnormally warm weather throughout much of the United States. U.S. wholesale revenue declined 1.1%, to $369.6 million, as lower demand for Carter's and OshKosh products was partly offset by Skip Hop sales of $16.3 million. International revenue climbed 17.6%, to $124.6 million, driven by growth in Canada, China, and the Skip Hop and Mexico acquisitions.
- U.S. retail sales grew 7.7%, to $454 million, including 2.6% growth in U.S. retail comparable sales. Within the latter, comparable e-commerce sales increased 20.9%, while comparable-store sales declined 3.2%. Results were held back by the hurricanes and abnormally warm weather throughout much of the United States.
- U.S. wholesale revenue declined 1.1%, to $369.6 million, as lower demand for Carter's and OshKosh products was partly offset by Skip Hop sales of $16.3 million.
- International revenue climbed 17.6%, to $124.6 million, driven by growth in Canada, China, and the Skip Hop and Mexico acquisitions.
What management had to say
Carter's Chairman and CEO Michael Casey stated:
Looking forward
For the fourth quarter, Carter's expects net sales will increase roughly 10% year over year, or to roughly $1.028 billion. Carter's also anticipates adjusted earnings per share will climb roughly 21%, or to approximately $2.17 per share.
As such, Carter's now expects full fiscal-year 2017 revenue will increase 6% over fiscal 2016 -- up from guidance of 4% to 6% previously -- which should translate to 9% growth in adjusted earnings per share, the midpoint of its previous 8% to 10% range. The latter excludes expenses of roughly $0.5 million related to acquisitions.
All things considered, investors are pleased that Carter's was able to meet its goals despite this particularly nasty hurricane season. Considering the positive effects of its acquisitions and the upward revision to its revenue guidance for the year, it's no surprise to see shares trading within reach of a fresh 52-week high today.
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