Carter’s, Inc. Reports Fourth Quarter and Fiscal 2021 Results

• Fourth quarter fiscal 2021 results
  • Strong holiday demand
  • Net sales $1.1 billion, +7% (+11% on comparable week basis)
  • Diluted EPS $2.31, +2% (down 6% on adjusted basis)
• Full year fiscal 2021 results
  • Net sales $3.5 billion, +15% (+17% on a comparable week basis)
  • Record diluted EPS $7.81, +212%; adjusted diluted EPS $7.87, +89%
• Returned $359 million to shareholders through share repurchases and dividends in fiscal 2021
• Full year fiscal 2022 outlook: net sales growth of 2% to 3%; adjusted diluted EPS growth of 12% to 14%
• Board of Directors declares 25% increase in quarterly dividend to $0.75 per share and authorizes new $1.0 billion share repurchase plan

Carter’s, Inc. (NYSE:CRI), the largest branded marketer in North America of apparel exclusively for babies and young children, today reported its fourth quarter and fiscal 2021 results.

“We saw strong demand for our brands in the fourth quarter which enabled us to exceed our sales and earnings objectives” said Michael Casey, Chairman and Chief Executive Officer.

“We achieved sales growth in each of our retail, wholesale, and international segments. Our fourth quarter earnings reflect the benefits from strong holiday demand for our brands and improved price realization which helped mitigate higher provisions for air freight, technology, performance-based compensation, and charitable donations.

“For the year, we achieved a record level of profitability which we believe was driven by structural changes made to our business during the pandemic, including the rationalization of product choices, closure of low margin stores, leaner inventories, more impactful and effective marketing, and improved price realization. We believe these changes have enabled profit margins which are sustainable and provide a stronger foundation to build on in the years ahead.

“In 2021, we returned nearly $360 million to our shareholders through dividends and share repurchases. Given our projected cash flow, our Board of Directors has declared a 25% increase in our quarterly dividend to $0.75 per share and authorized a new $1.0 billion share repurchase plan, inclusive of previous authorizations.

“We are planning good growth in sales and earnings in 2022 driven by the strength of our brands, compelling value of our product offerings, and unparalleled multi-channel model that provides the most extensive distribution of children’s apparel in North America. With the continued recovery from pandemic-related disruptions, we have raised our longer-term growth objectives and are now forecasting annual sales to exceed $4 billion by 2026, with earnings in excess of $12.00 per share.”

Adjustments to Reported GAAP Results

In addition to the results presented in this earnings release in accordance with GAAP, the Company has provided adjusted, non-GAAP financial measurements, as presented below. The Company believes these adjustments provide a meaningful comparison of the Company’s results and afford investors a view of what management considers to be the Company’s core performance. These measures are presented for informational purposes only. See “Reconciliation of Adjusted Results to GAAP” section of this release for additional disclosures and reconciliations regarding these non-GAAP financial measures.

Consolidated Results

Fourth Quarter of Fiscal 2021 (13 weeks) compared to Fourth Quarter of Fiscal 2020 (14 weeks)

Consolidated net sales increased $72.2 million, or 7.3%, to $1,062.1 million. The additional week in the fourth quarter of fiscal 2020 contributed approximately $32.1 million in consolidated net sales. On a comparable week basis, net sales grew 10.9%. On a reported basis, the Company’s U.S. Retail, U.S. Wholesale, and International segments grew 3%, 9%, and 25%, respectively. U.S. Retail segment comparable sales increased 15%, driven by improved store sales. Sales in all segments in the fourth quarter of fiscal 2020 were adversely affected by COVID-19 related disruptions. Changes in foreign currency exchange rates used for translation in the fourth quarter fiscal 2021, as compared to the fourth quarter of fiscal 2020, had a favorable effect of approximately $3.3 million, or 0.3%.

Operating income increased $4.1 million, or 3.1%, to $138.0 million, compared to $133.9 million in the fourth quarter of fiscal 2020. Operating margin decreased 50 basis points to 13.0%. Adjusted operating income (a non-GAAP measure) decreased $7.6 million, or 5.2%, to $137.9 million, compared to $145.5 million in the fourth quarter of fiscal 2020. Adjusted operating margin was 13.0%, compared to 14.7% in the fourth quarter of fiscal 2020, reflecting higher transportation costs, the release of inventory reserves in the prior year, increased compensation provisions, and higher charitable donations, partially offset by strong product demand, including improved price realization.

Net income decreased $2.0 million, or 2.1%, to $97.0 million, compared to $99.0 million in the fourth quarter of fiscal 2020. Earnings per diluted share increased 2.2% to $2.31, compared to $2.26 in the prior year period. Adjusted net income (a non-GAAP measure) decreased $11.0 million, or 10.2%, to $96.9 million, compared to $107.9 million in the fourth quarter of fiscal 2020. Adjusted earnings per diluted share (a non-GAAP measure) decreased 6.1% to $2.31, compared to $2.46 in the fourth quarter of fiscal 2020.

Fiscal Year 2021 (52 weeks) compared to Fiscal Year 2020 (53 weeks)

Consolidated net sales increased $462.1 million, or 15.3%, to $3.5 billion, driven by strong growth in all segments. The additional week in fiscal 2020 contributed approximately $32.1 million in consolidated net sales. On a comparable week basis, net sales grew 16.5%. On a reported basis, the Company’s U.S. Retail, U.S. Wholesale, and International segments grew 14%, 13%, and 29%, respectively. Fiscal 2020 was adversely impacted by the temporary closure of our retail stores in March, April, and May 2020 and reduced demand in our other businesses as a result of disruptions related to COVID-19. Changes in foreign currency exchange rates used for translation in fiscal 2021, as compared to fiscal 2020, had a favorable effect of approximately $20.0 million, or 0.7%.

Operating income in fiscal 2021 increased $307.2 million, or 161.8%, to $497.1 million, compared to $189.9 million in fiscal 2020. Operating margin increased 800 basis points to 14.3%. Adjusted operating income (a non-GAAP measure) increased $221.0 million, or 79.0% to $500.8 million, compared to $279.8 million in fiscal 2020. Adjusted operating margin increased 510 basis points to 14.4%, reflecting strong product demand, including improved price realization, partially offset by increased compensation provisions, higher transportation costs, the absence of COVID-related inventory provisions, and investments in marketing and omnichannel capabilities.

Net income in fiscal 2021 increased $230.0 million, or 209.7%, to $339.7 million, compared to $109.7 million in fiscal 2020. Earnings per diluted share increased 212.4% to $7.81, compared to $2.50 in the prior year period. Adjusted net income (a non-GAAP measure) increased $159.9 million, or 87.6%, to $342.5 million compared to $182.6 million in fiscal 2020. Adjusted earnings per diluted share (a non-GAAP measure) increased 89.2% to $7.87, compared to $4.16 in fiscal 2020.

Net cash provided by operations in fiscal 2021 was $268.3 million compared to $588.5 million in fiscal 2020. The decrease reflects strong growth in net income offset by the normalization of vendor payment terms which were extended during the early days of the pandemic in 2020.

See the “Business Segment Results” and “Reconciliation of Adjusted Results to GAAP” sections of this release for additional disclosures regarding business segment performance and non-GAAP measures.

Return of Capital Initiatives

As part of the Company’s ongoing commitment to return capital to shareholders, the Company’s Board of Directors on February 24, 2022 approved a 25% increase ($0.15 per share) in its quarterly cash dividend, to $0.75 per share, for payment on March 18, 2022, to shareholders of record at the close of business on March 8, 2022, and authorized a new $1.0 billion share repurchase plan.

The share repurchase authorization announced today permits the Company to repurchase shares of its common stock up to $1.0 billion, inclusive of approximately $302 million remaining under previous authorizations. Such purchases may be made in the open market or in privately negotiated transactions, with the level and timing of activity being at the discretion of the Company's management depending on market conditions, stock price, other investment priorities, and other factors. The Company plans to execute this authorization over a period of approximately four years. These share repurchase authorizations have no expiration date.

The Company’s Board of Directors will evaluate future distributions of capital, including dividends and share repurchases, based on a number of factors, including business conditions, the Company’s financial performance, and other considerations.

From the beginning of fiscal 2007 through fiscal 2021, the Company has returned a total of $2.5 billion to shareholders through share repurchases and dividends.

Return of Capital Activity

In the fourth quarter and fiscal 2021, the Company returned to shareholders a total of $214.1 million and $359.5 million, respectively, through share repurchases and dividends as described below.

Share Repurchases

During the fourth quarter of fiscal 2021, the Company repurchased and retired 1.9 million shares of its common stock for $189.1 million at an average price of $101.02 per share.

During fiscal 2021, the Company repurchased and retired 3.0 million shares for $299.3 million at an average price of $100.87 per share.

Fiscal 2022 year-to-date through February 24, 2022, the Company has repurchased and retired a total of 0.5 million shares for $49.2 million at an average price of $93.98 per share.

All shares were repurchased in open market transactions pursuant to applicable regulations for such transactions.

Dividends

In the fourth quarter of fiscal 2021, the Company paid a cash dividend of $0.60 per common share totaling $25.0 million.

In fiscal 2021, the Company paid quarterly cash dividends per common share of $0.40 in each of the second and third quarters and $0.60 in the fourth quarter, totaling $60.1 million.

Business Outlook

For fiscal 2022, the Company projects:

• Net sales increase of approximately 2% to 3%, with growth in all segments;
• Adjusted operating income increase of approximately 4% to 6% (compared to adjusted operating income of $500.8 million in fiscal 2021); and
• Adjusted diluted earnings per share increase of approximately 12% to 14% (compared to adjusted diluted earnings per share of $7.87 in fiscal 2021).

Our forecast for fiscal 2022 reflects:

• The strength of our merchandising and marketing initiatives;
• Better mix and level of inventories;
• Gradual improvement in supply chain performance;
• Improved price realization;
• Lower incentive compensation provisions;
• Lower interest expense; and
• The benefit of share repurchases.

For the first quarter of fiscal 2022, the Company projects:

• Net sales of approximately $740 million to $750 million;
• Adjusted operating income of approximately $85 million to $90 million (compared to $128.5 million in the first quarter of fiscal 2021); and
• Adjusted diluted earnings per share of approximately $1.25 to $1.35 (compared to adjusted diluted earnings per share of $1.98 in the first quarter of fiscal 2021).

Our forecast for the first quarter of fiscal 2022 reflects:

• Lower sales due to: the non-comping benefit of significant government stimulus in 2021, prior year store closures, Easter holiday demand shift into the second quarter, and lingering supply chain delays;
• Higher mix of off-price channel sales to clear late fall 2021 deliveries;
• Continued market recovery from COVID-19;
• Benefit from higher vaccination rates; and
• Continued progress improving price realization to mitigate impact of inflation.

For the first half of fiscal 2022, the Company projects:

• Net sales of approximately $1,550 million to $1,565 million;
• Adjusted operating income of approximately $195 million to $205 million (compared to adjusted operating income of $239.0 million in the first half of fiscal 2021); and
• Adjusted diluted earnings per share of approximately $3.05 to $3.25 (compared to adjusted diluted earnings per share of $3.64 in the first half of fiscal 2021).

For the five year period (fiscal years 2021 through 2026), the Company projects the following (expressed as compound annual growth rates):

• Net sales: low single-digit growth
• Adjusted operating income: mid single-digit growth
• Adjusted diluted earnings per share: high single-digit growth

We intend to redeem our 5.500% senior notes in the first quarter of fiscal 2022, subject to market conditions, using cash on hand. Redemption of the 5.500% senior notes will require payment of an early redemption premium, which along with transaction fees and unamortized debt issuance costs is estimated to result in a loss on extinguishment of debt of approximately $21 million in the first half of fiscal 2022. Our adjusted diluted earnings per share forecasts exclude this estimated charge. We also plan to evaluate a potential refinancing of our 5.625% senior notes in 2022, subject to market conditions, which may result in an additional charge related to loss on extinguishment of debt.

We have not reconciled forward-looking adjusted operating income or adjusted diluted earnings per share to their most directly comparable GAAP measures because we cannot predict with reasonable certainty the ultimate outcome of certain components of such reconciliations, including COVID-19 expenses, retail store operating leases and other long-lived asset impairments, net, restructuring costs, and early extinguishment of debt that are not within our control including due to factors described above, or others that may arise, without unreasonable effort. For these reasons, we are unable to assess the probable significance of the unavailable information, which could materially impact the amount of future operating income or diluted EPS, the most directly comparable GAAP metrics to adjusted operating income and adjusted diluted earnings per share, respectively.

Conference Call

The Company will hold a conference call with investors to discuss fourth quarter and fiscal 2021 results and its business outlook on February 25, 2022 at 8:30 a.m. Eastern Standard Time. To participate in the call, please dial 323-701-0160. To listen to a live broadcast via the internet and view the accompanying presentation materials, please visit ir.carters.com and select links for “News & Events” followed by “Webcasts & Presentations.” A replay of the call will be available shortly after the broadcast through March 27, 2022, at 888-203-1112 (U.S./Canada) or +1 719-457-0820 (international), passcode 8161933. The replay will also be archived online on the “Webcasts & Presentations” page noted above.

About Carter’s, Inc.

Carter’s, Inc. is the largest branded marketer in North America of apparel exclusively for babies and young children. The Company owns the Carter’s and OshKosh B’gosh brands, two of the most recognized brands in the marketplace. These brands are sold in leading department stores, national chains, and specialty retailers domestically and internationally. They are also sold through nearly 1,000 Company-operated stores in the United States, Canada, and Mexico and online at www.carters.com, www.oshkosh.com, www.cartersoshkosh.ca, and www.carters.com.mx. The Company’s Child of Mine brand is available at Walmart, its Just One You brand is available at Target, and its Simple Joys brand is available on Amazon. The Company also owns Skip Hop, a global lifestyle brand for families with young children. Carter’s is headquartered in Atlanta, Georgia. Additional information may be found at www.carters.com.

Forward Looking Statements

This press release contains forward-looking statements within the meaning of the federal securities laws relating to our future performance, including statements with respect to the potential effects of the COVID-19 pandemic, supply chain challenges and our responses thereto and the Company’s future outlook, financial results, and strategy. Such statements are based on current expectations only, and are subject to certain risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize or not materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. Certain of the risks and uncertainties that could cause actual results and performance to differ materially are described in the Company’s most recently filed Annual Report on Form 10-K and other reports filed with the Securities and Exchange Commission from time to time under the headings “Risk Factors.” Included among those risks are those related to: the effects of the current coronavirus outbreak; financial difficulties for one or more of our major customers; an overall decrease in consumer spending; our products not being accepted in the marketplace; increased competition in the marketplace; diminished value of our brands; the failure to protect our intellectual property; the failure to comply with applicable quality standards or regulations; unseasonable or extreme weather conditions; pending and threatened lawsuits; a breach of our information technology systems and the loss of personal data; increased margin pressures, including increased cost of materials and labor; our foreign sourcing arrangements; disruptions in our supply chain; the management and expansion of our business domestically and internationally; the acquisition and integration of other brands and businesses; and changes in our tax obligations, including additional customs, duties or tariffs. The Company does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.