Carter’s Inc. Q4 2008 Earnings Call Transcript

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Carter’s Inc. (CRI)

Q4 2008 Earnings Call

February 25, 2009; 8:30 am ET

Executives

Mike Casey - Chief Executive Officer

Joe Pacifico - President

Jim Petty - President of Retail

Richard Westenberger - Chief Financial Officer

Analysts

Scott Krasik - CL King

Margaret Whitfield - Sterne Agee & Leach

Benjamin Rowbotham - Goldman Sachs

Jim Chartier - Monness, Crespi & Hardt

Omar Saad - Credit Suisse

Susan Sansbury - Miller Tabak

Tara Gary - RBC Capital Markets

John Curdy - Principle Global Investments

Presentation

Operator

Welcome to Carter’s fourth quarter earnings conference call. On the call today are Mike Casey, Chief Executive Officer; Joe Pacifico, President; Jim Petty, President of Retail; and Richard Westenberger, Chief Financial Officer. After today’s prepared remarks we will take questions as time allows, if you have any follow-up questions after today’s call, please direct them to Eric Martin, Vice President of Investor Relations. Mr. Martin’s direct telephone number is 404-745-2889; again that number is 404-745-2889.

Carter’s issued its fourth quarter earnings press release yesterday after the market closed. The text of the release appears on Carter’s website at www.carters.com under the press release section. Additionally presentation materials for today’s earnings conference can be accessed on the company’s website by clicking on the Investor Relations tab and choosing conference calls and webcasts on the left side of the screen.

Before we begin, let me remind you that statements made on this conference call and in the company’s press release, other than those concerning historical information, should be considered forward-looking statements and actual results may differ materially. For a detailed discussion of factors that could cause actual results to vary from those contained in the forward-looking statements, please refer to the company’s most recent Annual Report filed with the Securities and Exchange Commission.

Also on the call, the company will reference various non-GAAP financial measurements. A reconciliation of these non-GAAP financial measurements to the GAAP financial measurements is provided in the company’s earnings release.

Now I’d like to turn the call over to Mr. Casey. Please go ahead sir.

Mike Casey

Thank you very much. Good morning everybody. Thanks for joining us for our fourth quarter update. We prepared a brief presentation for you, which is available on the website. Before we walk you through that presentation, I’d like to share some thoughts on our business with you.

Despite an unusually weak market in 2008, Carter’s achieved a record level of sales, nearly $1.5 billion, with growth of 6%. Over the past eight weeks we met with most of our top customers and they told us that Carter’s and OshKosh stood out as some of the best performing brands in their stores. I asked one of our customers why she thought we were doing do so well. She said she believed that in uncertain times, consumers are drawn to the brands they know stand for quality.

Overall consumer confidence levels are down, but our results suggest that consumer’s confidence in our brands is strong. We feel as though our products provide exceptional value to the consumer, and in this environment there is no question, consumers are looking for the best value for their money. Nearly 80% of the products sold in our stores are sold for less than $10; it’s a very affordable purchase.

In 2008, we took steps to strengthen the competitiveness of our products. We introduced an everyday value component of our playwear offering, to more effectively compete with the private label brands. In our wholesale segment, we invested in new fixtures to increase sales productivity and we strengthened our branding on the floor. We also invested in our retail segment to enable continued door growth and more efficient store operations.

We are making very good progress with OshKosh B’Gosh. Its performance in the fourth quarter was very good. Our challenge now is to be consistently good, season after season, building on what the consumer is responding to and editing out less productive skews, achieving the milestones for progress that we outlined for you last summer and we’re setting new goals for the next phase of the OshKosh turnaround.

In 2008, we achieved an unprecedented level of liquidity, through excellent inventory hedge and disciplines. We believe we have the flexibility to maintain a very healthy cash position, which is a real advantage in this economy.

There is no question 2009 will be a tough market for retailers. In 2008, most of our customers reported negative comps and many are projecting negative comps this year. To help them, we will continue to strengthen our product offerings and our brand presentation on the floor. We’ll also invest in our own store model to extend the reach of the Carter’s brand. We’ll use 2009 to further strengthen the OshKosh model, which should enable a good store roll out plan beginning in 2010.

I’m disappointed in some missed opportunities for better earnings in 2008. The impact of retail store bankruptcies last year on our business was unprecedented. The Mervyn’s, Gottschalks , Boscov’s and Goody’s store bankruptcies cost us about $0.08 a share, $0.03 from receivable write-offs and the balance from excess inventory charges caused by canceling their orders.

Looking beyond this current period of uncertainty, we have a strong long-term outlook. We own two of the best known brands in young children’s apparel, known by generations of Americans for great value. We have the largest share of a $24 billion market and our share of that market has been growing. We are the largest supplier of young children’s apparel to the largest retailers in the country, and the fundamentals of our business continue to be strong.

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