Carter's, Inc. (CRI)

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Carter's (CRI)

Q4 2012 Earnings Call

February 27, 2013 8:30 am ET

Executives

Michael D. Casey - Chairman and Chief Executive Officer

Richard F. Westenberger - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Brian J. Lynch - President

Analysts

Susan K. Anderson - Citigroup Inc, Research Division

Susan R. Sansbury - Miller Tabak + Co., LLC, Research Division

Courtney Willson - RBC Capital Markets, LLC, Research Division

Anna A. Andreeva - FBR Capital Markets & Co., Research Division

James Andrew Chartier - Monness, Crespi, Hardt & Co., Inc., Research Division

Gerrick L. Johnson - BMO Capital Markets U.S.

Presentation

Operator

Good day, everyone, and welcome to Carter's Fourth Quarter and Fiscal 2012 Earnings Conference Call. On the call today are Michael Casey, Chairman and Chief Executive Officer; Richard Westenberger, Executive Vice President and Chief Financial Officer; Brian Lynch, President; and Sean McHugh, Vice President of Investor Relations and Treasury. [Operator Instructions]

Carter's issued its fourth quarter and fiscal 2012 earnings press release today before the market opened. A copy of the release and additional presentation materials for today's earnings conference call can be -- have been posted on the company's website at www.carters.com. Click on the Investor Relations section, then News & Events 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 this 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. Also, today's call is being recorded.

And now your host for today's call, Mr. Casey. Please go ahead, sir.

Michael D. Casey

Thanks very much. Good morning, everyone. Thanks for joining us on the call. Before we walk you through the presentation on our website, I'd like to share some thoughts on our business with you. We had a very strong finish to the year with fourth quarter sales up 14%, adjusted earnings per share up 41%.

For the year, we achieved a record level of sales and profitability. It was our 24th consecutive year of sales growth. We increased our U.S. market share to 16.5%, nearly twice the share of our nearest competitor. We generated about $200 million in free cash flow, and shareholder value increased 40% last year.

Sales growth in the fourth quarter was driven by our Carter's and international segments. Profits in the quarter grew in all business segments, Carter's and OshKosh, and reflect the strength of our product offerings, success of our growth initiatives and lower product costs.

Our Carter's business segments provided the largest contribution to our growth in the fourth quarter with solid growth in all 3 channels of distribution, retail, eCommerce and wholesale.

Our Carter's retail stores had strong comps for the quarter and the year, and our new stores achieved their growth objectives. We've built a very profitable store model for our Carter's brand. We plan to open 60 stores a year over the next 5 years, which should enable us to grow this component of our business by 10% a year on average during that time frame. We're pleased with the effectiveness of our marketing efforts in the fourth quarter, especially the national brand campaign Count on Carter's, which aired early November through Christmas. The campaign was beautifully executed, and we believe drove a meaningful lift in sales. You should see more of the Count on Carter's brand marketing in 2013.

Our analysis suggest it favorably impacted the consumer's perception of the Carter's brand at all age ranges, particularly the older segment of our 0-to-7, birth-to-bus target market.

Carter's eCommerce sales nearly doubled in the fourth quarter and grew to 18% of our store sales compared to 11% in the fourth quarter last year. The consumer clearly loves the convenience of shopping for our brands online. We expect our eCommerce sales to grow to nearly $200 million this year, and believe eCommerce sales can double to over $300 million within the next 5 years.

We met with our largest wholesale customers in January to review our performance with them through the holidays, and we reviewed our joint business plans for 2013. Their feedback suggest we helped deliver good performance for them last year. We now have visibility into the second half of 2013 with fall bookings, and we expect -- which we expect will support good growth in Carter's wholesale sales this year.

The second-largest contributor to our sales growth in the fourth quarter was our international segment. The growth was driven largely by our Canadian operations. The sales contribution from Canada nearly doubled last year, reflecting the full year benefit from this acquisition in 2011. We expect our sales from Canada to more than double over the next 5 years. We expect this growth will be driven by thoughtful door growth, about 20 cobranded stores a year, and by extending the reach of our brands through our global wholesale partners.

We recently began shipping to Target Canada. We hope to replicate the success we've enjoyed with Target here in the United States with our Just One You, Precious Firsts and Genuine Kids brands designed exclusively for Target's guests, and we are preparing to launch our Child of Mine brand with Walmart Canada in spring 2014.

Read the rest of this transcript for free on seekingalpha.com