Carter's, Inc. (CRI)

CRI 
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Industry: Consumer Non-Durables
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Carters Inc. (CRI)

Q1 2008 Earnings Call

April 23, 2008 8:30 am ET

Executives

Frederick Rowan, II - Chairman of the Board & Chief Executive Officer

Joseph Pacifico - President

Michael Casey - Chief Financial Officer & Executive Vice President.

Eric Martin - Vice President of Investor Relations

Analysts

Omar Saad – Credit Suisse

Brad Stephens - Morgan Keegan

Margaret Whitfield - Sterne Agee

Jim Chartier – Monness, Crespi, Hardt & Co., Inc

Robert Kaynor - Ramius Capital

Presentation

Operator

Welcome to Carter's first quarter earnings conference call. On the call today are Fred Rowan, Chief Executive Officer; Joe Pacifico, President and Mike Casey, 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 first quarter earnings press release yesterday after the market closed. The text of the release appears at Carter’s website at www.Carters.com under the press release section. 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.

And now, I would like to turn the call over to Mr. Rowan. Please go ahead sir.

Frederick Rowan, II

Good morning everyone and welcome to our call. It’s no surprise this remains an uncertain period. No one knows the depth of this recession, nor the timing of the recovery. Given that it makes it very difficult to gab market with any certainty. That dictates two things from us; one the very conservative which we are and two focus on what we have control of, which we are. Parts of our business units are performing quite well. A couple are having emerging successes. We are not pessimistic but we are realistic and determined. We have a clear focused and disciplined strategic agenda with muscle behind each of our major initiatives.

We are committed to long-term quality growth, but we have to be sensible as we work through these headwinds. We have, however made materially -- strengthened our business through the new business models. You will hear this from Joe and Mike as we move through the models and more specifically about that and also during the questioning-and-answering period.

To summarize our strategic agenda it goes as follows. The first is be certain we have and keep the core talent to execute the turnaround and position this company for long-term growth; secondly, to be the absolute leader at product value; third, to optimize both wholesale and the retail growth to powerful business models; fourth, to accelerate the turnaround of OshKosh; fifth, to make these key investments, both short and long-term and finally, substantially reduce our cost structure. I will turn the session now over to Joe Pacifico.

Joseph Pacifico

Thank you, Fred. Good morning. I will give you a brief overview of our first quarter performance and then Mike will provide additional details on our results. I will also share with you our strategic initiatives that we will begin implementing this fall. I will start with a quick overview of the Carter's brand and wholesale business. We had a good quarter in this segment with positive sales growth. Our over-the-counter selling of spring product was flat to last year and our top accounts in total saw a slight improvement in margin. The inventories are higher than last year at the end of the quarter but are at the appropriate level to support the second quarter retail sales brand, which is higher this year due to the calendar shift.

As expected OshKosh wholesales were down in the quarter. In regards to over the counter selling, unit sales improved significantly. Our customer margins were up slightly to last year. Customer inventories are inline with plan and it should be cleaner at the end of second quarter than they were last year. Summer selling is off to a very good start. As we have told you before while spring was much improved as reflected in over the counter selling results, summer should be stronger and our goal is to build upon each subsequent line. Based on this product performance, we are rebuilding confidence with our accounts and we expect to see this reflected in our year-over-year bookings.

I would like -- we would now like to focus on our strategic initiatives. I want to make sure you have a core understanding of the model that will kick off starting in fall ‘08. For the wholesale channel, we are implementing a far more competitive model. The model is stock-based and is supported by extensive research. There are five key components to the model. The first component is product leadership. Our strategy is to drive high velocity, essential core products. To be the market leader in color and art and to that end, we have and we will continue to increase our designs skills. At Carter's, we strengthen our creative department with a VP of Design. We have increased the number of our full-time artist, and have expanded our freelance network and it’s internal programs.

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