Carter's, Inc. (CRI)

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Carter’s, Inc. (CRI)

Q2 2008 Earnings Call

July 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

Ben Rockbottom - Goldman Sachs

Jim Chartier - Monness, Crespi & Hardt

Presentation

Operator

Welcome to Carter's second quarter earnings conference call. On today’s call are Mike Casey, Chief Financial Officer; Joe Pacifico, President and Jim Petty, President of Retail Stores. 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 is 404-745-2889.

Carter’s issued its second quarter earnings 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 this call the company will reference various non-GAAP financial measurements. A reconciliation of those non-GAAP financial measurements to the GAAP financial measurements is provided in the company’s earnings release. We would also like to remind you that today’s call is being recorded and now I would like to turn the call over to Mr. Casey. Please go ahead sir.

Michael Casey

Thank you very much. Good morning everybody. Thanks for joining us on our call. What we like to do is walk you through our results in a new format this morning. We have presentation that we hope gives you better understanding of our results and more importantly the opportunities we have to improve our performance, particularly with respect to the OshKosh segment.

So, for those of you are joining us online we’ll start on page two. Our sales for the second quarter were better than we expected. We have growth in all but one business segment. Our sales were up 5% driven primarily by the strength of our Carter’s retail stores, which grew its comp stores sales over 17%.

We continue to see a very significant return from the investments made over the past year upgrading our retail team and strengthening our product offering. Overall I would say we’re weathering a very challenging retail environment. With respect to earnings, on our call in April we had expected our earnings in the quarter would be about breakeven to a small loss. On a GAAP basis, our earnings were $0.05 per share including charges related to Fed Rowan’s retirement.

On an adjusted basis excluding those charges earnings were $0.10 a share. I would say at least $0.06 of the $0.10 we’re reporting is due to earlier than planned shipments and the timing of spending. Given the uncertainty in the economy and the fact that the most important part of our year is still ahead of us, I’d say it’s pretty mature to assume the $0.10 we picked up in the second quarter is upside to our previous estimates for the year.

We’ve made good progress controlling the growth of our inventories. On our last call we had expected inventories could be up as much as 20% at the end of June. That projected increase reflected our decision to bring in goods early to avoid disruption from the threatened West Coast dock strike. By bringing the goods in early, we were able to ship more in the second quarter than we planned; as a result inventories grew only 8% at the end of June. You should expect mid-single digit growth in inventories for the balance of the year.

Our cash flow continues to be very good. This will enable us to continue to make investments in our business including repurchasing our shares. Our outlook for the year is consistent with the guidance we shared with you on our last call. So we don’t believe the consumer feels any better about spending their money in the second half of this year than they did in the first half of this year.

We are fortunate to be doing business in the young children’s apparel which we feel is a less discretionary purchase. We believed this gives us an advantage in this tough retail period. As you know we serve a broad range of consumers at multiple retailers and in multiple channels. Wherever you’re shopping for young child you’d likely see the Carter’s or an OshKosh brand well presented on the floor offering significant value to the consumer.

On page three, you have our leadership team and you can see to the far right the numbers of years each of us have invested in Carter’s. I’m very fortunate to have this depth in talent to support me. For most of the past 16 years this team has delivered exceptional results for its investors. It’s not been the case over the past couple of years due largely for the lack of progress with the OshKosh acquisition.

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