Carter's Beats on EPS, Misses Rev - Analyst Blog

Carter's Inc. ( CRI ) - one of the leading retailers of attires, especially for kids and young children, in the United States - recently announced its financial results for the third quarter of fiscal 2012.

The company's quarterly adjusted earnings of $1.02 per share handily surpassed the Zacks Consensus Estimate of 90 cents and jumped 52.2% from 67 cents earned in the prior-year quarter. The increase in earnings was driven by growth in top line along with substantial improvement in margins.

On a GAAP basis, earnings came in at 99 cents per share for the quarter compared with 58 cents earned in the last-year quarter. These figures included acquisition costs as well as facility closure-related costs.

Quarter in Detail

Revenue grew 4.5% year over year to $668.7 million from $639.6 million. The year-over-year growth was witnessed mainly due to increased sales in international market and in the domestic sales of the company's Carter brand, which was partially offset by slight fall in domestic sales of the company's OshKosh B'gosh brand. However, revenue for the quarter missed the Zacks Consensus Estimate of $683 million.

The year-over-year increase in earnings and sales were mainly attributable to a rise in e-commerce business, increased sales in international market along with improvement in input costs. Further, management is of the view that the customers are appreciating the company's style as well as value, and with a move to grow further, the company will invest aggressively to grab growth opportunities.

Adjusted gross profit increased 36.3% to $270.1 million from $198.1 million in the year-ago quarter primarily due to lower cost of goods sold. Consequently, gross profit margin expanded 940 basis points year over year to 40.4% from 31.0%.

Increased gross profit along with a decline in cost of goods sold led to a significant increase of 52.5% in adjusted operating income to $97.3 million from the prior-year level of $63.8 million. Consequently, operating margin expanded 460 basis points to 14.6% compared with the third quarter of 2011.

Segment Performance

Carter's Segments: This segment witnessed an increase of 17.8% in revenue to $217.3 million, reflecting robust growth through e-commerce sales and from new store openings. The sales growth also benefited from a 2.7% rise in comparable-store sales for the quarter, partially offset by dip in sales due to store closures. During the quarter, the company opened 15 Carter's retail outlets and shuttered 2 stores, bringing the total to 398 Carter retail stores in the United States at the end of the quarter.

Carter's wholesale segment sales dropped 4.6% to $275.6 million, mainly due to fall in off-price channel sales.

OshKosh B'gosh Segments: Revenue in this segment fell 3.0% compared to the third quarter of 2011 to $78.1 million due to a 4.3% decline in comparable-store sales and store closures partially offset by marginal growth in e-commerce business and new store openings. During the quarter, 2 Oshkosh retail stores were opened and 1 was shut down, bringing the total to 167 Oshkosh retail stores in United States at the end of the quarter.

Oshkosh wholesale segment sales increased 6.8% to $28.3 million compared with the prior year quarter.

International Segment: Sales increased substantially by 16.9% to $69.4 million versus the year ago quarter, driven by growth in retail sales and wholesale business. During the quarter, Carter opened 6 retail stores in Canada resulting in total count of 79 stores at the end of the quarter.

Other Financial Aspects

As of September 29, 2012, cash and cash equivalents came in at $254.3 million compared with $81.6 million at the comparable prior-year period. Long-term debt at the end of the quarter was $186 million, down from $236 million in the year-ago period. Shareholders' equity came in at $933.4 million at the end of the quarter.

Strolling through Guidance

Buoyed by strong performance in the third quarter, company provided its outlook for the fourth quarter as well as for fiscal 2012. The company expects consolidated net revenue to grow by about 10% compared with the fourth quarter of 2011. Adjusted earnings are anticipated to come at 81 cents per share that remains in sync with the Zacks Consensus Estimate.

For fiscal 2012, the company forecasted an increase of about 12% in net consolidated revenue compared with the prior year. Adjusted earnings are expected to come in at $2.77 per share, which remains in line with the Zacks Consensus Estimate.

Zacks #1 Rank

Carter, which competes with Gap Inc. ( GPS ), carries a Zacks #1 Rank, implying short-term Strong Buy rating on the stock for the next 1-3 months, based on positive earnings surprise over the last four quarters.

CARTERS INC (CRI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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