Carter's (CRI) Earnings & Revenues Miss Estimates in Q3

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Carter's Inc . CRI posted third-quarter 2018 results, wherein both the top and bottom lines missed the respective Zacks Consensus Estimate. Results were negatively impacted by lower-than-expected demand for fall transitional products, especially during the Labor Day holiday season. However, the company witnessed sales improvement in the latter half of September, which was in-line with its expectations.

Q3 Highlights

Carter's third-quarter 2018 earnings per share of $1.61 declined 5.4% year over year. Moreover, the bottom line lagged the Zacks Consensus Estimate of $1.69.

Net sales declined 2.5% to $923.9 million, missing the Zacks Consensus Estimate of $941 million. Soft sales can be attributed to decline in the U.S. Wholesale segment, with significant losses from Toys "R" Us and Bon-Ton. However, sales growth in the U.S. Retail and International segments partly offset the top line decline. Sales grew 2.1% on a constant-currency basis. Foreign currency negatively impacted the top line by $4.1 million or 0.4%.

We note that shares of this Zacks Rank #3 (Hold) stock has lost 11% in the past three months, underperforming the industry 's decline of 8.6%.

Segment Revenues

U.S. Retail segment sales inched up 1.2% year over year to $459.1 million, backed by comparable sales (comps) growth of 0.5%. The increase in comps is mainly attributed to solid e-commerce growth.

U.S. Wholesale segment saw sales decline of 8.3% to $339 million, mainly due to fall in shipments on account of loss of sales to Toys "R" Us and Bon-Ton.

The International segment reported revenue gains of 1% to $125.8 million in the third quarter due to acquired licensee business in Mexico and robust demand in markets outside of North America. This was partly offset by fall in demand across China and unfavorable impact of foreign currency. Currency-neutral revenues for the segment rose 4.2%.

Carter's, Inc. Price, Consensus and EPS Surprise

Carter's, Inc. Price, Consensus and EPS Surprise | Carter's, Inc. Quote


Gross profit decreased 4% to $387.5 million, while gross margin contracted 70 basis points (bps) to 41.9%.

Adjusted operating income declined 18.2% to $107.1 million. Adjusted operating margin contracted 220 bps to 11.6%, owing to higher retail and marketing investments as well as elevated distribution costs.

Balance Sheet & Shareholder-Friendly Moves

Carter's ended third-quarter 2018 with cash and cash equivalents of $123.9 million, long-term debt of $798 million and shareholders' equity of $811.2 million. Inventories as of Sep 30, 2018, grew 13.6% to $693 million.

The company generated $21.4 million in operating cash flow in the first nine months of 2018.

In the third quarter, Carter's returned nearly $77.2 million to shareholders, including $20.8 million in dividends and $56.4 million through share buyback. During the quarter, the company bought back 543,793 shares at an average price of $103.72 per share. The company also paid a dividend of 45 cents per share. As of Oct 24, 2018, the company had $418 million remaining under its current share repurchase program.


For fourth-quarter 2018, Carter's expects net sales to grow 5% compared with the fourth quarter of 2017. Adjusted earnings per share are also anticipated to rise 10% from the prior-year quarter earnings of $2.33. Results for the fourth quarter assume a partial recovery of lost sales that were initially planned for Toys "R" Us and Bon-Ton.

Carter's anticipates growth of 1.5% for net sales and about 5% for adjusted earnings per share in 2018.

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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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