Carter's (CRI) Q4 2003 earnings summary

Executive summary

• FY2003 net sales reached a record $703.8 million, up 21.4% YoY; net income rose 20.9% to $23.3 million, and operating cash flow reached $40.5 million.

• Growth came from mass-channel expansion and stronger baby and playclothes sales; lower-margin channel mix and Costa Rica closure costs reduced gross margin.

• The October 2003 IPO funded substantial debt reduction; 2004 priorities include growing core categories, expanding retail productivity, and building mass-channel brand leadership.

Financial highlights

• FY2003 net sales were $703.826 million versus $579.547 million in FY2002; reported growth was 21.4%, with FY2003 comprising 53 weeks versus 52 weeks in FY2002.

• Gross profit rose 12.3% to $255.3 million, while gross margin fell to 36.3% from 39.2%, reflecting channel mix and ~$1.3 million accelerated depreciation from Costa Rica closures.

• Operating income increased to $74.6 million from $60.6 million; net income increased to $23.3 million from $19.3 million.

• Q4 FY2003 net sales were $185.7 million, operating income $19.1 million, net income $1.6 million, and diluted EPS $0.06.

• FY2003 operating cash flow was $40.5 million versus $27.3 million in FY2002; EBITDA was $87.4 million.

Outlook and guidance

• FY2004 planned capital expenditures are ~$25 million for distribution capacity, retail openings and remodeling, and wholesale customer fixtures.

• Plans call for 10 new retail stores annually over the next five years; average inventory is expected to rise in 2004 with forecast demand.

• Priorities for 2004 include gaining Baby and Sleepwear share, extending Playclothes strategy, improving branded-store productivity, and strengthening mass-channel leadership.

• Cash from operations, available cash, and revolver capacity were expected to cover debt service, capex, and working capital for the foreseeable future; refinancing some or all notes may be needed by 2011.