Carter's (CRI) Q4 2005 earnings summary

Executive summary

• Acquired OshKosh on July 14, 2005, for $312.1 million, adding a recognized children’s apparel brand for sizes newborn to 16 and expanding wholesale and retail reach.

• FY2005 net sales rose 36.2% to $1.12 billion, including $199.8 million of OshKosh sales after acquisition; net income declined to $47.2 million.

• Integration plans centered on simplifying OshKosh products, closing unprofitable stores and sewing facilities, and applying Carter’s sourcing and retail practices.

Financial highlights

• FY2005 net sales were $1.121 billion, up 36.2%; gross profit increased 33.0% to $396.3 million, while gross margin fell to 35.3% from 36.2%.

• Operating income rose 20.0% to $121.2 million; net income was $47.2 million versus $49.7 million, and diluted EPS was $1.55 versus $1.66.

• Reported results included $13.9 million of acquired-inventory fair-value step-up amortization, $8.4 million of Carter’s facility closure charges, and $20.1 million of debt-extinguishment costs.

• Operating cash flow increased to $137.3 million from $42.7 million; cash at year-end was $84.3 million versus $33.3 million.

Outlook and guidance

• Planned FY2006 retail activity included 31 Carter’s openings and 10 closures, plus 14 OshKosh openings and 3 closures; three additional OshKosh store closures were planned.

• Expected FY2006 charges included ~$0.5 million of further Carter’s sewing-facility exit costs; OshKosh integration liabilities were expected to be paid during FY2006.

• SFAS 123R adoption beginning January 1, 2006, was estimated to reduce FY2006 net income by ~$3.0 million, or $0.10 per diluted share.

• Cash from operations, available cash, and the Revolver were expected to cover debt service, capital expenditures, and working capital for the foreseeable future, subject to demand and covenant compliance.