Carter's (CRI) Q4 2006 earnings summary

Executive summary

• FY06 net sales rose 19.8% to $1.343B; operating income increased 36.2% to $165.1M and net income to $87.2M, with OshKosh included for the full year versus part of FY05.

• Q4 FY06 net sales were $377.5M, operating income $49.9M, net income $27.4M, and diluted EPS $0.45.

Financial highlights

• Gross profit rose 23.3% to $488.5M; gross margin improved to 36.4% from 35.3%, partly reflecting FY05 OshKosh inventory step-up amortization of $13.9M and $1.6M of accelerated depreciation.

• SG&A increased 22.1% to $352.5M; as a share of sales it rose to 26.2% from 25.7%, including $3.9M incremental stock compensation expense from SFAS 123R adoption.

• Royalty income grew 42.8% to $29.2M; operating income reached $165.1M, up 36.2%, while net income rose to $87.2M from $47.2M.

• Basic and diluted EPS were $1.50 and $1.42, respectively, versus $0.82 and $0.78 in FY05; FY06 results included a $2.4M, or $0.04/share, net-income reduction from SFAS 123R.

• Operating cash flow was $88.2M, down from $137.3M; capex was $30.8M, and cash at year-end was $68.5M.

Outlook and guidance

• FY07 capex plan: $35M–$40M; planned openings include 10 Carter's retail stores and five OshKosh retail stores.

• Cash from operations, available cash, and Revolver availability were expected to cover foreseeable debt service, capex, and working-capital needs, subject to operating performance and covenant compliance.

• SFAS 123R was expected to reduce FY07 net income by $2.8M, or $0.05 per basic share and $0.04 per diluted share.