Carter's (CRI) Q4 2007 earnings summary

Executive summary

• FY07 sales rose 5.1% to $1.412B, but net loss was $70.6M, including a $154.9M OshKosh intangible impairment; the business ended the year focused on restoring OshKosh competitiveness and strengthening retail execution.

• Carter's remained the leading U.S. branded baby and young children's apparel marketer, with 7.4% share; OshKosh held 2.7% share.

Financial highlights

• Net sales increased $68.8M YoY to $1,412.2M; gross profit declined $5.2M to $483.3M.

• Operating loss was $6.0M versus operating income of $165.1M in FY06; net loss was $70.6M versus net income of $87.2M.

• Excluding the $154.9M OshKosh impairment and $7.4M distribution-center closure costs, reported earnings were materially affected by these one-time charges.

• Operating cash flow was $52.0M, down from $88.2M, primarily due to increased inventory; inventory rose to $225.5M from $193.6M.

Outlook and guidance

• FY08 outlook was cautious amid weakening consumer demand; wholesale customers expected growth below prior plans, while mass-channel sales were expected to grow at a low-single-digit rate.

• FY08 Carter's retail plan: open 25 stores and close five; OshKosh plan: open five and close three.

• FY08 capital expenditures were planned at approximately $50M, mainly for store openings and a new retail point-of-sale system.

• Fall 2008 Carter's product refresh, threshold-based pricing changes, and expanded newborn-to-24-month wholesale fixtures were planned to improve competitiveness; fixture tests showed early gains versus non-fixtured stores.