Carter's (CRI) Q4 2010 earnings summary

Executive summary

• FY2010 net sales rose 10.0% to $1.749B; operating income increased 24.4% to $243.3M and net income rose 26.7% to $146.5M.

• Growth reflected gains across all reported segments, led by Carter’s wholesale and retail businesses; gross margin improved 50 bps to 38.5%.

Financial highlights

• Net sales were $1,749.3M vs. $1,589.7M; gross profit was $673.9M vs. $604.4M, and operating income was $243.3M vs. $195.6M.

• Net income was $146.5M vs. $115.6M; diluted EPS was $2.46 vs. $1.97.

• Net cash from operations fell to $85.8M from $188.9M, primarily reflecting working-capital changes, partly offset by higher earnings.

• Inventories increased to $298.5M from $214.0M, reflecting business growth, higher product costs, and longer lead times.

Outlook and guidance

• FY2011 product-cost inflation is expected to pressure profitability and operating cash flow; planned price increases are not expected to fully offset cost growth in the near term.

• FY2011 capital expenditures are planned at ~$50M, mainly for store openings, remodels, and information technology.

• FY2011 store plans: open ~55 and close four Carter’s stores; open ~four and close three OshKosh stores.

• Available liquidity, operating cash flow, and revolver capacity are expected to cover working-capital and capital-expenditure needs for the foreseeable future, subject to risks.