Carter's (CRI) Q4 2012 earnings summary

Executive summary

• FY12 net sales rose 12.9% to $2.382B; operating income increased 39.8% to $262.0M and net income rose 41.3% to $161.2M.

• Q4 FY12 net sales were $689.3M, operating income $78.4M, net income $48.7M, and diluted EPS $0.81.

Financial highlights

• Gross profit increased 35.5% to $937.9M; gross margin expanded to 39.4% from 32.8%, helped by higher prices, lower product costs, direct-to-consumer mix, and no acquisition inventory step-up.

• SG&A rose 31.6% to $713.2M; drivers included higher performance compensation, Canadian retail costs, eCommerce expenses, marketing, and $9.5M in facility-related charges.

• Net income was $161.2M versus $114.0M; diluted EPS was $2.69 versus $1.94.

• Operating cash flow increased to $278.6M from $81.1M; capital expenditures were $83.4M versus $45.5M.

Outlook and guidance

• FY13 capital expenditures planned at ~$200M, primarily for store openings and remodels, Braselton distribution capacity, and the Atlanta headquarters.

• FY13 planned openings/closures: Carter's 60/5 U.S. stores, OshKosh 15/4 U.S. stores, and Canada 20/1 stores.

• FY13 product costs expected to decline from FY12 but remain above historic levels; liquidity expected to cover working capital and capital spending needs.

• FY13 expected closure costs: $2.2M for Hogansville and $32M–$36M for the Shelton-to-Atlanta consolidation; completion expected by year-end.