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Skip Hop boosts Carter's Q3, per share earning rise 5.8 percent


Carter’s third quarter net sales increased 46.8 million dollars or 5.2 percent to 948.2 million dollars, driven by growth in the company’s US retail segment and the benefit of Skip Hop, which was acquired by the company in February 2017. Net income in the third quarter increased 1.7 million dollars or 2.1 percent to 82.5 million dollars or 1.71 dollars per diluted share. Adjusted net income increased 1 million dollars or 1.3 percent to 82.2 million dollars, while adjusted earnings per diluted share increased 5.8 percent to 1.70 dollars.

“We achieved our third quarter sales and earnings objectives, despite the significant impact of hurricanes in Texas, Florida, and Puerto Rico,” said Michael D. Casey, the company’s Chairman and CEO in a statement, adding, “Our growth was led by our US retail and international businesses, including the contribution of our Skip Hop brand which we acquired earlier this year.”

Carter’s announces acquisition of licensee in Mexico

On August 1, 2017, the company acquired its licensee in Mexico. The licensee’s 2016 net sales, from wholesale and retail store operations, were approximately 525 million dollars Mexican Pesos, or approximately 28 million dollars at the current exchange rate.

“The acquisition of our licensee in Mexico is an investment which we believe will strengthen our leading market position in North America. Given the strength of our fall and holiday product offerings, together with the contribution of our new opportunities with Skip Hop, Amazon, China, and Mexico, we believe we are on track to achieve our growth objectives this year, our 29th consecutive year of sales growth,” added Casey.

Review of the third quarter performance

The company added that Skip Hop, a global lifestyle brand for families with young children, and the recently-acquired business in Mexico contributed 27.9 million dollars and 4.5 million dollars, to the total revenues respectively. Changes in foreign currency exchange rates in the third quarter favourably affected consolidated net sales by 3.3 million dollars or 0.4 percent, while on a constant currency basis, consolidated net sales increased 4.8 percent.

Operating income in the quarter decreased 0.2 million dollars or 0.1 percent to 130.7 million dollars compared to 130.9 million dollars in the third quarter of fiscal 2016. Operating margin decreased 70 basis points to 13.8 percent compared to 14.5 percent in the same quarter of fiscal 2016. Adjusted operating income decreased 0.2 million dollars or 0.2 percent to 131.2 million dollars. Adjusted operating margin decreased 80 basis points to 13.8 percent.

Net sales for the first three quarters, increased 108.1 million dollars or 4.8 percent to 2.37 billion dollars driven by growth in the company’s US retail segment and the benefit of the Skip Hop acquisition. The Skip Hop and Mexico acquisitions contributed 63.3 million dollars and 4.5 million dollars, respectively, to consolidated net sales growth in the first three quarters of fiscal 2017. Changes in foreign currency exchange rates favourably affected consolidated net sales by 2.1 million dollars or 0.1 percent. On a constant currency basis, consolidated net sales increased 4.7 percent.

Operating income decreased 13.3 million dollars or 4.6 percent to 273.8 million dollars, while operating margin decreased 120 basis points to 11.5 percent. Adjusted operating income decreased 12 million dollars or 4.1 percent to 277.4 million dollars and adjusted operating margin decreased 110 basis points to 11.7 percent. Net income decreased 3.9 million dollars or 2.3 percent to 167.1 million dollars or 3.43 dollars per diluted share. Adjusted net income decreased 3.7 million dollars or 2.1 percent to 168.7 million dollars. Adjusted earnings per diluted share increased 2.7 percent to 3.46 dollars.

In the third quarter and the first three fiscal quarters of fiscal 2017, the company believes that US retail segment comparable sales were negatively affected by hurricanes in Texas, the Southeast, and Puerto Rico, as well as abnormally warm weather throughout much of the United States during the third quarter of fiscal 2017.

Carter’s results across segments

US retail segment sales increased 32.3 million dollars or 7.7 percent to 454 million dollars, while comparable sales increased 2.6 percent, comprised of comparable ecommerce sales growth of 20.9 percent, partially offset by a comparable stores sales decline of 3.2 percent. Skip Hop contributed 1.8 million dollars to segment net sales in the third quarter of fiscal 2017. In the third quarter, the company opened 12 stores and closed one store in the United States.

In the first three quarters, US retail segment sales increased 81.1 million dollars or 7.2 percent to 1.21 billion dollars and comparable sales increased 1.7 percent, comprised of comparable ecommerce sales growth of 22.5 percent, partially offset by a comparable stores sales decline of 4.3 percent. Skip Hop contributed 3 million dollars to segment net sales. In the first three quarters, the company opened 38 stores and closed nine stores in the United States.

As of the end of the third quarter, the company operated 821 retail stores in the United States, comprised of 608 single brand and 213 dual-brand stores.

US wholesale segment net sales in the third quarter decreased 4.2 million dollars or 1.1 percent to 369.6 million dollars, reflecting a decrease in demand for Carter’s and OshKosh products, partially offset by the benefit of the Skip Hop acquisition. Skip Hop contributed 16.3 million dollars to segment net sales in the third quarter of fiscal 2017. In the first three quarters, US wholesale segment net sales decreased 1.1 million dollars or 0.1 percent to 879.8 million dollars. Skip Hop contributed 38.1 million dollars to segment net sales in the first three quarters of fiscal 2017.

International segment Q3 net sales increase 17.6 percent

International segment net sales increased 18.6 million dollars or 17.6 percent to 124.6 million dollars, reflecting the benefits of the Skip Hop and Mexico acquisitions and growth in Canada and China, partially offset by decreased wholesale demand in other markets outside of the US. The Skip Hop and Mexico acquisitions contributed 9.9 million dollars and 4.5 million dollars, respectively, to segment net sales growth in the third quarter of fiscal 2017.

Changes in foreign currency exchange rates favourably affected international segment net sales by 3.3 million dollars or 3.1 percent. On a constant currency basis, international segment net sales increased 14.5 percent. Canada retail comparable sales increased 0.7 percent, comprised of comparable ecommerce sales growth of 60.7 percent, mostly offset by a comparable stores sales decline of 3.9 percent. In the third quarter of fiscal 2017, the company opened four stores in Canada.

International segment net sales increased 28.1 million dollars or 11 percent to 283.6 million dollars in the first three quarters, reflecting the benefits of the Skip Hop and Mexico acquisitions and growth in Canada and China, partially offset by decreased wholesale demand in other markets outside of the US. The Skip Hop and Mexico acquisitions contributed 22.2 million dollars and 4.5 million dollars, respectively, to segment net sales growth in the first three quarters.

Changes in foreign currency exchange rates favourably affected international segment net sales by 2.1 million dollars or 0.8 percent. On a constant currency basis, international segment net sales increased 10.2 percent. For the first three quarters, Canada retail comparable sales increased 0.3 percent, comprised of comparable ecommerce sales growth of 50.4 percent, offset by a comparable stores sales decline of 3.3 percent. The company opened 10 stores and closed two stores in Canada during the period. As of the end of the third quarter, the company operated 172 retail stores in Canada and 40 retail stores in Mexico.

FY17 net sales expected to rise 6 percent

For fiscal 2017, the company projects net sales to increase approximately 6 percent compared to fiscal 2016 and adjusted earnings per diluted share to increase approximately 9 percent compared to 5.14 dollars in fiscal 2016.

For the fourth quarter, the company projects net sales to increase approximately 10 percent and adjusted earnings per diluted share to increase approximately 21 percent compared to 1.79 dollars in the fourth quarter of fiscal 2016.


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