Macroeconomic factors continue to weigh on families with young children and, consequently, demand for Carter’s Inc. brands, according to chairman and CEO Michael D. Casey, who also emphasized that the company is a believer in the “importance of stores.”
He said U.S. retail sales were better than planned. Casey also said investments of $40 million in lower prices and $10 million in additional brand marketing in the second half of the year helped to drive better in-store and online shopping experiences in the third quarter. In U.S. wholesale, sales to department stores and off-price retailers were lower than last year, although the company did benefit from consumers choosing one-stop shopping at Target, Walmart and Amazon. He said international sales were in-line with expectations.
“Our best-selling product offerings continue to be in our Baby Age segment. Baby apparel sales grew 2 percent in the quarter compared to last year and contributed over 50 percent of our total apparel sales. We saw slightly lower sales in the toddler age segment,” Casey told investors on the company’s conference call. “Collectively, or baby and toddler apparel sales contributed over 80 percent of our total apparel sales and were comparable to last year.”
He said apparel for 4-year to 10-year old children’s—largely playwear product offerings—saw a double-digit decrease in sales and represented less than 20 percent of the firm’s apparel sales. For the company’s good, better, and best mix, he said Carter’s saw a barbell-shaped trend in U.S. retail sales for the quarter, with low-single digit sales growth in its opening price point product categories.
“We had over 50 percent growth in our best product offerings, including our Little Planet, PurelySoft and Baby B’gosh collections,” Casey said. Sales of mid-tiered offerings were down over 10 percent.
“Shopping for holiday-related apparel trended later than last year. We believe consumers are shopping closer to need and buying what’s needed and only when needed,” the CEO said. “In recent weeks, thankfully, as weather turned cooler in more parts of the country, the trend in our holiday-related apparel has improved.”
And the $40 million in price reductions were on less than 20 percent of product offerings. Lower prices were largely for opening price point products that are typically basket starters, such as basic T-shirts, shorts and leggings,” Casey said.
He said Carter’s, as an apparel retailer, has average prices per piece at $6. The new competitive prices enabled U.S. retail unit volume to be comparable to last year, Casey said.
“We believe in the importance of stores as the very best expression of our brands. Nearly 70 percent of children’s apparel is purchased in stores, and our stores are the number one source of new customer acquisition,” Casey said, adding that stores also “drive our e-commerce sales.” The company said in November 2023 that plans to open 250 U.S. doors by 2027, a move expected to help grow sales by $250 million.
He explained that the company sees a lift in e-commerce sales when it opens new stores. “And when we close stores, we see e-commerce sales in the related market decrease. Increasingly, consumers enjoy the convenience of shopping online and picking up their purchase the same day in our stores,” Casey said.
He noted that Carter’s saw a 12 percent lift in omnichannel sales in the third quarter. Omnichannel sales include the store fulfillment of online purchases. Thirty-eight percent of digital orders were supported by its stores, up from 35 percent last year. The company opened 40 high margin stores this year in shopping centers, and closed 30 low-margin stores in declining traffic centers as leases expired. Casey also shared one significant datapoint: “Ninety-eight percent of our stores were cash flow positive over the past 12 months.”
Net income for the third quarter ended Sept. 28 fell 11.8 percent to $58.3 million, or $1.62 a diluted share, from $66.1 million, or $1.78. Net sales fell 4.2 percent to $758.5 million from $791.7 million. For U.S. retail, international and wholesale, the company said net sales fell 5.8 percent, 8.6 percent and 0.5 percent, respectively. U.S. retail comparable sales were down 7.1 percent.
On an adjusted basis, diluted earnings per share was $1.64, versus $1.84 a year ago. Wall Street was expecting adjusted diluted earnings per share (EPS) of $1.40 on revenue of $755.6 million.
For the nine months, net income fell 1.6 percent to $124 million, or $3.41 a diluted share, from $126 million, or $3.36. Net sales for the nine months fell 4.9 percent to $1.98 billion from $2.09 billion.
For the fourth quarter, Carter’s guided adjusted diluted EPS to the range of $1.32 to $1.72. It is projecting net sales at between $800 million to $840 million.
For the full year, the company guided adjusted diluted EPS in the range of $4.70 to $5.15.Net sales were forecasted at between $2.79 billion to $2.83 billion. It is also forecasting U.S. wholesale sales of over $1 billion for the year.
“The strength of our wholesale business continues to be in our exclusive brands sold to mass channel retailers. Carter’s has an unparalleled competitive advantage as the largest supplier of children’s apparel to target Walmart and the Amazon,” the CEO said. “Collectively, our unit volume to these retailers in the first nine months this year was up about 15 percent.”
Casey also said that its supply chain continues to be a “source of strength for the company in third quarter.” He said in the second quarter report that the supply chain team had negotiated lower product costs for the balance of the year. Overall, products costs were down 5 percent, and own 7 percent year-to-date. “Shipments to our wholesale customers in our stores were largely unchanged despite unrest in Bangladesh, a port strike on the East East, and rerouting of ships to avoid the Red Sea. We’re forecasting a low-single digit decrease in product costs in the fourth quarter,” Casey said.
With families still impacted by inflationary pressures and high interest rates, “[w]e believe that Carter’s advantages in inflationary markets include our focus on essential core products, a high mix of less discretionary baby apparel, [and] our broad and unparalleled market distribution capabilities,” Casey said.
Carter’s Inc. owns the Carter’s and OshKosh B’gosh brands, as well as Little Planet and Skip Hop. Its Child of Mine brand is available at Walmart, Just One You at Target and Simple Joys on Amazon.com.
