Carter’s Q2 net sales rise on Skip Hop acquisition

Carter’s second quarter net sales increased 52.6 million dollars or 8.2 percent to 692.1 million dollars, driven by growth in the company’s US retail segment, and the benefit of Skip Hop, a global lifestyle brand for families with young children acquired by the company in February 2017. Net sales increased 61.3 million dollars or 4.5 percent to 1.42 billion dollars in the first half, driven by growth in the company’s US retail segment and the benefit of the Skip Hop acquisition.

“We achieved good growth in sales and earnings in our second quarter,” said Michael D. Casey, the company’s Chairman and CEO in a media release, adding, “Our growth was driven by our retail and international businesses, and the contribution from our Skip Hop brand which was acquired earlier this year. Given the strength of our fall and holiday product offerings, we’re forecasting good growth in the second half and expect to achieve our growth objectives this year.”

Financial review of the Q2

The company said, Skip Hop contributed 25 million dollars to consolidated net sales in the second quarter but changes in foreign currency exchange rates adversely affected consolidated net sales by 2.6 million dollars or 0.4 percent. On a constant currency basis, consolidated net sales increased 8.6 percent.

Operating income increased 1.3 million dollars or 2 percent to 64.5 million dollars, compared to 63.2 million dollars in the second quarter of fiscal 2016. Operating margin decreased 60 basis points to 9.3 percent, while adjusted operating income increased 1.5 million dollars or 2.3 percent to 65.5 million dollars, compared to 64 million dollars in the second quarter of fiscal 2016. Adjusted operating margin decreased 50 basis points to 9.5 percent.

Net income increased 1.7 million dollars or 4.8 percent to 37.9 million dollars or 0.78 dollar per diluted share, , while adjusted net income increased 1.9 million dollars or 5.1 percent to 38.6 million dollars. Adjusted earnings per diluted share increased 9.9 percent to 0.79 dollar, compared to 0.72 dollar in the second quarter of fiscal 2016.

Highlights of the first of performance

Carter’s said, Skip Hop contributed 35.4 million dollars to consolidated net sales in the first half of fiscal 2017. Operating income decreased 13.2 million dollars or 8.4 percent to 143.1 million dollars and operating margin decreased 150 basis points to 10.0 percent. Adjusted operating income decreased 12.4 million dollars or 7.8 percent to 145.6 million dollars and adjusted operating margin decreased 140 basis points to 10.2 percent.

Net income in the first half decreased 5.6 million dollars or 6.2 percent to 84.6 million dollars or 1.73 dollars per diluted share, while adjusted net income decreased 5.1 million dollars or 5.6 percent to 86.2 million dollars. Adjusted earnings per diluted share decreased 0.5 percent to 1.76 dollars.

Business segment report positive sales growth

US retail segment sales increased 39 million dollars or 11.1 percent in the second quarter to 391.8 million dollars, while comparable sales increased 6 percent, which comprised comparable stores sales growth of 0.4 percent and comparable ecommerce sales growth of 27.6 percent. Skip Hop contributed 0.9 million dollars to segment net sales in the second quarter of fiscal 2017. In the second quarter, the company opened 11 stores and closed three stores in the United States.

In the first half, US retail segment sales increased 48.7 million dollars or 6.9 percent to 755.6 million dollars, while comparable sales increased 1.1 percent, comprised of ecommerce comparable sales growth of 23.5 percent, partially offset by a stores comparable sales decline of 5 percent. Skip Hop contributed 1.2 million dollars to segment net sales in the first half of fiscal 2017. In the first half, the company opened 26 stores and closed eight stores in the United States.

As of the end of the second quarter, the company operated 810 retail stores in the United States, comprised of 621 stand-alone and 189 dual-branded stores.

US wholesale segment net sales in the second quarter increased 2.6 million dollars or 1.2 percent to 217.7 million dollars, reflecting the benefit of the Skip Hop acquisition, partially offset by a decrease in demand for Carter’s and OshKosh products. Skip Hop contributed 15.1 million dollars to segment net sales in the second quarter of fiscal 2017.

In the first half, US wholesale segment net sales increased 3.1 million dollars or 0.6 percent to 510.3 million dollars. Skip Hop contributed 21.9 million dollars to segment net sales in the first half of fiscal 2017.

International segment net sales increased 11 million dollars or 15.4 percent to 82.6 million dollars, reflecting the benefit of the Skip Hop acquisition and growth in Canada and China, partially offset by decreased wholesale demand in other markets outside of the US. Skip Hop contributed 9.1 million dollars to segment net sales in the second quarter. Changes in foreign currency exchange rates adversely affected international segment net sales by 2.6 million dollars or 3.6 percent. On a constant currency basis, international segment net sales increased 19percent.

For the second quarter, Canada retail comparable sales increased 8.2 percent, comprised of a stores comparable sales increase of 5.9 percent and ecommerce comparable sales growth of 46.8 percent. In the second quarter, the company opened six stores and closed one store in Canada.

International segment net sales in the first half increased 9.5 million dollars or 6.4 percent to 159 million dollars. Skip Hop contributed 12.3 million dollars to segment net sales in the first half. Changes in foreign currency exchange adversely affected international segment net sales by 1.2 million dollars or 0.8 percent. On a constant currency basis, international segment net sales increased 7.1 percent.

For the first half, Canada retail comparable sales increased 0.1percent, comprised of ecommerce comparable sales growth of 43.1percent, offset by a stores comparable sales decline of 2.9 percent. The company opened six stores and closed two stores in Canada during the period. As of the end of the second quarter, Carter’s operated 168 retail stores in Canada.

Dividend and outlook

During the second quarter, the company paid a cash dividend of 0.37 dollar per share totalling 17.8 million dollars, while in the first half, it paid cash dividends of 0.74 dollar per share totalling 35.8 million dollars.

For fiscal 2017, the company projects net sales to increase approximately 4 percent to 6 percent compared to fiscal 2016 and adjusted earnings per diluted share to increase approximately 8 percent to 10 percent compared to adjusted earnings per diluted share of 5.14 dollars in fiscal 2016.

For the third quarter, the company projects net sales to increase approximately 5 percent and adjusted earnings per diluted share to be approximately comparable to adjusted earnings per diluted share of 1.61 dollars in the third quarter of fiscal 2016.

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